Financial Literacy 101: Understanding and Applying Sustainable Investment

Dr.Teerapon (Dr.Yut) Tanomsakyut
Chief Executive Officer of Sustainability and Strategic Development, 
Charoen Pokphand Group

 

Financial Literacy 101 

By imparting knowledge essential for understanding and applying key concepts and principles pertaining to money, this is a subject serving as a survival guide for our volatile, ever-shifting environment. The key phrase here is "understand and apply” because financial literacy is not just about gaining knowledge; it also means having the necessary skills to make effective use of such knowledge. 

There is a popular misapprehension that financial security can be achieved by simply cutting down on unnecessary purchases and setting some money aside for a rainy day. But the judicious selection of investment opportunities is just one example of personal finance considerations meriting serious study. Altogether this is a subject crying out for compulsory inclusion in school timetables. 

The objective of making this a mandatory school subject would be to instill better monetary sense in future generations; in other words, increasing their financial awareness and making them money-smart. And this needs to begin with children and teenagers because the path to achieving financial acumen, as knowledge is acquired and skills practiced and honed, requires time and effort.

It also requires a positive mindset and real-world focus, with teachers, administrators and parents who lead by example to prevent students from approaching Finance as a difficult, dull or unrelatable subject of little relevance to their lives. 

 

 

The North American example
The growing importance of studying finance can be seen in the United States, where it is a subject now taught at high schools across 30 states. For instance, Capital City Public Charter School in Washington offers an advanced course called Financial Mathematics, going beyond algebra, calculus, and geometry to focus on investing, borrowing, credit management, and interest rates. 

This is part of an academic realignment in North America intended to produce school leavers who are equipped with practical skill sets applicable to life, work and/or further study. In Ontario, Canada, high school students need a score of 70% in Financial Literacy to graduate. This means learning about standard elements of personal finance like budgeting, saving and investing, but it also teaches how to manage financial risk and spot fraudulent activity and scams.

 

 

The case for Thailand

In recent times, financial literacy has received greater attention in Thailand too, especially following the 1997 Asian Financial Crisis and its traumatic impact on both an individual and societal level. While subsequent decades saw the economy mostly recover from that meltdown, today many Thais continue to struggle financially. Many still live from paycheck to paycheck, facing uncertain futures fraught with insecurity and anxiety.

 

 

Data from the National Credit Bureau reveals that – as of the first quarter of this year – Thailand's household debt has reached B13.6tn, a 3% increase on last year. 8% of this (B1.09tn) is classed as NPLs (non-performing loans), and also of concern is rising auto loan debt (up by 32% to B2.38tn) and credit card debt (up 14.6% to B63bn). The Bank of Thailand reports that only 17% of Thai nationals have invested in income-generating debt, while 67% are saddled with bad (non-deductible) debts. Furthermore, one in five Thais has what is considered an NPL.

The phrase "cut expenses, increase income" is often touted in Thai society—especially while economic circumstances continue to diminish household incomes in real terms—but spending is not something that individuals can always control. Essential items have been as affected by inflation as luxury goods. Nevertheless, greater financial literacy can help limit the damage caused by business failure, economic downturn or market crash, providing a buffer against volatility and allowing for faster recovery. At the very least, it can help people live more comfortably, steering them past the trap doors of financial hardship and bankruptcy.

Managing not just the money in your pocket but financial risk too

This leads us to the question of how to best help people acquire financial literacy. I have cited examples from abroad because I am convinced that instilling financial knowledge and skills at an early age – as is now the case in the US and Canada – will help people to cope better upon reaching adulthood with the slings and arrows of a volatile economy. 

Indeed, such an approach aligns with the Bank of Thailand's stance and adheres to guidelines issued by the Organization for Economic Co-operation and Development (OECD) which outline three success factors for financial literacy:

          1.Financial knowledge
          2.Financial behavior
          3.Financial attitude

To inform a proposed framework for Financial Literacy 101, here are my five practical steps for helping people of all ages to achieve success in each of the three areas:

 

          1. Life Goals – Financial Goals

Setting life goals helps us understand the type of life we want to lead, which in turn allows us to plan how to manage our finances in order to achieve those goals. This process involves distinguishing between needs and wants in a balanced way. 

Life goals should include short, medium, and long-term goals. For example, long-term goals might involve setting a retirement target, such as determining how much money you will need after retirement and how you will generate that income. Additionally, goals should be specific and measurable. For example, rather than simply saying, "I want to save money," say, "I will save B100,000 within 3 years." This approach makes it easier to track progress towards achieving your financial goals.

 

          2. Saving – Start Early

The cornerstone of sound financial planning is usually sensible saving. Setting financial goals may not be difficult, but consistency is the real challenge. I recommend starting to save as early as possible, especially when expenses are still manageable. A good starting point is to save 10-15% of your income and categorize savings for specific purposes, such as education, accommodation, retirement planning and so on. 

A minimum savings target should be enough to cover six months of living expenses, which can serve as an emergency fund in case of unforeseen loss of income. This emergency fund can help relieve financial stress and provide time to recover from setbacks.

 

          3. Turn Saving into Investment

A recent survey by the Bank of Thailand found that 87.5% of Thai people save money, but most of this is in cash or savings accounts. Only 2.6% of Thais invest their savings, which is alarmingly low. However, saving and investing have become intertwined, as "money can work for you." There are many investment products available to diversify risk, such as bonds, stocks, real estate, or life insurance combined with investment (unit-linked). 

The key idea is that money grows by outpacing inflation, which reduces the value of money over time. For example, if B100 used to let you buy ten cups of coffee (B10 each), but now only gets you five cups (B20 each), investing your money will help you overcome the effects of inflation.

Investing requires knowledge of interest rates, prices, asset allocation, and risk. Therefore, it is essential to educate yourself on investment options. One useful tool is the Sustainability Index, which ranks companies based on their adherence to sustainable business practices, including Environmental, Social, and Governance (ESG) principles.

Companies that score highly on this index show transparency and a commitment to societal and environmental well-being, making them a safer choice for investors.

 

          4. Debt Management – Avoid Bad Debt

Being in debt is not inherently bad; the challenge is managing debt to maintain liquidity. I recommend starting by creating a budget and understanding your debts, so you can plan your spending and repayment strategy. This helps you determine whether your debt is manageable. You should also have a plan for managing debt, such as paying bills on time, considering refinancing options, and building an emergency fund.

 

          5. Manage Taxes to Increase Savings

Paying tax is a civic duty in Thailand, but tax benefits can also help reduce your overall tax burden. A good tax strategy can ease the financial load, enabling you to channel more money into savings or investments. This begins with tax planning, where you identify any types of income and expenses which are eligible for tax deductions, especially legal tax exemptions. It is also important to explore investment options that provide tax relief, such as investing in Retirement Mutual Funds (RMF) or Voluntary Provident Funds (PVD).

 

Conclusion

Financial Literacy 101 is the first step towards understanding and managing money more effectively. It covers everything from setting goals, saving and investing, to managing debt and taxes. These are practical financial skills, rather than abstract or academic concepts; essential life skills enabling us to make informed decisions and face financial setbacks with a greater degree of confidence and much less anxiety. 

It is hoped that this article may inspire people to recognize the importance of financial literacy and use it to shape a more secure and sustainable way of life for themselves and those around them.