By Kwok Tat Sang, Dickson
Table of Contents
1. Introduction
2. Background
3. Relationship between Financial Education and Sustainable Development
4. Current Financial Education System in Hong Kong School Context
5. Suggestions on Problems Arising from the Existing Framework
6. Conclusion and Future Investigation Direction
7. References
8. About the Author
1. Introduction
Every day, people have to make a great deal of decisions revolving around their finances, such as borrowing from banks, applying for mortgages, and using credit cards. People should possess the literacy to be able to comprehend and predict all the financial decisions and plans they make. Through financial education, many social problems can be addressed or alleviated. It is believed that financial education can help equip less well-off families with the knowledge to select suitable financial instruments to ease their financial burden (Bernanke, 2006).
Financial education can also prevent people from overspending (Johnson et al., 2007). Overspending overdraws future resources to satisfy people’s current desires, and stems from the lack of financial education. At an individual level, overspending’s drawbacks may be seemingly insignificant. However, the consequences always take years to overcome, sometimes one may not even be able to compensate the overdraft through their lifetime (Pang, 2010). Credit card is one of the most common financial tools that lead to overspending. Credit card spenders do not keep record of their spending, and often spend over their affordable amount. A survey conducted in Hong Kong shows that one in every three teenagers suffers from credit card debt (Yip et al., 2007). Credit card spenders are seldom aware that paying minimum payment amount for their credit card debt would extend their repayment period to more than 10 years and the repayment amount will be 8 times higher (Yip et al., 2007). They are even less aware that paying minimum payment will lead to a lower credit score. The credit score will further affect banks or financial institutions’ willingness to provide financial services, from basic banking services to mortgage plans.
In this entry, the relationship between financial education and sustainable education will be discussed. It covers financial education for school-aged learners, which includes ages 6-18. We will cover the dominant forms of education which school-aged children will be possibly exposed to. It is hoped that the entry will help readers to get an overview of the implementation of financial education in Hong Kong. In an attempt to explore the possible area for further study, this entry touched on the possible problems arising from the current education framework and provides suggestions.
2. Background
Financial education is defined as the ability to make informed judgments and effective decisions regarding the use and management of money. It is not limited to professional knowledge such as accounting, finance, and economics but refers to daily routines which require any form of financial literacy, from fundamental calculation to long-term financial planning (Education Commission, 2000). In particular, financial education should help households to identify better financial options to avoid financial risks (Jappelli, 2010). In Hong Kong, the local curriculum does not put emphasis on financial education. Because of that, financial education curriculum is not well-formulated, neither is it accessible to everyone. This further leads to various problems, such as people falling into the trap of shark loans or credit spending.
3. Relationship between Financial Education and Sustainable Development
Seldom do people correlate financial education with sustainable development. However, financial education plays a significant role in pursuing sustainable economic development and fighting poverty (Sachs, 2015). Promoting financial education now became part of the Sustainable Development Goals (SDGs) as it is believed to nurture responsible economic citizenship and hence further promote a more equal and sustainable world for the next generation (Penner & Sanderse, 2017).
Providing financial education is an effective means to reduce poverty gap (Hathaway and Khatiwada, 2008). It is reported that low-income groups have little initiatives to do long-term planning and are less likely to visualize the consequences of repaying all the debt at once in the future (Pang, 2016). They tend to be negligent in monitoring their financial conditions and those factors which pose threat to their financial conditions. Some financial institutions go after unfair practices and allure borrowers with seemingly attractive terms while charging much higher rates. Those who lack financial literacy may even fall into the trap of predatory loans. In the worst circumstance, they will never be able to repay their loan and become slaves to these lenders.
