Inconvenient truth on financial literacy

LACK of financial literacy is an issue among Malaysians.

It has been reported that an astounding 90% of rural households do not have any savings at all. For urban households, 86% have zero savings!

Savings are vital for a healthy wealth management, and it looks like most Malaysians are suffering badly on this front.

A survey conducted by Bank Negara Malaysia shows that many Malaysians are still unable to make responsible financial decisions for their own wellbeing.

Malaysians tend to have low financial resilience and are vulnerable to financial shocks. The survey found that more than 75% of Malaysians said it was a challenge to raise RM1,000 cash in the event of an emergency. Cutting down on spending, borrowing from friends and family members, or depending on credit lines seem to be the solution when a large amount of cash is needed for emergencies.

It was also discovered that a number of Malaysians like to “live for the moment” and display short-sighted tendencies like focusing on “instant gratification”. This is mostly associated with the millennials who tend to be more passionate in keeping pace with the latest digital lifestyle, resulting in high borrowing, personal loans and credit card debts.

The survey also showed that majority of Malaysians do not practise long-term financial planning, with only 40% considering themselves as financially ready for retirement.

Life expectancy of Malaysians is at an average of 75 years. Therefore, savings need to last for between 15 and 20 years post retirement.

Unfortunately, numerous factors like low income, years of not contributing to the Employees Provident Fund (EPF), early retirement and poor medical condition will affect people’s savings. The EPF in one of its reports stated that 50% of retirees would exhaust their savings within the first five years of retirement!

Malaysians must remember that retirement means not receiving a monthly salary, overtime claims and the like and bonus anymore. Without sufficient retirement savings, you and your dependants will face a difficult situation.

To enjoy a monthly post retirement income of RM3,000, one would need to have a minimum of RM720,000 in savings. If the monthly expenditure is RM5,000, then a minimum retirement savings of RM1,200,000 would be required.

The survey also indicated that Malaysians are not able to make rational financial decisions. Many are prone to financial fraud and are easily attracted to “get rich quick” schemes.

Statistics from the police show that 1,883 cases related to financial scams were recorded from 2015 up to the first quarter of 2017. Total loss from these cases amounted to RM379mil!

Education is the key to ensuring that Malaysians have sufficient knowledge and ability to improve their skills in managing their finances.

Bank Negara, employers, community leaders and finance professionals could play their part in making us a financial-literate nation. Employers can invite financial or wealth professionals for town hall sessions to share knowledge on money management with their workers.

And start saving. This does not involve much skill but it is almost impossible for many. US statesman Benjamin Franklin once said. “If you would be wealthy, think of saving as well as getting.”

Once you can save consistently, start investing. Investments will help you grow your wealth and win the battle against inflation. With the compounding effect, you will be surprised at what you would have in the long run.

There is no magic or shortcut in preparing a good financial and wealth management plan. It needs discipline and awareness to get it right. As T. T. Munger, a US research scientist, said: “The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.”

SYED ZULBAKRI SYED JEMAL SHAH

Bandar Puncak Alam, Selangor