Improvement in financial literacy needed

IT is tough to make perfect decisions when the world is buzzing about a global slowdown amid rising inflation.

Reducing spending, persevering and protecting your wealth should be key considerations in tough times.

Even notable economist Nouriel Roubini has warned of a possible “long and ugly’’ recession for the United States.

Its impact will be felt worldwide as global debt levels are high. This will drag down markets as inflation is rising.

He is the same man who had predicted the 2008 financial crisis.

Closer to home, our Finance Minister has predicted that Malaysia will not be spared by an expected global economic slowdown.

Hopefully, when the Finance Minister delivers his Budget 2023 speech on Oct 7, he will spell out ways to mitigate the hard landing amid a backdrop of a weakening ringgit against the US dollar and the looming 15th General Election (GE15).

We will have to brace ourselves for a tougher 2023, as there are no clear indications for now as to how long the slowdown will last.

But one thing is for sure, some goodies can be expected to be announced during the budget speech with GE15 nearing.

These handouts, according to licensed financial planner Kimberly Law, are to be expected and are short-term solutions that will help to ease current financial burdens.

However, the bigger issue at hand is how will the government fix the country’s financial health even if it is not at an alarming level for now.

“Tough, unpalatable steps are needed to be taken to bring Malaysia’s finances back to health.

“But given our fast-approaching GE15, I suspect there is no political will to take those tough steps,’’ said Manulife Investment Management (M) Sdn Bhd licensed financial planner Rajen Devadason.

What is evident is that after almost RM80bil being spent recently on providing subsidies to keep Malaysia’s official inflation rate – as measured by the consumer price index (CPI) – in the low to mid-single digits instead of the 10% or more that is warranted and given our tanking ringgit, the country’s finances are weaker than before, he added.

“If we find ourselves personally taking comfort in lower-income tax rates, we must realise such ‘gifts’ come at a massive national cost: deteriorating government revenue streams.

“If lower personal income tax rates truly materialise, then those of us who enjoy improved discretionary cash-flow surpluses can use our extra cash-in-pocket to do two specific things to improve our personal long-term financial health,’’ he said.

“This includes paying down our debts faster and saving and investing more aggressively and, ideally, internationally.”

One other big area the government should consider addressing is the rising number of scams that have seen several people losing their life-savings.

Financial literacy is key towards educating the population on the dangers of scams and unscrupulous money-making schemes.

Even though a lot of effort has gone into raising the level of financial literacy, huge gaps still persist.

Law is of the view that basics of personal finance should be taught in schools.

This can be a simple lesson on how to save, manage simple cash flow, spending/expenditure and unscrupulous schemes/scams.

“I hope to see formal education where the school syllabus can teach beyond just saving. People expect us to know how to manage our money when we are adults but that’s not always the case. We need to create good habits at a young age. If kids learn at a young age, it helps shape their minds towards personal finance,’’ Law added.

What the financial planning industry would like to see is incentives in the form of relief for fees paid by any taxpayer to attend personal finance, financial planning and retirement planning workshops, seminars, and conferences.

Law believes that such incentives will motivate more people and this will help lift financial literacy levels in the country.

Devadason added that a separate tax relief on annual unit trust investments, similar to those tax breaks given for insurance premiums and investments in private retirement schemes, would help inculcate the crucial habit of lifelong saving and investing among the populace.

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