Beyond Real Estate: China’s Push For Financial Literacy
By Dan Kadlec
March 28, 2018
After decades of reform and opening up its economy, China is launching a consumer financial literacy push. The hope is that an increasing number of newly enriched citizens will invest their personal savings in something other than real estate, and in so doing fuel continued growth.
China thus joins developed nations from Japan to the U.S. and less developed nations from Malaysia to Sierra Leone in viewing financial education as a vital economic engine. Gil Beltran, chief economist of the Philippines Department of Finance, estimates a more financially literate population could add up to 4 percentage points to the growth rate in his country.
China has plenty of firepower. The country boasts one of the highest household savings rates in the world—a staggering 37%. No other OECD nation comes close. Switzerland and Luxembourg consistently register in the teens. The U.S. typically clocks in between 3% and 7%. Japan and the U.K. are even lower.
A high savings rate may underpin economic growth—but only when the money is put to work funding business activity. So far, China’s personal wealth has mostly been steered into real estate, where it has spurred a decades-long boom in land values.
So much has poured into housing that real estate has taken on cultural significance. “Young men are not considered eligible bachelors unless they own land,” says Zak Dychtwald, author of Young China. “Ownership provides a sense of security that is especially important to parents of the bride.” Some Chinese only half-joke that the Confucian pressure to couple off and start a family is what has propped up housing values for so long.
Policymakers are not blind to this development and now see financial education as a way to get individuals to diversify. Just 15% of urban Chinese own stocks, which have been a hard sell since the first shares were offered to the public in 1984, Dychtwald notes. This reticence is ripe for change. Chinese millennials have seen such broad economic gains and wealth creation in their lives that they embrace risk—to the point…
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…where they may believe too much in the idea of getting rich quick.
This is another reason to launch a national financial literacy campaign, one goal being to temper thoughts of grandeur by counseling steady-as-you-go investment for the long term. “The financial literacy level of consumers is critical to the healthy development of the capital markets,” Zhou Baoluo, chairman of Junior Achievement China, recently noted.
JA has a long history of promoting financial literacy around the world. In China, the organization has teamed with Hang Seng Bank to offer financial education in the southern province of Guangdong, where it has helped 2,000 students in seven high schools learn about financial planning and employment apprenticeships.
In some respects, China is way ahead of the game. In an OECD global financial literacy assessment, 15-year-olds in Shanghai outscored all other regions. They tallied an average score of 603, topping the 18-nation average of 500 and outpacing ninth-ranked U.S. teens’ score of 492. Meanwhile, says Dychtwald, China’s young are already adept at the emerging cashless society, which promises greater inclusion as individuals bank and invest via their mobile devices.
Still, Shanghai is not representative of the nation. The average Chinese individual’s financial literacy grade is a failing 63.7%, according to research from the nation’s central bank, Peoples’ Bank of China. That research shows that four in five Chinese say they would benefit from financial education. It seems China’s policymakers have heard the cry.