Crypto risks: Start financial literacy education early
THE ban by the Monetary Authority of Singapore (MAS) on advertising by cryptocurrency service providers in public areas is timely, given the alarming rise in popularity of this highly risky form of investing. Clearly, the MAS is concerned about naïve investors suffering debilitating losses if trading in these little-understood instruments is left unchecked.
The problem however, is that the effectiveness of the move could prove only temporary. After all, an industry that has managed to flourish with no widespread understanding of how its instruments work can quite conceivably, in time, find ways to circumvent regulatory curbs to reach their target market. This in turn raises a key question - who are the intended targets of crypto trading? In Singapore, anecdotal evidence from industry insiders is that a large proportion of crypto traders here are young - the chief executive of a crypto platform has been reported as saying that over half its customers are aged 25 to 44. In other countries, the same demographic prevails. In the US, one study found that the average crypto trader is below 40 years of age and that 35 per cent have annual household incomes under US$60,000. The UK's Financial Conduct Authority (FCA) also found that 69 per cent of under-40 traders investing in cryptocurrencies wrongly believe that trading is regulated.
In other words, it appears that punting cryptos appeals more to younger individuals who are likely not high-income earners and who are tempted to try their luck because of the ease with which accounts can be opened. Most are also likely to think that crypto trading is regulated by the authorities.
This raises the very real possibility that an entire generation of investors could become conditioned to believe that a hugely risky, unregulated and little-understood form of investing is the best way to grow their savings. How best to address this problem? The obvious solution is through education of the risks involved, which is what most countries are doing. The FCA, for instance, has embarked on a campaign using a well-known sports personality to warn of the dangers of investing in high-risk assets. While this approach could yield results, a better and more permanent method would be to convey the message through financial-literacy education conducted at a young age, possibly even in schools. Here, China and New Zealand could offer pointers. The Chinese authorities announced last April plans to enrol its primary and secondary school students in financial literacy courses, the aim being to inculcate awareness, self-discipline and understanding of what it will take to make sound financial decisions.
New Zealand's national financial literacy programme, Sorted, includes a component called Sorted in Schools, where secondary school students are taught topics such money management, debt, retirement planning and even investing. When it was launched three years ago, the head of the country's commission for financial capability said: "Good money decisions have a momentum, and so do bad ones; we want our young people to benefit from good early decisions across a lifetime." The same thinking should apply here.
