I picked up this book because of one its chapters on the suspect value of Financial Education (FE which would be used interchangeably with Financial Literacy, FL) in this piece.
The book is <Pound Foolish: Exposing the dark side of the Personal Finance Industry>. Written by Helaine Olen; published in 2012 by London based Portfolio/Penguin.
The backdrop? My own efforts here on this WordPress site to promote individual (and independent) financial research such that people can end up making informed decisions; hopefully this would save many from heartache and prevent the trauma of seeing one’s life savings go ka-poof.
With the subprime crisis of 2008, even my country was not spared. Approximately 10,000 retail investors bought more than $500 million of Lehman Brothers Minibonds. (See Singapore Infopedia, Valerie Chew, 2010) In the worse off cases, some ended with only ‘5.6% of the amount invested’.[DBS Bank, ABN Amro, Maybank and Hong Leong Finance – all the institutions declined any further legal obligations or the blame. Hong Leong publicised its decision to stop selling similar products.]
Way back in 2003, then Member of Parliament for Marine Parade GRC (group representation constituency), Mrs Lim Hwee Hua had posed the following Parliamentary Question to the Deputy Prime Minister:
To ask the Deputy Prime Minister and Minister for Finance, given the increasing concerns over financial agents acting on consumer’s ignorance to market investment products and financial services, whether the Government has any plans to improve the financial literacy of Singaporeans and to educate them on how to better manage their financial resources, make sound investment choices and plan for their financial future.
The local programme, MoneySENSE, was set up in the same year.
It seems nevertheless that the premise raised by Olen is generally substantiated. The most vociferous argue that only laws to shore up consumers interests would work. This extreme voice also argued that financial counselling at the point of financial decision would trump the so-called sham of FE or FL. Some surveys in the US actually highlighted the decrease of Financial Knowledge between 2007 and 2011. While in a 2012 study, 50% of Americans did not realise the impact of inflation or compound interest on their monetary assets. This in the land where the subprime crisis originated – which is quite an irony. Economist Richard Thaler opined: ‘…financial literacy is impossible…’ (see an Economist article that contains the quote). James Bryant Quinn from the chapter stated: ‘If they (people) were interested in investing, they would have gone to Wall Street.’
I believe a middle ground is required, or a comprehensive approach is needed. From the above mentioned Economist article, through government policy:
Sweden’s system of saving for old age contains an example of what Mr Thaler means. It offers Swedes a choice of funds to invest in, but includes a well-designed low-cost default option, which has become the choice of 90% of the people.
Further, we need to educate not just at the mechanical level (which I understand from the book was the US norm before 1941 – math classes taught loans and issues for business startups – instead of the algebra and calculus they have today), but quite possibly at attitudinal level where constant consumerism is not a necessity. Buying that shoe, handbag, car does not bring lasting happiness. [To add, I follow the no-credit card principle.]
Finally, the law where the US Frank-Dodd Act is at the very least a start. I am not sure of enforceability though. By January 2016, Iceland (yes, the tiny island of 330,000 people that knocked out England in 2016’s Euro Championships), put 29 bankers in prison for causing the country’s banking crash.
The other bigger players have yet to follow suit. Simply consider the following titles:
If Iceland Can Jail Bankers For The Crash Then Why Can’t America? (24 Oct 2015). Forbes.
Iceland has jailed 26 bankers, why won’t we? (16 Nov 2015). Independent.