Tuesday, November 24, 2020

Improving Thailand’s financial literacy via digital channels

Nov 25. 2016
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OVER THE NEXT decade, Thailand will be joining the ranks of ageing societies like Japan and Germany. The difference, though, is that those are predominantly high-income countries.

As well, given the current speed of Thailand’s economic growth, it is likely that our working population will retire before they get rich. The future financial well-being of our people will be at risk.

For a typical person, most income is spent on consumption ranging from foods to electronic gadgets, instead of saving and investment. According to official statistics, the ratio of savings to disposable income contracted from 11 per cent in 2007 to 8.5 per cent in 2014. 

Even worse, a sizeable chunk of consumption has been financed by borrowing, such as credit cards, personal loans and car loans. As a result, household debt has piled up over the past five years, reaching 82 per cent of gross domestic product. 

These borrowings are also ridden with delinquent payments, reflecting deteriorating credit quality. Thailand’s credit-card delinquency rate is currently 7 per cent, above those of Singapore (5 per cent) and the United States (3 per cent). 

The combination of low saving, high debt and bad credit quality has been partly spurred by recent government packages such as the first-car scheme and bank’s underwriting standards. To this end, it is undeniable that individuals also contribute a fair share of the problem because of a lack of financial knowledge and discipline.

Financial literacy, defined as the combination of knowledge, understanding, and awareness to make a sound financial decision for better financial well-being, would solve this problem. 

However, Thailand has been on the low side on financial literacy. According to the Organisation for Economic Cooperation and Development, Thailand’s financial-literacy scores are less than the global average, ranking 17th of 30 surveyed economies, and well behind Hong Kong (fifth) and South Korea (seventh). 

Many public-sector and private bodies have put considerable effort into improving financial literacy. Unfortunately, these efforts are not well concerted from the holistic view, leading to overlapped, fragmented and inefficient plans and actions. Campaigns have proved to be sporadic and have yet to reach the wider population. 

Scalability is the critical issue here, and digital platforms are the answer. One example of building and scaling up financial literacy has taken the shape of a digital lending platform. 

LendUp, partly funded by Google, is a US financial-technology platform that provides online lending that induces borrowers to improve their financial literacy. In a nutshell, borrowers will receive better interest rates if they complete the online interactive financial-education sessions. This is on top of the good payment behaviour they exhibit and the number of friends they recommend to use LendUp. 

This mechanism imprints good financial behaviour on individuals by using better interest rates as incentives. It also improves financial inclusion, as the platform welcomes borrowers with limited access to credit. 

More important, it keeps building the borrower’s financial knowledge through e-learning courses. 

Peer recommendation also spreads out the network effect of the good borrowers. Therefore, financial literacy will increase through a leveraging effect.

Digital platforms therefore can be tools to scale financial literacy nationwide. But the utmost key to success would be a national strategic direction from the government to shape the trend of financial well-being to the way that our country must be. 

Last, improved financial literacy would improve financial well-being by building more savings and investment, and better debt serviceability. This would make our country prosper, not only today, but also in the future.

Panawat Innurak is a specialist at TMB Analytics. He can be reached at [email protected] Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives.


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