Poor financial education may negatively affect the sustainable development at a societal level. According to the definition of financial education, one should be enabled to make informed financial decision and foresee the possible consequences of different financial options (Pang, 2016). Take retirement protection as an example: the ideal option should be viable and sustainable. Nevertheless, in society that lacks financial education, citizens may not be able to foresee the effects of different options, they may neglect the future generation needs or simply adopt the option which maximizes their short-term benefits (Lusardi and Mitchelli, 2007). In recent years, the drawbacks of different retirement protection schemes are getting more noticeable, the problem of ageing population has exacerbated these drawbacks. Some countries rely on issuing debt or increasing tax to maintain their welfare system (Lusardi and Mitchelli, 2007). These problems or even social crisis could have been avoided with better financial education. If not, a better financial education could help authorities rectify these problems through lowering the scale of various retirement subsidies. Unfortunately, people might not be able to foresee the crisis that they or their future generation are going to face.
Promoting financial education in a society can lessen the financial burden placed on the government and taxpayers. Lacking financial literacy, one may risk going bankrupt or falling to the social safety net (Hathaway and Khatiwada, 2008). To cope with these situations, extra resources, drawn from higher taxes, are required to support the safety net. For that, higher tax may be required, which will inevitably add pressure on the public financial system and as a result impose burden on taxpayers. A vicious cycle will then be formed as higher tax may deter people from further investing in the region. Therefore, providing fundamental financial education is a first step in achieving sustainable development.
4. Current Financial Education System in Hong Kong School Context
Financial education in schools incorporates different activities arranged by teachers and schools, and may include inviting external experts to provide theme talks and activities. Hong Kong only provides financial education to students enrolled in finance related subjects such as Business, Accounting, and Financial Studies (BAFS) and Economics (Cheng, 2009). Some schools may enhance their students’ financial literacy through irregular talks. However, these talks are neither curriculum-based or subject-based. It is schools’ own discretion to invite experts to offer talks during civic education sessions and other such lessons (Pang, 2016). From the policy document published by Hong Kong Investor Education Centre, it says that ‘Concerns have been raised around [students’] exposure to financial education in schools’ (Investor Education Centre (IEC), 2015). According to the document, students only absorb financial knowledge through unsystematic and disorganized channels, such as commercial-sponsored television programme.
The responsibility of raising students’ financial literacy is placed on parents and different institutions. It is reported that parental education is the main source of financial education. According to Pang (2010), Hong Kong citizens mainly rely on traditional wisdom and old conceptions of fincnces to pass on their financial literacy to younger generations. For example, the mindset of saving money is from the Chinese proverb that one should save up to prevent famine. Some more well-off families or middle class families may pass on financial literacy which they obtain from their real-life experience, such as participating in stock markets, buying properties, and acquiring loans from banks or even sharing stories among friends.
5. Suggestions on Problems Arising from the Existing Framework
One of the most prominent problems of the existing framework of financial education is that it does not cover every school-aged child. It is recommended that a comprehensive curriculum should be launched to ensure every child has access to proper financial education. The curriculum should range from covering the basics such as counting money to advance concepts such as the banking system, interest calculation, and investment ideas. Pang (2016) and Jappelli (2010)both discuss such recommendations in detail.
Another issue is that there are unequal opportunities for children from low-income groups and the privileged to get access to financial education. Underprivileged children, as their parents, may not have the hands-on experience to utilize their financial knowledge. Hence, it is recommended that simulation programmes should be provided to these children. For example, the government may consider collaborating with NGOs to provide budgeting and spending activities to these children.
Furthermore, a financial education programme should not only focus on individual behaviour. Very often financial education does not explain the consequences of maximizing one’s financial benefit at the cost of putting public financial system at risk (IEC, 2015). The programme should advocate the importance of being a responsible citizen or even instil the concept of global citizenship when individuals make financial decision. Moreover, financial education should enable students to analyze and criticise different financial policy options and their implications and consequences. We should even encourage students to come up with creative and sustainable solutions to manage personal, national, and global financial issues. In a highly globalized world, financial crisis can be disastrous to every nation and person around the globe, and financial literacy can help people prepare for it and alleviate the most damaging consequences.
