[dropcap background=”” color=”” circle=”1″]B[/dropcap]ankruptcy among young adults in Malaysia is rising at an alarming rate. In 2014, 5,547 individuals under the age of 35 were declared bankrupt, which was more than double the number in 2005, says Malaysia’s Department of Insolvency. The number of those below 25 declared bankrupt in 2014 tripled from a year earlier.
Malaysia’s household debt to GDP ratio increased to 89.1% in 2015, according to Bank Negara Malaysia’s latest report. This would put us among the Asian countries with the highest levels of personal debt.
A survey by the Asian Institute of Finance (AIF), titled “Financial matters — Understanding Gen Y”, reveals that Gen Y lack financial planning knowledge and are taking on debt at an earlier age.
Given the concern about a debt-laden Gen Y and future generations, our schools need to incorporate financial education into the curriculum.
There are some good approaches, including the following:
1. Personal financial management: The most basic financial lesson is managing one’s cash balance. It is common to hear of an employee’s monthly salary being barely sufficient to service his debt. Teach our children from young how to manage cash.
For example, my daughter has been given a weekly allowance since her primary school days. She is required to write down all her daily expenses. To incentivise her to save more, we double any surplus she has left at the end of the week. Since then, she has been saving most of her allowance and does not spend unnecessarily. That way, she learns bookkeeping and is encouraged to save.
2. Analyse alternatives: There are a number of financial lessons that focus on differentiating needs and wants. However, in today’s world, can we really say which is what? A woman may need a beautiful handbag, a guy may need a cool car, and a family, a comfortable house. Thus, it is more relevant learning how to analyse alternatives in school.
For example, students could be assigned a project on buying a handphone. They can search for alternatives and check out various models, manufacturers, prices, quality and functions. They would also need to look at repayment ability and opportunity cost. Students would also learn about delayed gratification — that great things come to those who wait!
3. Buying real assets: In basic accounting, whether you are buying an expensive car or an overpriced power plant, it is recorded as an asset in the balance sheet. However, there are other items within the definition of asset that “balance” the real value of these assets, such as depreciation, impairment
and goodwill.
Robert Kiyosaki, the international bestselling author of Rich Dad Poor Dad, has redefined the term asset. An item can only be considered an asset if it provides positive net cash flow to your income statement. Students need to learn to acquire real assets and non-depreciating assets. A fun way to learn this is by playing games such as CASHFLOW, designed by Robert Kiyosaki, or Monopoly. Schools could run competitions to make it more exciting.
4. Do your homework: Parents are always shouting at their children, “Do your homework, otherwise you would fail your exam.” However, when it comes to money matters, most parents do not want to get their hands dirty. They prefer the easy way out and listen to so-called advisers or rumours. If everyone does their homework, no one would fall for get-rich Ponzi schemes that promise super-high returns without any underlying business. In schools, teachers could use project-based learning to teach students to conduct due diligence before any investment.
5. Banking and Economics 101: The first thing many young people do after graduation is to incur debt through credit card or personal loans. Banking 101 needs to be done from a practical angle, such as teaching students the impact of interest and compound interest, calculation of instalments and bad debt. Students should learn basic economics as it affects everyday life. Terms such as demand and supply, economic cycle and inflation are the fundamentals. Do not let jargon, such as “quantitative easing” or “operation twist”, mislead them from the basics.
Economics would be a boring subject if teachers only teach theories. They can make it more interesting, for example, by showing animated economic series from YouTube, using illustrated books or simulating a closed economy through games.
6. Entrepreneur-based project learning: As we know from the Cone of Learning, practice is the best way to learn. Students could be given entrepreneur-based projects each semester. For example, they could be asked to present a business proposal for selling biscuits. Working in groups, they will need to select the type of biscuits, calculate the costing, bake them for taste testing, design the packaging, devise a marketing plan and finally, sell the biscuits. After the project, tutors and other teams can provide feedback and discuss areas for improvement.
7. Study failures: Jack Ma, the billionaire Alibaba executive chairman, has suggested that people study failures instead of reading about successes. Learning about failures would remind us not to repeat them. It is part of human nature to blame others — parents for not being rich, the government for not providing free things or rich businessmen for taking all the opportunities. Hence, students need to learn “X-blame” culture, that is, not to blame others but to rely on their own efforts to achieve their financial goals. As Jack Ma says, he doesn’t have a rich father, powerful uncle or a degree from top schools, so, if he can be successful, 80% of people can be successful too.
8. A “giving back” mindset: Obsession with money could be the root of all evil. It is important for schools to inculcate a “giving back” mindset while teaching financial education. For example, profits made from entrepreneur-based projects could be channelled into charitable organisations of the students’ choice. Students could also support social projects, such as coming up with ideas on how to improve the cash flow of an orphanage. Money is similar to drugs in that drugs are used to reduce pain and save lives, but if misused, they can harm. Thus, it is important for students to learn how to use money responsibly for the benefit of society.
Financial education is a must and should start early, especially among the Gen Z or post millennials as they are our future leaders. The lack of a strong financial education may lead to a debt-laden and corrupt nation.
Wynce Low Cha Shyang is executive director, head of debt origination and distribution, Asia, National Bank of Abu Dhabi
