Zeti Akhtar Aziz: Financial education for meaningful inclusion
Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia (Bank Negara
Malaysia), at the Citi-FT Financial Education Summit 2014 "Financial Education for
Meaningful Inclusion", Kuala Lumpur, 5 November 2014.
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It is my great pleasure to be here this morning at the Citi-FT Financial Education Summit
2014. First of all, allow me to welcome the Citi-FT Summit back to Kuala Lumpur. It is my
honour to once again address this Summit that has now become an important forum for
advancing the financial literacy agenda. It was in 2004, at the inaugural Citi-INSEAD
Financial Education Summit in Hong Kong that I spoke on financial education in the context
of the demographic forces in Asia and their consequent implications for financial consumers,
in particular for women in Asia. Today, another demographic shift - the "rapid urbanisation"
- provides a new context to our discussion on the challenges in pursuing meaningful
financial education strategies to achieve effective and responsible financial management in
our communities. My remarks today will focus on the changing demographics and the role of
financial education in enhancing the ability to cope with the realities of this new environment.
Asia has probably experienced the most rapid demographic change in the world. In these
recent two decades, several Asian economies have had to deal with a number of new
challenges including slower population growth, rapid aging, the intensification of urbanisation
and the consequences of increasing life expectancy. Asia's urban population has risen from
33% of total population in 1990 to 43% in 2010. The United Nations projects that Asia's
urbanisation rate would rise to 56% in 2030, and further to 64% in 2050. Accompanying this
urbanisation has been the growth of mega-cities with populations exceeding 10 million.
Twelve of the world's 21 mega-cities are in Asia, including Tokyo, Delhi, Mumbai and
Shanghai to name a few.
Urbanisation has become particularly more pronounced in Malaysia during this period. The
proportion of the Malaysian population living in urban areas has increased from less than
50 percent in 1990 to more than 70 percent in 2010, and is expected to rise further to 75
percent in 2020. The improved education and higher income levels that has come with
urbanisation has enhanced opportunities for greater access to financial products and
services. Indeed, financial institutions and markets have responded to the changing profile of
financial consumers by offering a broader range of financial instruments and providing
convenient access to meet the changing consumer preferences.
It is recognised however that economic growth and development, no matter how stellar, will
begin to fade when inequality sets in and when income disparities widen. Balanced growth is
therefore an important imperative if socio-economic progress is to be achieved and if
conditions that limit opportunities for employment and which deepen inequalities of income
and wealth are to be avoided. For several emerging economies, such conditions are
reflective of the growing phenomenon of the urban poor, with significant implications for
social stability and balanced growth. To address this, inclusive growth strategies have gained
prominence in recent years among the policymakers in the region. This needs to be further
reinforced by strategies targeted at preparing individuals at an early stage to be well
equipped to adjust to the new economic, financial and social realities that confront them. This
is where financial education has a fundamental role.
A key concern in this environment is to strengthen the capability of financial consumers, in
particular household and small businesses, so as to avoid being marginalised by market
forces and by the disproportionate impact of the changing financial and social landscape.
Related to this is the need to reinforce socially responsible finance, and to address the new
and growing risks of financial exclusion. Sophisticated risk-profiling methods employed by
financial institutions can make it more difficult for deserving individuals and businesses to
qualify for financial services. Among those that qualify, aggressive marketing practices and
more complex financial products can also lead to poor financial decisions at a time when
economic and financial reforms are also shifting greater responsibility to individuals to plan
and provide for retirement and unexpected developments. Marketing practices that target
select groups of consumers often further deprive the broader segments of society from new
products that can better meet their financial needs.
The way in which financial services are delivered to consumers is also moving towards more
cost-efficient channels that reduce the need for face-to-face contact. Enquiries and
complaints are largely handled by phone or e-mail, and usually in a highly fragmented
manner by different parts of a financial institution. This can mean less effective advisory
support for the vulnerable groups of financial consumers. More recently, the wider adoption
of electronic channels to make and receive payments has had enormous potential for greater
financial inclusion. Key to this progress is the access to the relevant technology and
safeguarding its security and thus gain the willingness to trust it. This will also involve the
awareness of its benefits.
These developments can be overwhelming to consumers and businesses who are
illequipped to make informed financial decisions due to their inadequate knowledge on
financial matters, thus diminishing their effective participation in the financial system.
Symptomatic of this has been the rapid growth in household debt and leverage in a number
of countries. This has been particularly prevalent in an environment of ample liquidity and low
interest rates. This is also being reinforced by changing social norms, such as social
pressures to spend, which has further eroded financial discipline among households. Such
pressures are further compounded by the rising cost of living in the urban areas. Financial
capability levels have however generally lagged the socio-economic changes that are taking
place, resulting in poor financial management.
While financial products and services have become more complex, new delivery channels
are also having the effect of increasing the distance between product providers and
consumers. For example, more pervasive non face-to-face channels can make it more
difficult for consumers to seek information. Financial education messages are also often
overshadowed by competing commercially driven messages that dominate the delivery
channels. While considerable attention has been directed at reforming the incentive structure
to better align the interests of financial agents and consumers, such changes need to go
further to improve outcomes for consumers.
In this environment, the financial education agenda needs to be addressed by the collective
efforts of policymakers, non-government organisations, consumer advocacy groups and the
financial industry to deliver a sustained education programme that will equip all segments of
the population with the necessary financial knowledge to save, invest and to insure against
adverse events. The financial education strategies and learning interventions need to be
tailored to the consumers' conditions, culture and education levels, and to be responsive to
their requirements, thereby enhancing their prospects for improving their economic
wellbeing.
