“I was one of those teachers that would seek help from a money lender on a regular basis and would pay back the loan once I received my salary.”
This used to be the norm for many of the teachers at the institute according to Judy Norman, a tertiary education business tutor at Kamaliki Technical Vocational Education Training Institute (TVET) in Goroka, Papua New Guinea (PNG), living week by week on money borrowed from a moneylender.
“As an adult and business tutor, I know that I should have been managing my money wisely, but it wasn’t something that I easily practiced,” she said.
Since being part of a Financial Education (FinED) pilot programme, implemented by the Pacific Financial Inclusion Programme (PFIP), Judy shared that the lessons have improved her money management skills and motivated her to take the necessary actions to change her financial behaviour.
“I realized the irony of the fact that I was teaching basic financial management skills to my students, while I was not managing my own finances well. So I opened a separate savings account and I’m really happy to see my savings grow. I would not have been able to do this if I had not made the decision to start budgeting and stop spending my salary on items that I can do without.”
She added that one can also save for traditional obligations that often drives Papua New Guineans to taking out small loans.
She says that the key learnings from the Financial Education curriculum she is imparting to her students is being aware and making informative financial decisions when it comes to seeking a loan and most importantly to live within their means.
“When teaching Financial Education to my students, I stress the point that they need to prioritize spending their allowances or earnings on necessities. For instance, parents need to spend their income on weekly food grocery shopping, school fees for children and paying electricity bills and rent. Additionally, if they cannot afford something then they will need to set a savings goal and progressively save to buy that item at a later date instead of taking out a loan and spending money they don’t have whilst still having other important expenses.”
Judy’s story is not uncommon in PNG. According to the World Bank’s Papua New Guinea Financial Consumer Protection Diagnostic 2018 report, one quarter of Papua New Guineans obtain credit from unlicensed moneylenders. Though there are no official statistics available, it is estimated that PNG’s unregulated lending sector may range from approximately 50 to around 280 registered businesses that offer short-term (pay-day) loans to government employees and to some private sector employees. That is not even taking into account all the non-registered businesses offering the same services.
Global practices around pay-day lending vary. In some countries, pay-day loans are repaid through deductions made directly by the employer from the borrower’s salary. In PNG, the borrower will be asked to surrender their ATM cards and PIN number. Interest rates charged by these money-lenders for most of these small loans are much higher than what the commercial banks charge, reflecting the high risk of default on these unsecured loans. The moneylender withdraws what is owed from the borrower’s account using their ATM cards and when the debt is cleared, returns the cards with a withdrawal receipt.
Many low-income working families in PNG struggle to manage everyday cash flow. A lack of savings to buffer against financial woes, such as emergency medical bills, traditional obligations, such as burials and other unexpected life expenses can drive families to resort to these moneylenders. Over time borrowers find it hard to break out of the recurring cycle of pay-day lending, often referred to as a loan trap.
Coordinator at the Goroka TVET Institute, Francisca Kuman, believes that financial literacy and financial planning can be very good tools to address this issue in PNG. “Our society has money management issues. A strong savings culture is not something that we are brought up with, so financial competence is an important life skill that should be taught in our school system.”
Students in the building and wood work course at Kamaliki TVET learn about financial education and how to relate it to their everyday lives. PC: Erica Lee
“Financial Education is having a very big impact on our community. I can definitely see a change in everyone that has been part of PFIP’s FinEd pilot programme. There is a noticeable decline in the purchase of items like betel nut, cigarettes, and alcohol. The students are now saving at least two kina a day from the pocket money their parents have given them. Though this may seem like a small step, but it is a positive one they’re taking for their financial future,” she added.
PFIP Financial Education Specialist, Abigail Chang, said that the FinEd programme helps students gain a better grasp of financial products in the market and how to make informed decisions about these products, especially when it comes to understanding fees and interest rates charged. She added that FinEd also introduces students to best practices on savings and helps them to increase their savings with products such as term deposits, insurance and investments.
“It creates the right conditions that will help PNG achieve the Sustainable Development Goals, particularly Goal 1 of No Poverty. Financial Education helps Papua New Guineans to take control of their personal economic lives and avoid poverty by saving and investing their financial resources.”
Kamaliki TVET was the first tertiary institute that PFIP worked with under the Regional FinEd Implementation. The project focuses on embedding financial education curricula into the coursework of all fields of study in tertiary education institutions across the Pacific with the objective create graduates who are better equipped to deal with financial decision-making once they enter the labor market.
It is expected that annually around 1,000 students will graduate from Kamaliki TVET with not only qualifications in their fields of study, but also a better understanding of how to manage their incomes.
Students in the building and wood work course at Kamaliki TVET learn about financial education and how to relate it to their everyday lives. © Erica Lee
Funded by the European Union, the project is a result of the 2020 Money Pacific Goals, endorsed by PNG in 2009 and the Maya Declaration commitments made in 2013. Financial education and financial literacy are also joint national priority areas identified within the National Financial Inclusion Strategy 2016-2020 launched by the Bank of PNG in December 2016.
PFIP is jointly administered by the United Nations Capital Development Fund and the United Nations Development Programme with funds from the Governments of Australia and New Zealand and the European Union.
Faculty members of the Kamaliki Technical and Vocational Training Institute in Goroka, PNG © Erica Lee