Bank Negara Malaysia deputy governor Abdul Rasheed Ghaffour said a significant number of Malaysians like to
KUALA LUMPUR: Financial education is crucial to encourage consumers to better manage their finances, plan for the future and manage risks associated to financial matters, says Bank Negara Malaysia deputy governor Abdul Rasheed Ghaffour .
He said on Tuesday a lot more is left to be desired on the state of financial literacy to realise financial well-being for Malaysians. Hence, improving financial literacy is an intricate and long term journey.
Through continuous and effective financial education, consumers would be able to improve their understanding of financial products and services, and develop skills and confidence to make informed financial decisions in their daily life.
Malaysians remain prone to financial fraud and abuse with a total loss of RM379mil from 2015 up to the first quarter of 2017, he pointed out.
According to the police data, he said the statistics suggest that greed and ignorance can give way to irrational financial decisions for many victims.
Abdul Rasheed also pointed out a significant number of Malaysians like to “live for the moment” and display short-sighted tendencies, which was true, particularly among the millennial generation”.
He said from January to August this year, AKPK’s (National Credit Counselling and Debt Management Agency) data indicated that above 3,400 borrowers between the ages of 20-30 years have sought AKPK’s assistance, as compared to 3,450 borrowers for the entire of 2016,” he said.
Speaking at a conference “Towards an effective financial education strategy for Malaysia - Realising financial well-being” organised by Fomca, he shared four observations on the state of financial literacy in Malaysia.
First, Malaysians tend to have low financial resilience and are vulnerable to financial shocks.
Among others, based on BNM’s Financial Capability and Inclusion (FCI) Survey conducted in 2015- more than 75% of Malaysians find it difficult to raise even RM1,000 of immediate cash money for emergencies.
Abdul Rasheed said 2% of Malaysians can only cover a week’s worth of expenses, at most, should they lose their source of income.
In cases of emergencies, Malaysians resort to cutting down on spending; or borrow from external sources, such as friends and family members; or even depend on credit lines, such as credit cards and instalment plans.
“An ideal situation is to have a financial buffer that is sufficient to cover living expenses of at least three to six months in the event of loss of income,” he said.
Second, the survey also revealed a significant number of Malaysians like to “live for the moment” and display short-sighted tendencies - focusing on “instant gratification”.
“This observation tends to be true, particularly among the millennial generation. Millennials are more passionate in keeping pace with the latest digital lifestyle,” he said.
Citing a study by the Asian Institute of Finance in 2015, Abdul Rasheed said the findings revealed that a majority of youth to be living on high borrowing costs.
More than one-third or 38% of youths rely on personal loans, while another 47% engage in expensive credit card borrowings. Often, they will soon find these debts to be burdensome and result in financial problems.
From January to August this year, AKPK’s data indicated that above 3,400 borrowers between the ages of 20-30 years have sought AKPK’s assistance, as compared to 3,450 borrowers for the entire of 2016.
Third, majority of Malaysians do not practice long term financial planning. Only 40% of Malaysians consider themselves financially ready for retirement, despite the steadily increasing life expectancy of Malaysians.
The poverty line in Malaysia is currently at RM950 per month, and based on the Employee Provident Fund (EPF), a retiree would need an estimate of RM228,000 upon retirement to generate sufficient investment income to live above the poverty line for the next 20 years.
However, according to Khazanah Research Institute, the average EPF savings of those in the 51–55 age group is only approximately RM160,000.
Lack of awareness on the importance of having sufficient saving for retirement can lead to profound results, including the struggle to meet post-retirement standard of living.
Fourth, Malaysians still lack understanding on risk and return and are not able to make rational financial decisions, he said.
Limited time offer:
Just RM5 per month.
