Financial Literacy

According to Acil Tasmans PNG LNG impact study, average annual cash flow to landowner groups will be around K260 Million per annum. That equates to a total of K7.80 Billion Kina over the expected 30 year life of the project. Clearly, a proportion of this will need to be spent. But in an ideal world, a proportion should also be saved.

Lets conservatively assume that 30% of this income or K78 million will be saved every year and invested monthly at a rate of say 5%.

If K6.50 Million is saved every month for 30 years, a total of K5.41 Billion will be saved.

During this period, landowners will:
• Contribute K2.34 Billion in monthly payments
• Earn a total of K3.07 Billion in interest

Through the power of compound interest, landowners will earn a risk less return of over K3 Billion.

Contrast this with the likely scenario whereby the entire funds flow will be squandered on consumer goods (largely imported and sold in outlets owned by foreign interests), social vices (such as alcohol and gambling), investment on depreciable assets (such as imported motor vehicles), other ill advised investment vehicles and on illegal contraband (such as firearms and the like).

In a society where extended family networks, tribalism and “short termitus” abound, it is almost inevitable that the cash will be again squandered unless such things as the power of compound interest can be provided to landowners through formal financial literacy programs.

Financial literacy is the ability to understand finance. More specifically, it refers to an individual's ability to make informed judgments and effective decisions about the use and management of their money.

Given the enormous amount of funds that will flow to landowner groups, it is imperative that they be armed with the ability to make those informed judgments in order to effectively manage their funds for the benefit of their children and their children’s children.

PNG 2020 Recommendation 1 – Develop a Financial Literacy program for the benefit of landowner groups with a view to broader facilitation throughout PNG.