Question

In: Economics

If you had to explain the financial system to a group of middle school students, how...

If you had to explain the financial system to a group of middle school students, how would you boil it down for them without losing their attention?

Describe some reasons as to why the general public is not fluent or aware of the importance of investments and the financial system. What can we do as a society to improve in this regard?

Solutions

Expert Solution

To help middle school students, to understand the financial system, the best way is to create a role play where one student will work as a depositor or lender, second student will work as an intermediary (bank), third student will work as borrowers and other few students can participate as consumers. Now, the lender deposit money to the banker, the banker will promise to pay interest rate to the depositor. Further, the banker will give funds to the borrowers and promises to pay the interest to the banker. Here, rate paid by the borrower will be always higher than than rate paid to depositor. Now Borrower will buy some goods and sell to the consumers (other students) and earn  profit. From profit, borrower will pay interest to the banker and banker will pass it to the depositor. It is the most simple view of the financial system that facilitates the movement of funds and students can learn it without losing attention.

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There are different reasons for the mentioned behavior of the public. The first reason is the lack of awareness programs or educational programs run by the authorities for the people so that people don't acknowledge it. The second reason is the lack of robust financial system that does not make confidence among the people. It makes people to keep money at home, rather in the banks or in capital market. The third reason is the lack of media exposure so that they could not learn the benefits of investment via new channels, business news portals or trading agencies.

Following can be done to bring improvements:

A. Develop and implement free investment awareness and training program via schools, colleges and community centres

B. Customize the program in regional languages if possible

C. Give incentives to trading companies to bring attractive schemes for investments

D. Develop regulatory mechanism that protects the interests of the consumers or investors and cover up some part of losses via specific insurance plans


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