6. Conclusion and Future Investigation Direction
Financial education can improve the quality of life of many other people around the globe. Comprehensive and extensive financial education is one of the many solutions to lifting families out of poverty as it enables the public to make informed financial decisions. From a wider perspective, a society with advanced financial literacy may choose the most viable and sustainable financial policies. Many social or financial crises can hence be avoided. These benefits can bring us one step closer to a sustainable world. Future research can be conducted on finding effective means and tools to develop financial literacy programs relevant for different ages. For example, researchers and education professionals may consider incorporating financial education into life-planning curriculum. Also, education kit can be developed to tackle the problem of poverty. For example, specific information should be disseminated to low-income groups on securing financial resources and accessing relevant assistance.
7. References
Bernanke, B.S. (2006). Financial Literacy. Testimony before the Committee on Banking, Housing, Urban Affairs, U.S. Senate, May 23, 2006. Speech 205, Board of Governoes of the Federal Reserve System (U.S.).
Cheng, C. (2009). Hong Kong Educational Reforms in the Last Decade: Reform Syndrome and New Developments.International Journal of Educational Management, 23(1), 65-86. doi: 10.1108/09513540910926439
Education Commission. (2000). Learning for Life, Learning through Life: Reform Proposals for the Education System in Hong Kong. Hong Kong: Government Printer.
Hathaway, I. & Khatiwada, S. (2008). Do financial education programs work? Federal Reserve Bank of Cleveland Working Paper 08-03. Retrieved from https://www.clevelandfed.org/newsroom-and-events/publications/working-papers/working-papers-archives/2008-working-papers/wp-0803-do-financial-education-programs-work.aspx
Investor Education Centre. (IEC). (2015). Hong Kong Strategy for Financial Literacy. Hong Kong: Investor Education Centre. Retrieved from https://www.gov.hk/en/residents/government/publication/consultation/docs/2015/HKSFL.pdf
Jappelli, T. (2010). Economic Literacy: An International Comparison. The Economic Journal, 120(548), F429-F451. doi: 10.1111/j.1468-0297.2010.02397.x
Johnson, E. & Sherraden, M. S.. (2007). From Financial Literacy to Financial Capability among Youth. Journal of Socilogy and Social Welfare, 34, 119.
Lusardi, A. & Mitchelli, O. S. (2007). Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education. Business Economics, 42(1), 35-44.
Pang, M. F. (2010). Boosting Financial Literacy: Benefits from Learning Study. Instructional Science, 38(6), 659-677
Pang, M. F. (2016). Enhancing the Financial Literacy of Young People: A Conceptual Approach Based on the Variation Theory of Learning. In Aprea, C., Wuttke, E., Breuer, K., Koh, N.K., Davies, P., Greimel-Fuhrmann, B.,& Lopus, J.S. (Eds.). International Handbook of Financial Literacy (pp. 587-602). Springer. doi: 10.1007/978-981-10-0360-8_37
Penner, J. & Sanderse, J. (2017). The Role of Economic Citizenship Education in Advancing Global Citizenship. Policy Practice: A Development Education Review (24). Retrieved from https://www.developmenteducationreview.com/issue/issue-24/role-economic-citizenship-education-advancing-global-citizenship
Sachs, J. D. (2015). Goal-based Development and the SDGs: Implications for Development Finance. Oxford Review of Economic Policy, 31(3-4), 268-278. doi:10.1093/oxrep/grv031
Yip, P. S., Yang, K. C., Ip, B. Y., Law, Y., & Watson, R. J. J. (2007). Financial Debt and Suicide in Hong Kong SAR.Journal of Applied Social Psychology, 37(12), 2788-2799. doi: 10.1111/j.1559-1816.2007.00281.x
8. About the Author
KWOK, Tat Sang
E-mail: kwokts@connect.hku.hk