The lifestyle-driven spending habits of millennials, as well as the general public’s slow adoption of technological developments in finance, are among the challenges to increasing financial literacy in Indonesia, fintech players have stated.
A financially literate person, according to the Financial Services Authority (OJK), has knowledge of financial institutions and financial products, including the features, benefits and risks, as well as the skills to utilize financial products and services.
However, when it comes to investment, millennials allocate a mere 10 percent of their income for savings, according to William, director of marketing, communication and community development of the Indonesian Fintech Association (Aftech).
“This is a problem of paradigm. They [millennials] have income, but 90 percent of it is not allocated for savings or investment, [it is spent], for example, on lifestyle,” William said during a livestreamed media briefing on Aug. 6.
“Financial literacy does not happen in a vacuum,” he added, indicating that addressing the country’s low level of financial literacy had to take into account how people’s allocation of resources was affected by social pressures.
According to a Bank UOB Indonesia 2019 survey, Indonesian millennials, those aged between 21 and 39 years old, spend 50 percent of their income on a so-called “4S lifestyle”, which stands for sugar (food and beverages), skin (beauty and personal care), sun (travel and leisure) and screen (digital screen consumption).
The Indonesian population still suffers from low financial literacy. A 2019 survey by the OJK on financial literacy found that the country scored 38.03 percent on the financial literacy index and 76.19 percent on the financial inclusion index, up from 29.7 percent and 67.8 percent in 2016, respectively.
A recent case involving financial advisory firm PT Jouska Financial Indonesia highlights the issue. Jouska, which used to have a large following among young people on social media, was recently shut down by the government over allegations of illegal stock brokerage and investment mismanagement.
Meanwhile, the public’s lack of adoption of technological developments in the financial industry has also affected efforts to boost financial literacy, said online lending company KoinWorks vice president of marketing Frecy Ferry Daswaty.
“The biggest challenge [in financial education] is the acceptance of developments in financial products and the willingness of the public to learn about them and how to use them,” Frecy said during the media briefing.
Frecy said there was a noticeable gap in financial literacy between urban and suburban areas, with KoinWorks needing to start from the basics for the latter, while it could build on existing knowledge with the former.
Horas V M Tarihoran, OJK’s financial literacy and education director, said that from 12,000 people that the OJK surveyed for its financial literacy report, only 31 percent answered that they had used internet-based financial services.
Some respondents stated that they did not need fintech, others revealed that they did not understand it, while the rest said they did not trust such platforms.
“We want to increase financial literacy and inclusion, but both have to go in the right direction. We want people to buy products because they know they need them,” Horas said during the media briefing.
He explained that lately, people were attracted to some investment products because they were lured with the promise of a definitive return, even though investing is never be free of risks.
“We want people to understand their needs and the risks involved,” he said.
The government aims achieve a score of 90 percent on the financial inclusion index by 2023 to 2024, according to Horas.