Home' Trinidad and Tobago Guardian : December 3rd 2015 Contents It is said that money makes the world
go around. In many countries---and
T&T is no exception---there is an
intense focus on education. The allo-
cation for education in the national
budget is generally in the top two.
Another area that is of focus locally, especially
with the current state of oil and gas prices,
is economic development.
The expectation is that a more educated
society will produce greater opportunities for
economic development and, effectively, a rising
tide will carry all towards becoming a more
Yet, at its core, both education and economic
development are about increasing access to
mainly financial resources for the population.
In simple terms that is money. Acquiring that
resource (money) without understanding how
to manage and maintain it means that pros-
perity can become fleeting, at best, or just
simply an exercise in futility. Recall the other
saying: "a fool and his money is soon part-
We can debate whether financial literacy is
a precursor to economic development and
becoming a developed country, or whether
economic development brings about a level
of financial literacy. Either way, the point
should be clear that the two constructs goes
hand in hand and whether the relationship is
causal or coincidental is not, in my view, fun-
damental to the discussion.
Need to improve
What is fundamental is that as a country
we need to strive towards greater levels of
financial literacy. There is sufficient anecdotal
evidence to suggest that we are nowhere close
to the levels that we should be.
Our awareness of the need to prepare for
life in retirement, the level of participation by
locals in the T&T stock market, how we handle
debt, even our understanding that inflation is
cumulative and so a fall in inflation does not
mean that prices are falling, are common finan-
cial issues where we are often found want-
A couple weeks ago Standard and Poor s
produced a Global Financial Literacy Survey.
T&T was not one of the 140 countries included
in the survey yet we can probably gauge where
we are by looking at other countries that are
similar to ours and see where they ranked.
Overall Norway, Denmark, Sweden, Israel
and Canada were the top five nations with
the most financially literate populations in the
world. The UK was sixth, Germany was eight
and the United States came in at 14th.
The top ranked countries came in with a
score of 71 while the US had a score of 57.
Costa Rica with a score of 35, ranked 69th in
the world and Jamaica with a score of 33 would
be at or around 80th. Panama scored at 27
and Singapore 59, higher than the US. If one
can assume that we would be in the range of
Panama and Costa Rica then we have some
work to do if we are to boast of a population
that can sustain economic development.
The survey was based on the questions
posted in the side bar. Taken at face value it
may seem simple enough yet the reality is
that two thirds of the world s population or
66 per cent failed the test.
To pass, respondents were required to answer
correctly three out of the five questions. Based
on the results in places like Costa Rica and
Jamaica, T&T would be similarly positioned
where two thirds of the population are not
Counting the cost
There is, of course, a cost to financial illit-
eracy. For an aging population such as T&T
those costs are higher and will come due quick-
er than we expect.
Generally speaking, financial ignorance leads
to a person borrowing more and saving less.
As our population ages rapidly, insufficient
savings will mean more people being dependent
on the State when they retire.
People who lack a functional understanding
of finance end up with larger debts over time
and because they eventually become more
risky borrowers end up paying higher interest
rates. If this practice is persistent then they
end up living paycheck to paycheck. This is
not just about low-income individuals. There
are many individuals with quite decent
employment prospects who find themselves
unable to properly manage their financial
Very often we mistake those with nice assets,
a big house and a fancy car, as being wealthy.
In fact, one could very well be asset rich and
cash poor. More so, if those assets are funded
by large amounts of debt the net worth which
is the sum of the assets minus the liabilities
could be quite small.
Many who live such a lifestyle are at risk
if their cash flows suddenly change. Once
again, the emphasis is on the fact that financial
literacy is not something that is only for the
poor in society.
Some people may have the knowledge to
be considered financially literate but how they
apply that knowledge is questionable. This is
because there are natural human behaviours
that go against sound financial judgment. This
is often why it is both prudent and practical
to engage the services of a qualified financial
Role of an adviser
A question that I often ask at financial plan-
ning seminars is as follows. If I offer you
US$100 today or US$101 next week and you
are completely certain that you will have access
to either option as promised which would you
If you choose to take the US$100 today then
you would be in the majority. The implication
is we turn our backs on a US$1 return in one
week, which on an annualised basis represents
a 52 per cent return. It is a natural human
tendency to refuse that incremental US$1 sim-
ply because we don t understand the value in
terms of the return on offer or the idea of
"just getting a dollar" is not worth waiting a
Yet when you multiply and compound these
decisions daily, weekly, monthly, annually and
eventually over a lifetime the cost to your
financial well-being can prove to be quite sig-
A couple years ago, Robert Shiller, professor
of Economics at Yale University and a Nobel
Prize winner, suggested that everyone should
have a financial adviser. We have mechanics,
lawyers, accountants, doctors but few can
boast of having a financial adviser on hand.
According to Shiller it was important for
low and middle-income families to get pro-
fessional advice going so far as to suggest the
need for financial advice is similar to the need
for medical advice. He even suggested state
sponsored programmes where advisers who
help lower and middle income households can
gain compensation from the state in the same
way that legal aid and basic medial services
The benefits to be derived from such a
proactive approach to financial literacy and
financial management, in general, are likely
to outweigh any costs and there are social
implications as well in terms of the role that
money plays in marital relationships, providing
for health and retirement services as well as
just basic peace of mind and comfort.
Traditionally, we leave these matters to
financial service providers. However more
often than not companies end up pushing
their products. In any event, there are no
checks and balances to ensure "product push-
ing" does not take place.
Ultimately, the middle-income end up being
poorly advised and the lower income who
can t avail of financial services to the extent
that it is profitable to the service provider
remains with no support whatsoever.
As we try to move the society forward, to
make more of less and overall make better
financial decisions I will end as I started. A
financially literate society and a developed
country go hand in hand.
If you have any question on the topic of
financial advice, please contact Ian Narine
via email at email@example.com
BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 3 • 2015
Are you financially aware?
Test yourself as well as any
young adult in your care:
1) Risk diversification
Suppose you have some money. Is it
safer to put your money into one busi-
ness or investment, or to put your money
into multiple businesses or investments?
A) One business or investment
B) Multiple businesses or investments
Suppose over the next 10 years the
prices of the things you buy double. If
your income also doubles, will you be able
to buy less than you can buy today, the
same as you can buy today, or more than
you can buy today?
A) The same
3) Numeracy (interest)
Suppose you need to borrow US$100.
Which is the lower amount to pay back?
A) US$100 plus three per cent
4) Compound interest: Part 1
Suppose you put money in the bank for
two years and the bank agrees to add 15
per cent per year to your account. Will the
bank add more money to your account
the second year than it did the first year,
or will it add the same amount of money
B) The same
5) Compound interest: Part 2
Suppose you had US$100 in a savings
account and the bank adds 10 per cent
per year to the account. How much
money would you have in the account
after five years if you did not remove any
money from the account?
A) More than US$150
B) Exactly US$150
C) Less than US$150
and a developed nation
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