A decade has passed since the Global Financial Crisis (GFC) which seems an apt time to begin talking about the event that has pushed the concept of financial education to the core of global policymaking debates. Despite its growing popularity today, financial education has existed in the premise of global policymaking for the past few decades. The benefits of financial education seem endless; poor national financial literacy levels have been blamed for adverse socioeconomic effects such as high national household debt and/or a general irrational exuberance in financial consumption behaviour (see e.g. here). Along the same lines, low national financial literacy rates have been seen as indicative of overall financial instability, the types that have been argued and blamed as causal mechanisms of the GFC. Thus, financial education is held as an empowering dogma, its dissemination seen as providing citizens with the knowledge that would empower them to access financial services in a sustainable and meaningful manner.
As Alan Greenspan said in 2002:
“Financial education can equip consumers with the fundamental knowledge required to choose among the myriad of products and providers in the financial services industry. It can also help to inculcate individuals with the financial knowledge necessary to create household budgets, initiate savings plans, and make strategic investment decisions. Such financial planning can help families meet near-term obligations and maximize their longer-term well-being and is especially valuable for populations that have traditionally been under-served by our financial system.”
Although the benefits of financial education have been celebrated, there are plenty of individuals who have not been so convinced by its rhetoric. Toni Williams (here) and Lauren Willis (here) for example, argued that financial education advocates tend to idealistically envision that having financially-literate citizens is the answer to every socio-economic issue that governments face. Financially literate citizens are assumed to be more knowledgeable in accessing finance, which can simultaneously resolve social issues such as poverty, high household debt, financial instability, and even the growth of nations! The question to be asked here is does it all work? Can providing financial education really assist in financial inclusion efforts and create the financial stability that governments so badly want?
The Case of Malaysia: Financial Education as Nation-building?
In my recent presentation at the Interdisciplinary Global Development Centre (IGDC) at the University of York, I demonstrated empirical evidence that shed some light on these questions. Using a case study of Malaysia, I observed financial education efforts as an extension of what could be viewed as neoliberal inclusion, in which access to financial markets and activities are encouraged in an effort to make citizens more responsible, autonomous, and individualised over their own financial and personal security. In my research, I spoke to 13 high-ranking officials from Malaysia who are directly involved with financial education policymaking, to explore the issues surrounding the development and implementation of Malaysia’s national financial education strategy (including finance ministers and officials at the national central bank).
In Malaysia’s case, financial education policymaking has been shaped by explicit influences from transnational policymaking institutions. This includes the OECD’s International Network on Financial Education (INFE) through their development of practical tools and strategies for financial education and the Alliance of Financial Inclusion, in which Malaysia is a key member and a case study for best practice in using financial education for financial inclusion. It raises the question of whether developing countries are implementing certain types of policies in the pressure to legitimise their membership and diplomacy with transnational institutions; rather than with a meaningful consideration of what their society really needs. Additionally, in Malaysia’s case, financial education is seen as valuable in the achievement of nation-building goals. This has been identified in the Financial Sector Blueprint (2011-2020), a ten-year strategic document that outlines the means to expand the financial system in line with the goal of turning Malaysia into a developed economy by the year 2020. Through this document, financial education is seen as an important tool that would allow more citizens to become involved in the financial system in a way that would ensure its growth and stability. Furthermore, being financially educated is seen as an important drive for Malaysian citizens to have more economic and employment opportunities as well as to better-manage their money in a way that would ensure their financial security. This is supported by the message given by the former Governor of Malaysia’s central bank during the launch of Malaysia’s national financial education strategy:
“Financial education has never been more important than in today’s environment. Participating effectively in the financial system can improve the economic wellbeing of individuals and businesses. Financial education is therefore key so that members of our society will benefit from the financial system and from the new technologies that are transforming our financial landscape.” (Aziz, 2015b)
The above quote demonstrates the manner in which financially educated citizens are seen as important to the transformation and development of the country’s financial system. However, the success of the Malaysian case of financial education can be problematized by the absence of evidence to support any correlation between citizens’ participation in the financial system with both households’ financial stability and national economic growth. The usage of financial education for financial inclusion to resolve multiple issues (financial market growth and financial stability for nation-building objectives and financial security of citizens) results in a lack of meaningful understanding of what financial education and financial inclusion mean to Malaysia. Critics argue, for example, that the government’s efforts are a misrecognition of what citizens need, as they do not address the issue that poor financial planning could be due to dynamic changes in the lives of the poor, conditioned by the government’s decisions such as pension reforms, subsidy reforms, and the introduction of new Goods-and-Services Taxes, and inflation.
Financial Education: Deepening Inequality in Malaysia?
My work in Malaysia sheds light on the disconnect and contradiction between the Malaysian government’s aims to disseminate financial education and the Malaysian society’s needs . The idea that providing knowledge alone might empower citizens financially, despite their differences in income levels, is an idealistic optimism that has yet to be supported by evidence. Even a former finance minister of Malaysia noted in an interview with me that democratic access to financial skills without a systematic and equitable income distribution strategy might further deepen the income inequality that is prevalent in a country, along class lines or urban-rural divisions. My interview with Muhammed Abdul Khalid, who wrote the best-selling The Colour of Inequality, further sheds light on the issues faced by developing countries when legitimising policy recommendations by transnational policymaking institutions, some of which are listed above. When financial policies are implemented without localising and addressing a country’s entrenched socioeconomic issues, the benefits might serve financial markets more than citizens themselves.
Abdul Khalid, M. (2015). The Colour of Inequality. MPH Publications.
Greenspan, A. (2002). ‘Financial literacy: A tool for economic progress,’ The Futurist 36(4), 37–41.
Williams, T. (2007). ‘Empowerment of whom and for what? Financial literacy education and the new regulation of consumer financial services,’ Law & Policy 29(2), 226–256.
Willis, L. E. (2008). ‘Against financial literacy education,’ Iowa Law Review, 94, 197–285.
This blog post is a part of the blog series Inclusive or Exclusive Global Development? Scrutinizing Financial Inclusion, in which a new perspective on financial inclusion is published every #FinanceFriday of February, March and April 2019.