Nightmares loom if savings dry up
As the coronavirus pandemic drags on and mass layoffs intensify, the importance of having financial savings has never been greater.
What to do when only one-quarter of the Thai population can live on their savings for just three months? What will happen when their savings run out and the government can no longer offer financial intervention?
Even when the pandemic eventually passes, Thailand's rapidly ageing society still faces a grim scenario where the majority of the elderly do not have enough savings to live on.
Ask any Thai, and they will all agree on the importance of having savings for emergencies. Yet, such a realisation has failed to translate into action, posing a policy challenge to foster stronger saving habits among the populace.
The findings from the Financial Literacy and Access Survey of Thai Households in 2018 by the National Statistical Office and the Bank of Thailand were disheartening. Of the 11,129 respondents, only 13.1% had enough savings to live on for a year or more if they lost their jobs. Meanwhile, 23.8% said their savings would run out within three months.
To strengthen their savings habits, we need to understand people's spending and saving behaviour and what influences their savings and spending decisions. We need to know about their financial attitudes and whether or not they tend to live for the moment without financial planning. We also need to find out about their financial literacy because it plays an important role in money-saving behaviour.
Financial literacy is assessed by a number of indicators and questionnaires developed by the Organisation for Economic Co-operation and Development (OECD), to show how well-equipped a person is with the knowledge and skills to manage their own financial affairs. The Bank of Thailand and the National Statistical Office adopted the OECD guidelines for their surveys on Thai households' financial literacy and access.
Our research team at the Thailand Development Research Institute (TDRI) used their survey to assess Thai people's financial literacy with OECD guidelines and criteria. At first glance, the findings are encouraging.
According to the TDRI assessment, Thai people's financial literacy in 2018 was 62.8% on average, which was nearly the same as that of developed countries at 62.9% in 2015.
However, the devil is in the details.
Financial literacy comprises three indicators, namely financial knowledge, financial behaviour, and financial attitudes.
A close look at these indicators reveals where savings problems lie in Thailand.
Financial knowledge covers the skills to calculate the interest of bank savings, bank loans, and compound interest with inflation rates. It also includes the ability to manage financial risks to maximise investment returns. These skills are essential for effective financial decisions.
Our assessment, however, shows that Thai people are weakest on financial knowledge, scoring only 56.7% compared to the OECD countries' scores at 65.7%.
Financial behaviour includes spending, saving, and borrowing habits as well as careful consideration and gathering of information before buying, payment punctuality, and long-term financial goals. Our assessment shows Thais' financial behaviour scores are at 59.6%, a bit better than their financial knowledge.
Financial attitude, meanwhile, is defined as a state of mind and judgement about one's money. For example, whether or not one tends to enjoy spending more than saving, to live for the moment without financial planning for the future, or to splurge once the money is at hand.
According to our assessment, Thai people's score on financial literacy is the highest on financial attitudes, at an average of 77.3%.
Despite good financial attitudes and behaviour that support saving habits, the low financial knowledge among the Thai populace remains a huge challenge to overcome.
Without the skills to calculate interest rates, investment returns, and financial risks, weak financial knowledge can seriously affect one's finances.
True, financial literacy in Thailand is close to that of OECD countries. Unlike Thailand, however, their average scores on financial knowledge, behaviour, and attitudes are not much different, at 65.7%, 60%, and 66% respectively.
It is clear that there is a need to promote financial knowledge among the public. Much more needs to be done to foster stronger savings habits and financial discipline for individuals and households.
For starters, there should be more studies on households' access to financial services.
There is also a need for systematic assessments of Thai people's financial knowledge and behaviour for effective strategies to help improve their financial health.
Efforts to promote savings habits and skills to manage money must start early in childhood. The financial discipline and saving habits will stay with them for life.
For working-age groups, particularly informal workers who do not get social security support, mandatory saving schemes may be necessary.
Otherwise, Thailand is likely to become a fully-fledged ageing society where the elderly -- without enough savings -- live in poverty and hardship on meagre state allowances.
Jiraporn Plangpraphan is a Senior Researcher is a Researcher at Thailand Development Research Institute (TDRI).