By now everybody would have read about a survey done by Mastercard showing that Singapore’s financial literacy has the largest drop in ranking from 2nd of the previous survey to 6th place across Asia Pacific.
I decided to look into the raw data to find the reasons why.
Mastercard's survey was conducted in 16 countries in Asia between July and August 2014. A total of 8,087 respondents aged 18-64 participated in the survey. In Singapore, 500 respondents participated.
The survey attempted to measure the financial literacy of its respondents based on the following components:
- Basic Money Management:
- Budgeting ability
- Keeping up with bills
- Saving for big purchases
- Tracking expenditure
- Unsecured loans
- Financial Planning:
- FP is not only for the rich
- Starting early with FP
- Save regularly
- Emergency savings
- Insurance is important
- Retirement funds needed
- Financial statements understanding
- Financial products suitability
- Investment monitoring
- Concept of diversification
- Concept of inflation
I downloaded the raw data from the news press release to further analyse the data. Here was what I found about what were the components which Singapore did terribly in its financial literacy by recomputing the data:
- Singapore ranked 13/16 for their budgeting ability
- Ranked 10/16 for tracking expenditure
- Ranked 9/16 for insurance is important
- Ranked 11/16 for retirement funds needed
- Ranked 10/15 for financial statements understanding
- Ranked 12/15 for financial products suitability
- Ranked 12/15 for investment monitoring.
I am personally not surprised by the ranking exercise.
This survey unveils to us that many Singaporeans are actually ‘illiterate’ when come to financial planning concepts. An illiterate person needs help. They cannot do something which they do not understand. But help is only available if they want to be helped. For me, helping people involves three steps:
The first help that is needed is education. Education can come from reading and attending courses. Unfortunately, many self-help books are written in western’s context which is normally difficult to adapt into Asia’s context. Courses on financial planning are almost non-existence except for investment related courses. Perhaps the best education has to come from parents.
Crucial to improving financial literacy is encouraging education at an early age. A practical understanding of how to manage money, including saving and borrowing, should be provided by parents and taught at school. The goal is to eventually develop financial know-how so that people can effectively manage money matters such as household cash-flows and loans. - Deborah Heng, group head and general manager, MasterCard Singapore.
The second step in helping those who are financially illiterate is to execute and implement actionable plans. This could involves tracking daily expenditures using Mobile apps, identification of suitable and purchasing of retirement products, etc.
The third step is to monitor the plan at regular intervals. In Singapore, it was ranked 12 out of 15 for investment monitoring. This shows most people either does not understand the importance of monitoring or they do not have the time to monitor. Besides investment monitoring, it is also important to monitor the overall financial plan so as to ensure what was done in the second step continues to be relevant. The last thing anyone wants is to regularly pay for something which is no longer relevant.
Like this article? Subscribe to my newsletter below for more.