LETTER | Since 2011, when Fomca strongly felt that financial literacy should be given priority on the national agenda, it declared October as the Financial Literacy Month, whereby at least during this month, every consumer should evaluate his financial health as well as take measures to enhance his financial planning and management capabilities.

The data on the financial behaviour of Malaysian consumers are worrying. Incomes are low. Six million workers in urban areas earn below the living wage as proposed by Bank Negara Malaysia which it defines as the minimum wage that consumers need to live a minimum acceptable standard of living. 

Savings are low. It was reported that 88 percent of Malaysian households reported zero savings while 62 percent of consumers reported that they have not saved enough. 

Household debts are high. In 2019, household debt to gross domestic product (GDP) was 82.7 percent. A high household debt often means that households are vulnerable to financial shocks. At the micro-level, 47 percent of Malaysian consumers are classified as excessively over-indebted, that is their debt payments are more than 30 percent of their income. 

Further, a study on young workers reported that 37 percent were spending more than they earn. Thus Malaysian consumers were having low incomes, low savings and high debts.

In terms of financial literacy, Malaysians have relatively low scores. In a global survey on financial literacy, Malaysians scored 36 percent, compared to 59 percent in more developed countries. Only 28 percent of consumers reported that they have confidence in their financial management skills while only 31 percent reported that they have confidence in dealing with financial products. It has been reported that 70 percent of Malaysians need financial education programmes.

During this Covid-19 pandemic, the ability of consumers to deal with this emergency is critically undermined by two significant statistics. A total of 52 percent of Malaysian consumers would have difficulty to raise RM1,000 to pay for any emergency expenses. 

Further, only 24 percent of consumers reported that they have sufficient savings to last more than three months if they lost their main source of income. During this Covid, which clearly is not only a health crisis but also an economic crisis, the ability of consumers to withstand this shock is very much dependent on their savings to pay for essential expenses during the crises. 

Especially for those who have lost their jobs or have had their incomes severely reduced, the pandemic would have had a severe negative impact on their quality of life.

Clearly, financial education has to be given priority in national development planning. Malaysia does indeed have a National Strategy for Financial Literacy. 

On the ground, it is crucial that consumers, especially the young workers have greater access to financial education programmes to empower them to face the challenging economic environment.

The key objective of the financial literacy programmes is to empower consumers through knowledge and skills on the concrete steps that they can undertake in financial planning, better manage their finances and empower them with knowledge in purchasing products and services.

To enhance their financial planning and management skills, consumers can begin with tracking their actual expenditure, to get a clear picture of how they are actually spending their money. 

They can then make an assessment if they are spending appropriately, saving enough and making all their debt payments on time. There are various applications that can be used to assess ones’ financial health.

Next, they need to have clear financial goals, both short term and long term goals. A significant aspect of the financial goals has to be the ability to have enough savings to face financial emergencies as well as for long term needs such as their children’s education and their retirement. 

With the goals in mind, a monthly budget can be drawn. Having a budget is not enough. As one study has indicated less than 28 percent of consumers who prepare a budget stick to it, a conscious attempt has to be made to monitor actual expenditure and compare it with the budget. 

Then appropriate measures can be taken to be a more mindful consumer to ensure we better stick to the budget.

Thirdly, our debts need to be evaluated; they need to be a reasonable level, normally less than 30 percent of the salary. Further, all high-interest debts, such as credit card debts, need to be settled as soon as possible. As credit card debts are one of the biggest causes of serious financial problems, we need to strictly manage the debt.

Today, fortunately, there are many Malaysian websites and applications providing sound financial information and advice on financial planning and management practices as well as financial products such as investments, unit trusts, insurance and property. 

Consumers would benefit greatly in using these websites and applications to upgrade their knowledge and skills. In fact, in purchasing financial products, which are very often complex, consumers can empower themselves with the right knowledge before meeting the seller, so that they have the knowledge and information to make an informed decision.

In this challenging environment, consumers need to take the initiative to empower themselves to undertake positive measures in financial planning and management, and most importantly to acquire the knowledge to make informed decisions in interacting with the market for financial products and services.

This article brought to you by Fomca with the collaboration of Selangor’s state government through the Standing Committee of Consumer Affairs. NUR ASYIKIN AMINUDDIN is the deputy secretary-general of Fomca.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.