I think that the main purpose of education is to impart
knowledge and comprehension ability so that human beings will
be able to understand what goes on around them and subsequently, be
able to make informed decisions by themselves.
Being a product of the Singapore education system, I would say
that the system is truly one of the best in terms of producing
people who can ace examinations. Unfortunately, the system fails
spectacularly in preparing one to make informed decisions about one
critical aspect of life, and that is finances.
Of course, some people would point out that we are promoting
entrepreneurship in schools. That teaches you, or rather encourages
you to make money. However, it does not teach you how to spend
money wisely. With the entrepreneurship drive, it seems to me that
we are teaching that the solution to money problems is even more
money.
This is a huge fallacy. How many people can actually be so
sucessful at entrepreneurship that money is never a problem ever
again? Most people either end up being a salaried worker, or
perhaps owning a small-medium enterprise. For many of us, money
will always be a constant headache.
It need not be a headache if we had the knowledge of how to
manage our money properly. We need to teach our kids that the
proper way to financial freedom is control of spending. It is
certainly a whole lot easier to control spending compared to
controlling income. We usually can make decisions on how much to
spend, but we usually have little say over how much income we
get.
It is not surprising that many people, especially young people
are in debt. Our society has glamourised consumption. Symbols of
success are often material objects, such as the size of the car,
the size of the property, the size of the bank account and so
forth. Credit is easily available through credit cards and easy
loan schemes. It is small wonder why many young people are in
debt.
So, what did we do to address the problem? Financial counselling
avenues are set up to help these people. While it is good to have
financial counselling to help those who are already in debt, the
question now is why are we not doing anything to prevent them from
getting into debt in the first place?
Personally, I didn’t understand anything about financial
planning until I came to university and made myself take courses in
accounting and finance. It wasn’t rocket science, but it opened my
eyes, especially when I learnt the power of interest. I suspect
that many peoeple don’t even know the exact cost of taking up a
loan or racking up credit card debt because they do not understand
how interest works.
Take for example a car loan. If you pay cash for the mid-size
car (e.g. the Nissan Sunny or Mitsubishi Lancer), it’ll probably
cost you about $55,000 upfront. The person trying to sell you the
loan tells you that it only works out to be a monthly sum of about
$700 over ten years, with zero downpayment. For a graduate with a
good degree earning $3000 a month, $700 is not that big a deal.
However, if you do the math, $700 x 12 months x 10 years = $84,000.
Over ten years, you paid $29,000 of interest to the institution
that gave you the loan.
Shocking figures? Actually, $29,000 is not your actual loss. If
the money had been invested instead of being given to the bank, you
would have earned interest on it. Assuming that you invest $2,900
annually over 10 years at a return of 5%, the $29,000 would
have been worth about $36,500 at the end of the ten years. With
$36,500, I can probably go on annual 2 week trips to any part of
the world for the next 10 years.
To illustrate the concept of how interest can work in your
favour, let’s take the same example again. Assuming that you invest
$2,900 annually over 30 years at a return of 5%, you would have
paid a total of $2,900 x 30 = $87,000 for the investment. However,
your return at the end of the 30 years is about $192,000. You
earned $105,000 by simply doing nothing but investing your money
wisely. Of course, if you increase the amount of your investment,
or if you manage to achieve more than 5% returns, you will
certainly get back alot more money.
Therefore, I really think that our education system should
incorporate some form of financial education. The concept of
interest is not not some esotoric concept. It’s something that can
be easily explained to the person in the street. Armed with this
knowledge, I am sure it will save many people from suffering future
hardships. For those who still get into huge debt when armed
with sufficient financial knowledge, at least they
suffer not as a result of ignorance.
While providing simple financial education to our young is not
all that difficult, I wonder why has it not been done. The only
explanation that I can come up with is that it is not in the
interest of the economy to have the bulk of the population being
financial savvy. Interest accounts for a huge chunk of income for
many financial institutions. If people are not going to get into
huge debt, how can these institutions make money?
If you take an economic perspective, debt is probably a good
thing for the economy because it increases the circulation of money
in the economy. However, from a moral perspective, debt is not a
good thing, especially when people are unable to pay their debts.
Bankruptcy has a social stigma attached to it. The individual who
is in debt often will have to worry about how to pay the debts, and
this can strain relationships with their loved ones. It can affect
their ability to work, or even their ability to function as a
normal human being.
It’s really about time that we consider implementing financial
education. If we can have things like moral education and sex
education, why not financial education? After all, an education is
abut equipping a person to be able to make informed decisions,
no?
