I think that the main purpose of education is to impart knowledge and comprehension ability so that human beings will be able to understand what goes on around them and subsequently, be able to make informed decisions by themselves.

Being a product of the Singapore education system, I would say that the system is truly one of the best in terms of producing people who can ace examinations. Unfortunately, the system fails spectacularly in preparing one to make informed decisions about one critical aspect of life, and that is finances.

Of course, some people would point out that we are promoting entrepreneurship in schools. That teaches you, or rather encourages you to make money. However, it does not teach you how to spend money wisely. With the entrepreneurship drive, it seems to me that we are teaching that the solution to money problems is even more money.

This is a huge fallacy. How many people can actually be so sucessful at entrepreneurship that money is never a problem ever again? Most people either end up being a salaried worker, or perhaps owning a small-medium enterprise. For many of us, money will always be a constant headache.

It need not be a headache if we had the knowledge of how to manage our money properly. We need to teach our kids that the proper way to financial freedom is control of spending. It is certainly a whole lot easier to control spending compared to controlling income. We usually can make decisions on how much to spend, but we usually have little say over how much income we get.

It is not surprising that many people, especially young people are in debt. Our society has glamourised consumption. Symbols of success are often material objects, such as the size of the car, the size of the property, the size of the bank account and so forth. Credit is easily available through credit cards and easy loan schemes. It is small wonder why many young people are in debt.

So, what did we do to address the problem? Financial counselling avenues are set up to help these people. While it is good to have financial counselling to help those who are already in debt, the question now is why are we not doing anything to prevent them from getting into debt in the first place?

Personally, I didn’t understand anything about financial planning until I came to university and made myself take courses in accounting and finance. It wasn’t rocket science, but it opened my eyes, especially when I learnt the power of interest. I suspect that many peoeple don’t even know the exact cost of taking up a loan or racking up credit card debt because they do not understand how interest works.

Take for example a car loan. If you pay cash for the mid-size car (e.g. the Nissan Sunny or Mitsubishi Lancer), it’ll probably cost you about $55,000 upfront. The person trying to sell you the loan tells you that it only works out to be a monthly sum of about $700 over ten years, with zero downpayment. For a graduate with a good degree earning $3000 a month, $700 is not that big a deal. However, if you do the math, $700 x 12 months x 10 years = $84,000. Over ten years, you paid $29,000 of interest to the institution that gave you the loan.

Shocking figures? Actually, $29,000 is not your actual loss. If the money had been invested instead of being given to the bank, you would have earned interest on it. Assuming that you invest $2,900 annually over 10 years at a return of 5%, the $29,000 would have been worth about $36,500 at the end of the ten years. With $36,500, I can probably go on annual 2 week trips to any part of the world for the next 10 years.

To illustrate the concept of how interest can work in your favour, let’s take the same example again. Assuming that you invest $2,900 annually over 30 years at a return of 5%, you would have paid a total of $2,900 x 30 = $87,000 for the investment. However, your return at the end of the 30 years is about $192,000. You earned $105,000 by simply doing nothing but investing your money wisely. Of course, if you increase the amount of your investment, or if you manage to achieve more than 5% returns, you will certainly get back alot more money.

Therefore, I really think that our education system should incorporate some form of financial education. The concept of interest is not not some esotoric concept. It’s something that can be easily explained to the person in the street. Armed with this knowledge, I am sure it will save many people from suffering future hardships. For those who still get into huge debt when armed with sufficient financial knowledge, at least they suffer not as a result of ignorance.

While providing simple financial education to our young is not all that difficult, I wonder why has it not been done. The only explanation that I can come up with is that it is not in the interest of the economy to have the bulk of the population being financial savvy. Interest accounts for a huge chunk of income for many financial institutions. If people are not going to get into huge debt, how can these institutions make money?

If you take an economic perspective, debt is probably a good thing for the economy because it increases the circulation of money in the economy. However, from a moral perspective, debt is not a good thing, especially when people are unable to pay their debts. Bankruptcy has a social stigma attached to it. The individual who is in debt often will have to worry about how to pay the debts, and this can strain relationships with their loved ones. It can affect their ability to work, or even their ability to function as a normal human being.

It’s really about time that we consider implementing financial education. If we can have things like moral education and sex education, why not financial education? After all, an education is abut equipping a person to be able to make informed decisions, no?