The Taiwan Banker
The “dual card storm” which occurred 10 years ago is still fresh in Taiwan’s memory. Even after large relief expenditures, a large number of “card slaves” still bear the consequences of bad decisions in that year. The subsequent 2008 debt crisis also caused endless consumer disputes for a large number of investors and financial institutions. The latest recent major products are Target Redemption Forwards (TRF), which may result in hundreds of billions of RMB in financial losses. Investors, financial institutions, and others may end up being stuck in lengthy arbitration proceedings for the foreseeable future, with continuing social losses. Although these financial disputes have different objects, reports from the Financial Supervision Commission (FSC), the Central Bank, and Control Yuan all show that the complexity of these financial products, and the failure of their sellers to clearly identify risks and responsibilities, are some of the main reasons for the recurrence of financial consumer disputes.
In view of Taiwan’s current operating environment, shrinking interest margins on deposits have turned service fees into the main source of financial operating revenue. From wealth management to credit cards, though, due to complex and esoteric contracts, financial customers often lack sufficient knowledge and skills to understand each contractual provision. This situation has become a ticking time bomb. After all, if consumers are unable to accept basic elements of financial common sense when investing or taking out loans – things like “no such thing as a free lunch,” or “high risk-high reward” – investment performance below expectations, or the burden from compounding credit card debt, will cause them to fall into inevitable financial distress.
Such blind spots highlight the need for Taiwan to further develop public financial education. “National Financial Education”, based on OECD definitions, refers to a process of universal education, using information provision, expert guidance, and objective advice to cultivate financial judgement skills and confidence. This process also allows financial consumers or investors to grasp the contents of various financial services, and clearly recognize their associated risks and opportunities, in order to make informed choices. It also covers how to seek financial advice, so that people can take effective measures to improve their financial positions.
Such education is also the basis for financial inclusion. For Taiwan in particular, excess savings accrued from sluggish capital investment over the years has increased the need for wealth management. Across multiple markets, though, including insurance, funds, and stocks, complex financial formulas make it difficult to express the existence of risks. Thus, in the case of poor results, cognitive differences emerging from either the buyer or seller may exacerbate disputes. The involvement of Taiwan’s booming civil democracy in these disputes also contributes to the impression that the “squeaky wheel gets the grease,” resulting in an imbalance between profit and risk, and eroding market principles. This is not a normal occurrence in sustainable financial development. Not only would comprehensive financial education more reasonably protect consumers’ rights and interests, but it would also allow people to grasp the truth in news of financial disputes, preventing the spread of damage, and also the stigmatization of financial profits.
Financial education for young people, single-parent families, and disadvantaged groups is particularly important, giving them opportunities to utilize financial services to realize their dreams, and add value, rather than being limited by credit card debt, tuition, and even underground lenders, stifling their precious youth and future. This is the true significance of universal financial literacy.