Financial literacy is crucial to fight scams

The Securities Commission (SC) recently published its annual report for 2023. There were many important statistics in the report regarding the capital markets, but one of the most worrying data points is related to scams and unlicensed activities.

In 2023, the SC received 5,318 complaints and enquiries combined, which is 20% more than 2022. Among those, scams and unlicensed activities made up 3,262 or 61.3% of the 2023 total tally.

This is a jump of 32.5% from 2,461 in 2022 and more than four times the number (774) recorded pre-pandemic in 2019. With a limited number of enforcement and investigation officers in the SC, I truly wonder how they can cope with such a huge volume of cases.

Do note that these alarming figures are only those where complaints were lodged. Imagine the number of cases that go unreported or are reported to other authorities such as the National Scam Centre, the police and Bank Negara.

Of late, the SC has also put on notice a questionable gold investment scheme company on the investor-alert list. The SC’S chairman also highlighted during the media session that the regulators are investigating certain cash trust companies and flagged concerns for potential violations of capital market laws.

These outfits share similar modus operandi which promise unrealistically high returns or guaranteed returns which are red flags of ponzi schemes.

Importance of awareness

Year after year, hardworking but gullible citizens fall victim to an assortment of scams. While the modus operandi of these illegal investment schemes may change, the underlying rationale is always the same; it plays on human greed and the desire to get rich.

Many lament our enforcement agencies are not doing enough to combat financial scams and illegal investment schemes.

however, with the limited resources yet proliferating schemes out there, how much can our enforcement agencies do? This is not an issue that is unique to Malaysia.

In fact, it is a global phenomenon. It is especially out of control as scammers and masterminds abuse the wide reach of social media to find new unsuspecting victims.

The only way that we can reduce (not eradicate) is through continuous education and awareness. enhancing financial literacy of the general population is the best answer to the challenge at hand.

With increased financial literacy among the citizens, people will learn to differentiate between what is too good to be true and the real deal. After all, prevention is better than cure.

We cannot expect to be spoon-fed all the time along the way and when we fall victim, we blame everyone else but ourselves. It has to begin with ourselves. Financial literacy is as important as personal hygiene.

Start young

Japan, a nation known for its virtue of savings, where the majority of the population keep their savings in cash rather than invest, has introduced financial education as part of its mandatory school curriculum since 2022.

Personal finance forms part of the home economics module in high school and the purpose is to enhance financial literacy among its citizens while encouraging investment habits. More than 50% of the money is in cash and savings while less than 20% is in investment assets.

This is different compared to the United

States where more than 56% of the money is allocated to investment-related assets.

Scams and illegal investment schemes are highly detrimental to a nation’s economy – it is basically throwing good money after bad.

If we do not want our people to suffer from the aftereffects of falling victim to these social ills, we need to instil financial literacy from a young age.

What I am referring to as personal finance or financial education is not websites that hypocritically disguise themselves as “personal finance” guides when the entire platform is essentially marketing credit cards and personal loans.

These so-called personal finance websites are actually part of the cause of the problems where our youth fall into debt traps due to easy credit from credit card and personal-loan products.

True financial literacy means having the ability to differentiate between good and bad debts, with a healthy amount of debt to income and investment of excess cash or savings to build retirement nest eggs. This kind of proper financial education is severely lacking in our country.

Fake versus genuine gurus

With the rise of social media platforms especially video driven ones such as Tik Tok, Xiaohongshu, Facebook, Youtube and others, we have witnessed an explosion in the number of financial gurus and investment-related content creators.

This is good for the capital markets and it helps with financial literacy if those who create this content have noble intentions without any hidden agenda. The challenge is separating the wheat from the chaff.

Additionally, very often there is a blurred line between investment advice and investment education-related content. To provide investment advice, there is a legal requirement to have an SC licence.

Yet, many “fake gurus” without investment-advice licences promote themselves as financial educators. Some of these “fake gurus” have questionable credentials and non-existent track records; some are simply monetising their “students” by front-running them or getting them involved with syndicates who are behind pump and dump schemes.

We cannot expect to be spoon-fed all the time along the way and when we fall victim, we blame everyone else but ourselves.

Licence or registry

Currently, under the Securities Industry Development Corp (SIDC), there are examination courses and modules for those who intend to obtain licences from the SC.

however, not everyone who is passionate about finance or investment wants to work in the capital markets.

There are many who are passionate about educating the next generation, specifically in the area of financial literacy.

There should be an alternative route for them apart from the existing regulatory framework.

If we are serious about promoting financial literacy, regulators such as Bursa Malaysia and the SC can consider working hand in hand with the education Ministry to introduce a new licensing regime or registry for genuine financial educators.

By requiring them to register with regulators and be subjected to periodic audit or checks prior to annual licence renewal, background check or vetting can be conducted. It is also an effective means to set aside fake gurus from genuine financial educators or honest content creators.