Financial education key to growth
Amid downgrades in economic growth forecasts pressured by protracted global trade uncertainties and strong baht lies a perennial social problem: swelling household debt.
While the Bank of Thailand (BoT) has taken stern steps to bring down the borrowing level by tightening its grip on mortgage to personal loans, launching financial education from our kindergartens to 12th grade (K-12) may be a long-lasting solution the country needs to cultivate a financially prudent society.
In his recent remarks on the Thai economic outlook, Jonathan Ostry, Deputy Director of Asia and Pacific Department at the International Monetary Fund (IMF), reiterated a concern that has been in the public eye for some time, which is that the debt level of the Thai people is elevated and, along with low retirement savings, could weigh on the fiscal burden over the long haul.
Indeed, the kingdom's household debt has been creeping higher over the past decade. Data from the BoT shows that between 2009 and 2018, the household debt-to-GDP jumped more than 25 percentage points to 78.6%, the debt amount per person spiked almost 50% to 552,500 baht, and the number of debtors climbed from 20% to 30% of the total population.
The ability to service debt is equally worrisome. Putting Thailand on the world map, the IMF data reveals that our 2017 nominal GDP per capita ranked 103rd globally, which is in stark contrast with our household debt-to-GDP ratio that came in at 12th place. Thai people are also beginning to take on debt at a young age. The National Credit Bureau (NCB) announced that since the start of the year, the number of credit card applications submitted by Gen Z, aged 20-22, is on the rise, indicating a surge in debt accumulation among our youth.
A high rate of household debt is linked to many personal, social and economic complications, from suicides and family tensions to vulnerabilities in the financial system and recessions. Rock-bottom interest rates, easy access to credit, excessive loan extensions by banks and overspending due to a lack of financial discipline and the pursuit of social status have all been cited as roots of the problem.
A survey by the BoT indicates that financial literacy is another top culprit as many Thai people are unfamiliar with investment tools to undertake effective financial planning. In this regard, the central bank is working on instilling financial know-how in Gen Y, aged 23-38, so they can learn to make wise financial choices and keep pace with fast-changing financial products and innovations.
The BoT's provision for financial training for vocational students and junior employees is a step worth taking. Nevertheless, I also believe that financial education needs to start much earlier in life. By that, I mean K-12 students because youth in this age group are a captive audience and are highly receptive to learning.
A 2018 study by Veronica Frisancho, Senior Research Economist at the Inter-American Development Bank (IDB), on a school-based financial literacy programme conducted in 300 high schools in Peru, shows that financial education has favourable impacts on students' spending and saving habits.
The programme was part of the Peruvian government's goal to weave financial education into the fabric of primary and secondary curricula by 2021. It covered topics including intertemporal trade-offs, budgeting and financial products and services.
Results show that financial education helped students to think more before buying, compare prices and save instead of borrowing to purchase something they could not afford and curtail expenditures on unnecessary items -- evidence of improved self control.
Ms Frisancho attributed these promising outcomes to students' malleable behaviour as they were young and in the early stages of development. Although she noted some constraints in her research, such as the students' limited financial choices and the notion that healthy financial habits today do not guarantee positive behaviours in the future, especially when personal finance becomes much more complicated during adulthood, her study gives us a glimmer of hope that by starting financial education early and reinforcing it throughout students' education endeavours, we can influence their financial preferences and personality traits later in life. Better yet, her research also found that financial education stimulates students' overall academic performance, propel them to become more involved with their parents in household finances, and even encourage teachers who were trained to deliver the courses to become better savers.
In the months leading up to Thailand's parliamentary debates over the 3.2 trillion baht in fiscal 2020 budget, of which a combined 15.9% is allocated to the Ministry of Education and the newly established Ministry of Higher Education, Science, Research and Innovation, talks on education reforms regained traction. Emphasis has been on issues such as the effectiveness of schools' budget spending, education policy continuity, quality gaps between rural and urban schools, teachers' debt and workload, student assessment and education innovation through technology.
While we strive to improve students' learning experiences and outcomes, another area that demands political will and prioritisation is financial education. We will be doing a disservice to our younger generations if they graduate high school without understanding the basics about personal finance, from opportunity cost and time value of money, to asset classes and wealth planning.
Key challenges such as a lack of expertise among teachers and the already overwhelming lessons can be overcome by training our teachers, leveraging experts and integrating financial concepts into existing subjects. For example, we can teach students how to budget their spending and save their money in math classes while exposing them to stocks and bonds through Thai and English readings.
Malcolm X famously said, "Education is the passport to the future, for tomorrow belongs to those who prepare for it today." It is our duty to not only prepare our younger generations for careers to make a living, but also to groom them to become masters of financial management, who are equipped with the knowledge and skill to maintain financial health well into retirement. In doing so, we can nurture financial prudence and promote a sustainable economy and financial system for generations to come.
Bundit Kertbundit, CFA, is a financial professional. He also tutors high-school and college economics part-time. Prior to working in finance, he was a reporter at the Thai Public Broadcasting Service and wrote articles for the Business section of the 'Bangkok Post'.