Working with Citi Foundation to Improve Thailand’s Financial Literacy
Thailand’s Student Loan Fund was developed in 1995 as part of an effort to improve the country’s overall educational development and promote equal-access to higher education for young students. Set up in the form of a revolving fund, the Student Loan Fund was designed to provide loans to generations of university students who would otherwise not be able to pay for their tuition fees. In recent years, however, the system has come under increasing financial stress.
One of the major causes of this stress is the large number of delinquent loans currently under the Student Loan Fund. As of February 2016, 2 million out of 4.5 million debtors (or 44%) had either not repaid their loans at all or were behind on their payments, with a total of 56 billion baht (USD $1.6 billion) outstanding. More importantly, such a large percentage of delinquent debtors has had a major impact on the ability of the Student Loan Fund to make new loans to the next generation of young students.
Looking deeper into the causes of student loan defaults, officials from the Student Loan Fund found that there were two main groups of delinquent debtors. First, there were people who were either unemployed or whose salary was not high enough to pay off their debt. The second group consisted of those who have jobs with salaries high enough to pay back their debts, but still did not make payments. While the causes for this varied from person to person, there was clearly an overall level of financial irresponsibility contributing to the student loan default problem.
Seeking to resolve this issue, the Student Loan Fund is working to promote a greater sense of financial literacy and responsibility among Thailand’s students. Rather than pursuing time-consuming and expensive litigation, this method, which is mainly targeting the second group of delinquent debtors, is aimed at creating a long-term solution to the problem.
For the past two years, Kenan, with support from the Citi Foundation, has also worked to study and improve financial literacy throughout Thailand, under the Citi Literacy Improvements for better Finance in Thailand (LIFT) project. As part of the Citi LIFT project, Kenan recently published a research paper, which examined the problem of student loan defaults and concurred with key Student Loan Fund findings. In particular, Kenan found that young adults in Thailand broadly lack the knowledge and skills to successfully manage their personal finances.
Through in-depth stakeholder interviews with groups of students, Kenan learned that young adults in Thailand tend to place more importance on momentary consumption, rather than paying down debt or saving money for the future. Targeted by media-savvy marketing campaigns and with little formal financial management education, many young students use their salary after graduating, and in some cases their actual education loans, to purchase consumer goods, such as phones and motorcycles.
While the generally lenient penalties for defaulting on student loans were cited as one of the causes helping to escalate this issue, Kenan also found that there is a pressing need to develop the financial literacy and knowledge of students. Students need to be provided with a better understanding of financial issues, but also with the tools and skills to establish good financial habits and plan their finances. It is critical for both the Student Loan Fund and the future of Thailand that today’s students learn to understand the tangible connection between their finances and their lives.
Through the Citi LIFT research paper, Kenan worked with government, private sector, and university stakeholders to develop solutions to Thailand’s financial literacy dilemma. One recommendation with broad support is to promote the development of financial literacy as part of a national agenda. This would include a core financial literacy curriculum for 4th year university students, who would learn critical and immediately applicable financial planning and management skills before their graduation. Such a comprehensive and long-term solution would not only benefit the Student Loan Fund, it would also help to drive the socially and economically stable development of Thailand into the future.
Now in its third and final year, Citi LIFT is focused on strengthening a financial literacy coalition of key stakeholders, which was developed during the project’s first and second years, as well as promoting critical policy changes to key decision-makers, government leaders and other stakeholders. Additionally, the project will continue to carry out independent research and hold stakeholder meetings designed to both measure the existing financial literacy programs in Thailand and gauge the best methods for promoting financial literacy throughout the country. This year, Citi LIFT will also pilot a financial services capacity building program aimed at 100 train factory workers, and develop financial literacy curriculums.[:]