Digital acceleration hasn’t been sufficient. “The ability of people to process economic information and make informed decisions about financial planning, savings, debt and retirement” (as one of the definitions of financial literacy goes) is becoming more and more important around the world. Southeast Asia is not an exception, given the rapidly growing financial needs of the population and the range of financial opportunities.
A few years ago, the average financial literacy of the population in SEA (excluding Brunei and Laos) was estimated at 34 per cent, even higher than the global average of 33 per cent (2014). However, excluding the two leaders of the region — Singapore (59 per cent) and Myanmar (52 per cent) — it equalled only 27 per cent.
So, only three out of ten adults in the rest of the region could be called financially literate. For comparison: the top ten included seven European countries, as well as Canada, Israel and Australia, with indicators of 63-71 per cent.
Since then, the situation in Southeast Asia has improved significantly. The COVID-19 pandemic had a particularly powerful impact on it due to the region’s proximity to its epicentre. The rapid digitalisation of all spheres of life, including finance, increased the financial inclusion of the population, which also affected financial literacy.
For example, according to Fintech and Financial Literacy in Vietnam, the level of financial literacy was higher for people who used fintech products than for those who did not (score of 5.1 vs 4.3).
While in 2017, the indicator of financial exclusion in ASEAN was 46 per cent, in 2022, it decreased to 23 per cent. The region set the goal to reduce financial exclusion to 30 per cent by 2025 but significantly surpassed it much earlier due to the pandemic.
At the same time, there was an increase in the level of financial literacy. In a 2022 survey by the Indonesian Financial Services Authority (OJK), the level of financial literacy was 50 per cent, 12 per cent higher than in 2019. According to the 2020 Bank of Thailand/OECD survey, in Thailand, it equalled 71 per cent, up five per cent from 2018. Meanwhile, in the S&P 2014 report, this figure was only 27 per cent.
Nevertheless, the level of financial literacy in the region remains insufficient. The United Nations Capital Development Fund report (2022) stated that most countries in the region demonstrated little knowledge of basic financial terms, limited financial skills, including the inability to use an account without assistance and insufficient financial behaviour, such as saving for retirement.
Here is another example. According to the Philippine Financial Inclusion Survey (2021), only two per cent of respondents were able to correctly answer all six questions related to financial literacy. Only 30 per cent gave correct answers about simple and compound interest. Less than half of respondents (42 per cent) understood the impact of inflation on purchasing power, 13 per cent lower than in 2019.
No obvious connection between the development of countries and financial literacy
Despite the rapid acceleration of financial inclusion in the region, the status of financial literacy here still remains ambiguous.
On the one hand, this can be explained by the difference in the development of countries. For example, in Singapore, GDP per capita is almost US$134k, while in Laos and Cambodia, it is only US$9.8k and US$6.1k, respectively.
Another reason is different bases for accelerating financial inclusion. For example, Singapore and Thailand have already achieved high levels of financial inclusion. This has allowed reaching 98 per cent and 96 per cent of the adult population to own bank accounts, respectively. At the same time, in the Philippines, it is still only 52 per cent, in Laos — 37 per cent and in Cambodia — 33 per cent.
Finally, there is a difference in national efforts to increase financial literacy. UNCDF, for example, divides the countries into three groups: Pre-Formulation (start of creating a roadmap for increasing financial literacy — Laos, Myanmar, Vietnam), Formulation (working groups and roadmaps are ready — Brunei, Cambodia, Thailand) and Implementation (initiatives are being implemented — Indonesia, Malaysia, Philippines).
Centralised strategies result in such initiatives as educational programs at schools and universities (Cambodia, Malaysia, the Philippines, Vietnam), individual public, private and business initiatives (promotions, forums, programs, etc.), a gaming component (in Vietnam, for example, they develop games and simulators for children aimed at increasing financial literacy).
The efforts of international organisations are also important: the ASEAN committee is working to promote financial literacy, the UN organises educational courses for women in Cambodia, etc.
In all three cases, it can be assumed that more developed countries should have a higher level of financial literacy. However, even in Singapore, four out of ten respondents “lack knowledge of basic financial concepts such as risk diversification, simple and compound interest”.
According to another survey, the age group from 18 to 24 years old has the lowest level of financial literacy (35 per cent), and despite the national educational program aimed at improving financial literacy, this indicator failed to increase significantly. The situation is similar in other countries. In the Philippines, for instance, only seven per cent of respondents attended financial literacy-related events.
Financial literacy determines the future
As a result, Southeast Asia definitely shows the growth of financial literacy, with increasing financial inclusion and the spread of fintech products. On the other hand, various factors prevent it from corresponding to the current level of the regional financial system. As a result, the loan burden of the SEA population is growing, the level of cyber fraud remains high, and advanced financial instruments are not being properly spread.
The situation will not improve quickly. However, significant progress can be expected within the next 2-3 years, facilitated by:
- The growing penetration of fintech. A recent study by Robocash Group stated that the number of fintech companies in South and Southeast Asia has been growing rapidly over the past years. The popularity of online banking, super-apps, etc., is rising, and the user experience will quickly increase financial literacy. In addition, fintech businesses are usually interested in financially literate, reliable and responsible clients and are ready to implement educational policies for it.
- State programmes for the growth of financial inclusion and financial literacy have the potential to reach a new level, taking into account the growing global challenges.
- With the accelerating pace of the financial sector development, the quantity (of time) has every chance to turn into quality. Clients who are not ready to increase their level of personal financial literacy will lack access to modern tools.
The future of the macro-regional financial ecosystem is closely connected with financially literate consumers, and the main focus for market development remains transparency, humanity and long-term relationships between customers and fintech businesses.
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