A well designed financial education strategy can encourage greater effective participation in
the mainstream financial system, and keep individuals already in the mainstream from being
financially excluded as a result of changes in the financial landscape. A recent report by the
OECD has highlighted that a lack of awareness of different types of financial products, low
level of confidence and poor knowledge of how products work are barriers to financial
inclusion. These factors will become more acute in an increasingly complex and
technologydriven financial system. Financial education has an important role in breaking such barriers.
This will require more innovative approaches, broader partnerships and a deeper
understanding of the social attitudes. Our own experience in Malaysia through the work of
Bank Negara Malaysia and the Credit Counselling and Debt Management Agency (a
subsidiary of the Bank) has shown that the impact of financial education strategies depends
on the ability to effectively combine broad-based and targeted strategies, and having a
wellcoordinated approach that relies on multiple channels to reach different groups.
Financial education is also a lifelong endeavour, from encouraging children to save their
pocket money to helping adults attain financial security and independence for their old age.
In supporting the inclusion agenda, financial education initiatives in Malaysia are designed as
an important life skill, where consumers are exposed to knowledge on financial management
during the different periods in their life. An increasing trend is for financial capability to be
promoted from an early age through the integration of financial education into the formal
school curriculum that covers basic money management, spending and savings, credit and
debts, e-payments, financial risk management and consumer responsibilities. For the youth
and adult segments of the population, Malaysia has also adopted a life event approach to the
development and delivery of financial capability programmes. This is reinforced by a
dedicated focus on the vulnerable segments of the society, such as how to plan for
retirement, the importance of living within one's means and behaviours that can lead one into
high indebtedness. These programmes are delivered to consumers in the workplace and
colleges.
Our collaboration with employers has proven to be particularly effective in delivering financial
education on responsible financial management. Under this approach, strategic alliances
have been forged by the Credit Counselling and Debt Management Agency with more than
200 organisations in Malaysia to deliver financial capability programs at the workplace. Equal
emphasis is given to developing the enabling infrastructure to support the effective delivery
of financial capability initiatives. In Malaysia, the meaningful access to financial education
contents and tools, a rigorous assessment framework and an effective partnership that
involves the Government, educators, non-Governmental organisations and the financial
industry form the vital components of the enabling ecosystem to support the overall financial
education strategies.
In many instances, changes in consumer behaviour are needed for the intended benefits to
be realised. In Malaysia this is the case in the efforts to promote e-payment as a means of
improving economic efficiency, productivity and competitiveness. Central to this agenda has
been the implementation of various financial education initiatives to encourage changes in
consumer behaviour and to inspire confidence in the use of e-payments. Financial education
has had a critical role in equipping consumers with knowledge to utilise e-payments
responsibly, and to help consumers protect themselves from risks of financial scams that
exploit specific vulnerabilities associated with online payment platforms. Financial education
has also been a lynchpin in our efforts to encourage retirement planning. As life expectancy
increases, consumers are expected to effectively plan and manage their finances for their
retirement. Specific financial education are being introduced, particularly for individuals at the
early stages of entering the workforce to provide the relevant information and skills to save
and manage funds for their retirement.
A further objective of financial education is to reinforce the consumer protection agenda
including to be adequately protected against market failures and misaligned incentives. This
has become more relevant in the recent period with increasing global pressures being
exerted to significantly strengthen prudential and market conduct regulation following the
global financial crisis. Emerging economies in particular continue to face practical challenges
in embracing global standards in a manner that is also aligned with enhancing opportunities
for inclusive finance. Financial education is an important link in the efforts to build a financial
system that is resilient against crises and abuse, while limiting the adverse socio-economic
implications that can arise. While the government has a key role in driving the financial
education agenda, the private sector also needs to be actively engaged in the education of
financial consumers. A commitment to financial education should be a natural extension of
the financial industry's commitment to professional and ethical conduct in doing business. In
Malaysia, a national network for financial education is being pursued involving the several
key stakeholders to provide a platform to drive, prioritise and coordinate the financial
education initiatives.
Financial education strategies also needs to be accompanied by a strong focus on
developing a robust consumer protection regime with emphasis on fair treatment,
transparency and effective recourse that promotes a culture of responsible conduct by
financial service providers. The experience of the global financial crisis has clearly
demonstrated that an effective consumer protection framework serves not only to protect
individuals from excessive risk; it also has an important role in protecting the financial system
from systemic risk. A particular focus on consumer protection policies, and one that is key to
advancing the financial inclusion agenda, should be to protect vulnerable groups and ensure
that financial innovation is pursued in a responsible manner. The board and senior
management of financial service providers have a key role in setting the right policies and
incentive systems that support fair and responsible business practices. Financial service
providers that embrace fair dealings are likely to enhance their competitive advantage by
building stronger and more lasting consumer relationships and enhancing their brand value.
Fair dealings can also reduce exposures to reputational risk arising from poor business
conduct, as evidenced by recent incidents of mis-selling and resulting sanctions by conduct
authorities.
Going forward, the challenges imposed by the rising trend of urbanisation and other
demographic changes are set to become more pronounced. The implications of this for
financial education strategies are far-reaching. It will require a fundamental re-thinking of
current approaches to delivering financial education that will have its optimal impact. The
approach will need to be comprehensive and with all stakeholders in the financial ecosystem.
We have a shared responsibility to develop effective channels for delivering financial
education, build the necessary infrastructure and continuously evolve relevant financial
capability programmes that will facilitate consumers to make sound financial decisions with
confidence, and cope successfully with the new emerging economic and financial
challenges. This Summit provides an excellent opportunity for stakeholders to come together
to generate new knowledge and ideas in our journey towards achieving effective participation
in the financial system through financial education. It is such concerted efforts that will
strengthen the potential to create an enduring impact that will make the difference in
achieving a more balanced and sustainable economic future.