Let’s Go Back To The Basics Of Financial Literacy, Shall We?

It is the second quarter of 2018, and technology is getting more exciting! Almost on a daily basis, stories of new innovations are popping up on our news feeds.

Technology is slowly taking dominance in the world, challenging mindsets, hacking cultures and transforming the way we communicate with one another.

Languages are evolving with new words being introduced into the vocabulary. One of the popular buzzwords today is “fintech”. Many people use it, not truly knowing what it actually means.

Simply put in layman’s term, fintech is the combination of two words – finance and technology. It is the application of technology in the area of finance.

As much as it is a buzzword, fintech is actually not a new concept.

What’s new then? 

Any solution, service, product or methodology that changes the way money moves is considered fintech, and that includes the way we borrow, lend, pay, transfer, trade and more.

So, from an automated teller machine or a credit card to online banking, they all qualify as fintech. However, it is the Industry 4.0-type technologies in finance today that make fintech a huge deal.

One of the more popular ones today is Bitcoin.

It has been around for about a decade now but it drove such a craze in 2017 with its sudden rise in value. I personally know people who are investing heavily in Bitcoin due to the fear of missing out.

Of Bitcoins, blockchains and blah 

What is Bitcoin, really? It’s a type of cryptocurrency – the pioneering one, in fact.

A cryptocurrency is basically a digital currency that is secured through encryption techniques known as cryptography, unlike fiat currencies (legal tender whose values are backed by issuing governments).

The technology that powers a cryptocurrency is known as the blockchain, another highly popular term. Many describes blockchain as “a distributed ledger”.

Well, what does this actually mean? For most of us, the last time we heard the term “ledger” was probably in the accounting class at school.

Distributed ledger? Is it a set of ledger books with copies of all financial transactions that are then distributed to everyone within the network? Somewhat yes.

It is the simple idea of taking the power of information off a single person and distributing it to everyone on the network, resulting in the integrity and transparency of information.

READ: Why Talk Up The Tech Revolution, When Asia’s Problems Are Largely Pre-industrial?

Misplaced priorities? 

Everyone’s focus is on the advancements of fintech and the innovative solutions that come out of it. Bear in mind that these are still tools, not skills.

Perhaps more attention should be given to the pre-requisite knowledge that is needed prior to using these tools.

However sharp an axe may be, it is pointless if one doesn’t know how to swing it. What is the good of financial technology when so many of us still struggle with financial literacy?

The number one problem in today’s generation and economy is the lack of financial literacy.

 – Alan Greenspan, American economicst

In our younger days, we were taught to count with our fingers before moving on to the abacus and the calculator.

We memorised multiplication tables and learnt mental arithmetic. As a result, we could always figure numbers out with only a pen and paper.

The sudden rise of technology has created much convenience, and when there is no regulation on the distribution of such technologies, we begin to misplace its priorities.

For instance, our parents (the baby boomers) used to check the receipts after making a payment. We (generally the Gen-Xer and later), on the other hand, tend to be more focused on making the payments through the near-field communication (also termed as NFC) technology on our smartphones.

Our parents were busy making sure they were paying the right amount, while we were busy thinking about paying through the latest technology.

Even at a typical mamak restaurant, how often do we check on what the waiter writes on the piece of paper that is supposed to pass off as the bill?

We eat, hang out, grab the “bill” and proceed to make the payment. That is how ignorant most of us have become in financial literacy in the race towards embracing financial technologies.

Financial literacy is crucial 

A tool is redundant without the knowledge to use it. It is like using a calculator without knowing mathematics.

The calculator becomes just a fancy display with buttons. That is how crucial financial literacy is. It’s more important than any form of fintech!

We keep hearing about stories of young people who go bankrupt due to credit card debts. Is it the technology that is at fault, or the lack of financial knowledge?

Then there is the great epidemic of the “penny wise, pound fool” phenomena that has been hitting our shores lately.

Malaysians have been crying out all over social media because of the rising cost of living, and then we wipe our tears and crowd the malls to buy lightly-discounted smartphones and fragrances.

We lament almost every Thursday for the fuel prices, and then we drive to cafés to enjoy a nice plate of overpriced designer hawker food and heavily-sweetened drinks in the name of good coffee.

At the end of the day, perhaps it is all about the ambience, and the need to look impressive with a branded coffee cup in one hand and a ‘retina display’ device on the other, even if it costs us our savings.

Get our foundations right 

Even if we are equipped with the latest hardware and software to host the latest fintech solutions in the market, nothing guarantees financial stability besides financial literacy.

Fintech provides financial conveniences, not financial solutions. This is perhaps one of the most important awareness we ought to have when understanding fintech.

We have to manage our excitement towards fintech and put in more focus on upskilling ourselves with financial literacy. For too long now most of us have outsourced basic computation skills to technologies.

I was recently on a phone call with a customer service agent who was explaining to me a 20% discount of RM200. She went on to assume the entire process of the mathematics behind it, and that 20% of RM200 became RM170 under her assumption.

Simple mathematics like these, and if you recall the popular BODMAS (Bracket of Divide, Multiplication, Addition and Subtraction) rule are essential in constructing the foundations of financial literacy, which should begin at home and in schools.

Wisdom from the past 

Many of us have been on a quest to undo the foundations of humanity that were set by our forefathers.

In the name of reasoning and political correctness, many methodologies and mindsets were challenged and we were quite triumphant in most of them.

As a result, many old but good practices are now gone. We’ve successfully undermined the collective wisdom, knowledge and experiences of our previous generations by calling them ‘outdated’.

When we think about it, these were the generations who went through real hardships in life – the two world wars, communism, extremism – and not only survived but also rebuilt civilisation to what we see today.

In other words, these ‘outdated’ methods and ways of thinking worked in the worst of times. Their emphasis and constant nagging on the old ways with stories that we constantly make fun of were valuable knowledge.

In those days, people knew how to rebuild from scratch because they were equipped with foundational knowledge, resilience and strong leadership.

Nations like Japan rebuilt their economy after suffering atomic disasters. Singapore, being a small nation without much natural resources became a strong economic powerhouse.

Bringing it together 

Knowledge is important, but what’s more important is the application of knowledge, and that requires leadership.

Every one of us are capable of being leaders. At the very least, we ought to lead ourselves well in life.

In terms of fintech, we must make intentional efforts to learn the theory behind a particular technology and to understand how things work.

It is like learning the basic survival skills of starting a fire. If such a day arrives when stoves and microwave ovens don’t work anymore (I hope not), we’d still survive.

Likewise, if such a day comes when technology collapses, we’ll still have the foundations to figure things out.

We must take the lead to restore the foundations we once had. To the generations who have been made to feel outdated, your knowledge, wisdom and experiences are very much needed especially in times like these.

Transfer them, teach us, share your stories and equip us with the truths of the realities of life, and most importantly, help us rebuild our foundations.

Essentially, we ought to assume leadership at every level to advocate the importance of financial literacy. There has to be an intentional effort in enabling this.

Let us take a break from Bitcoin, blockchain and all the buzzwords/tools available. And let us focus on what really matters at the end of the day.

After all, it is not how much the wallet is, but how much is in the wallet that matters.

Arun is the Digital Initiatives Lead at Leaderonomics. He believes that we should never settle for today and never quit from tomorrow, and therefore aims to inspire as many as possible to pursue their purpose, passion and dreams. What did you think of this article? Tell us at editor@leaderonomics.com.

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