Does modern education prepare us for the real world? That was the question I would ask myself as I struggled with Latin in the later years of my secondary school in the UK. Latin speakers did not have too many job opportunities apart from perhaps the clergy or as historians. It wasn’t even useful when going on holiday; if you went to Rome and asked at the railway station “Mediolanum novissimo agmine quota hora est?” you would get some strange looks. Better to simply ask in English “What time is the last train to Milan?” In those days education was focused on instilling an ability to learn matters of mainly academic interest.
What I learned was of little help to me when faced with real life situations in industry such as handling industrial relations conflicts. Quoting a few lines of Seneca or Julius Caesar would not have been helpful. We had to replace everything we had learned in academia with knowledge that would help us survive on the street and in industry.
Things are very different now
When my own children went to school the curriculum was much broader and introduced concepts like being able to question things and use creativity. One of them took the International Baccalaureate at JIS in Jakarta and that most certainly helped her on the road to a CEO position in the US. My other children also found that their broader education guided them seemlessly into various careers. When I visit teachers in international schools in Jakarta or Bali I am amazed at the rapid adoption of technology. Computers are now universal even in primary schools and there are signs everywhere of creativity that would have probably led to disciplinary action in my day.
So what is missing now in the education system?
But there is a gap and it relates to understanding personal finance. This includes anything from family budgeting to the relative merits of cash and other financial assets, investing, mortgages, currencies, liquidity, insurance, retirement planning, risk and return and awareness of scams to mention just a few.
While people have become more expert at what they do, even the most competent and highly educated often lack knowledge and skills when it comes to managing personal finance. For example, some people will maintain large balances in their bank accounts earning interest close to zero while at the same time will run up debts on credit cards with annual interest rates of 30% and higher.
Following the recent government shutdown in the US many found themselves in financial difficulty after missing just one paycheck. They were not poor people; most would likely own a house and a couple of cars plus all the trappings of the American dream. But much of it was on borrowed money. A couple of missed paychecks meant the potential repossession of one or more of their valued assets.
Similarly in the Global Financial Crisis of 2008 / 9 thousands lost their homes. The reason was simple; they had too many debts and had not retained sufficient liquidity to weather a financial storm. Many companies go broke for the same reason. Even private schools are not immune. Some mutual funds are subject to liquidity issues if they are invested in assets that cannot be quickly turned into cash such as property, land, asset-backed securities etc. Many such funds have failed leading to investor losses. There have also been many scams in the industry so people need to be aware of the warning signs. It’s not just a question of how to make money; it’s one of how not to lose it.
Retirement planning is another area of critical importance. It must appear a very boring topic to students but if neglected could be a big worry to them later in life.
Why haven’t these issues been addressed before?
One reason is that many changes in recent years have made financial planning more complex. Going back 50 years or so in western countries men worked till 65 when they then collected a state pension and maybe also an occupational pension. But the average man lived only a couple more years in those days so the burden on the state and companies was perfectly manageable. Today, men and women can expect to live well into their eighties so the burden on governments, taxpayers and companies is much greater. Individuals now have to compensate for lower pensions by making their own arrangements to supplement them. Most are ill-equipped to do so and risk cash shortage in retirement. Hence the need to educate children at an early age on the principles of financial planning and the importance of saving.
How can teachers help?
Until such time as financial planning becomes part of the curriculum they can help by becoming well-versed in the principles themselves and imparting them to children at every opportunity. They would also benefit personally from having such knowledge. International teachers risk faring worse than their counterparts in their home countries as the latter will most certainly belong to regular pension schemes. Such schemes rarely extend to expatriate teachers and my experience from fact-finds has been that many seriously underestimate how much they will need to support them in retirement. For long-term expats offshore pension schemes offer one solution, subject to caveats.
Can parents help?
Possibly, if they are well-versed in financial matters, although some may have to wait till they can learn from their children as I have to from mine when it comes to things like the features of the latest gadget. If the UK is anything to go by the general population does not have a good grasp of finance. Don’t take my word for it; the headline in a recent international financial publication read: ‘UK struggling under an epidemic of financial literacy.’
The UK government is well aware of it. Not so long ago people could learn the basics from a financial adviser. But now that commissions are banned in the UK people have to pay for financial advice. A consequence is that many either will not pay or cannot afford to pay. Worse, the UK government has allowed people to free their locked-up pensions and do what they like with the money. This initially brought a nice tax windfall for the government but there will be much pain and grief when the money runs out due to poor investment choices.
What can the financial industry do to help?
Bodies like the Chartered Institute of Securities & Investment are taking initiatives to educate the public. Regulators are demanding higher standards from advisers who must now meet minimum qualification requirements. In Australia advisers must now have university degrees. In the less-regulated offshore world however, which includes most of Asia and the Middle East, you will still find ‘smash-and-grab’ salesmen offering products under the guise of advice. Self-knowledge will help you make an informed opinion on whether a particular product and its structure will meet your long term needs.
Financial planning has historically figured very low in people’s priorities. Only education can raise its awareness to a level that can positively change lives and ensure people make the most of their hard-earned incomes. I will finish with a few words of Latin (admittedly with a little help from Google Translate) just to show that my own education was not completely wasted: Tibi gratias ago tibi, et in die enim bona !
You can read all past articles of
Money Matters at www.BaliAdvertiser.biz Copyright © 2019 Colin Bloodworth
Colin Bloodworth, Chartered Member of the Chartered Institute for Securities and Investment (UK), has spent over 20 years in Indonesia.
He is based in Jakarta but visits Bali regularly.
If you have any questions on this article or related topics you can
contact at : colin.bloodworth@ppi-advisory.com or +62 21 2598 5087.