Why financial literacy in Asia needs addressing

newsonjapan.com -- Aug 01
Asian nations are renowned for their approach to education, with Japan ranked in the top 10 from a global perspective.

However, there’s evidence to suggest that financial literacy remains a huge issue in Asia, and one that needs to be addressed as a matter of urgency.

This is particularly true in Southeast Asia, which as a region is arguably more synonymous with tourism than the financial marketplace. Overall, this region is thought to have the lowest levels of financial literacy in the world, with Vietnam, the Philippines and Thailand amongst the worst-affected regions.

We’ll explore this further in the post below, while addressing the issue in closer detail and asking how this can be resolved going forward.

Why is Financial Literacy Important?

The comparison between Southeast Asian nations and others further north is an interesting one, as while just 24% of the adult population in Vietnam are classed as being financially literate, 59% of Singapore residents fit within this category.

In Japan, the corresponding percentage is estimated at 43%, while Malaysia is the best-ranked Southeast Asia nation. Here, 36% of the adult population are financially literate, although this number is growing incrementally year-on-year.

The situation is clearly much worse in Vietnam, while just 25% and 27% of adults in the Philippines and Thailand are considered to be financially literate.

This certainly highlights the stark nature of the issue, with consistently low literacy scores in all of these nations (along with Indonesia and Cambodia, the latter of which is the worst-performing country overall).

There’s no doubt that this is an increasingly important issue, particularly in a region that’s becoming increasingly reliant on financial market trading and fiscal services. A lack of financial literacy can also have a direct impact on millions of citizens, and particularly their ability to save, budget and calculate the value of loans and credit.

This leads us neatly onto the issue of reckless borrowing and exacerbating the existing cycle of household debt, and the impact that this can have on the provision of healthcare in poorer regions.

This issue is particularly pertinent in Asia, where the healthcare protection gap in emerging markets accounts for 78% of the total of $1.8-trillion gap in the Asia-Pacific region. This reflects the fact that insurance penetration remains low in Asia, which is a problem that seems unlikely to improve anytime soon.

How Can This be Improved in Asia?

One of the first things that can improve financial literacy in Southeast Asia is the adoption of a bottom-up approach, which should be combined with a top-down methodology when communicating financial literacy nationwide.

This would represent a genuine return to basics, as bottom-up processing occurs when a person tries to understand language and concepts by looking at individual meanings on a fundamental level. This is opposed by trying to comprehend financial literacy as a single entity, or the complexities that make it such a challenge in certain regions.

This enables learners to understand the core concepts of financial literacy and apply these to everyday problems, such as optimising disposable income levels and calculating interest rates on loan repayments.

This can only lead to more informed decision making over time, boosting the financial security of households in the process.

Another interesting step could be to promote practical learning amongst adults, and there are various ways through which this can be achieved.

For example, you could create a demo account with an online forex broker, as this provides you access to a simulated and real-time market where traders can invest without having to risk their hard-earned cash.

This provides practical experience of managing currency exchange rates and the complexities of financial trading, which can in turn boost everyday transactions such as purchasing foreing capital and understanding margin-based activity.