Budget 2023 should address financial literacy

WHEN you are in retirement and swindled off your life savings with no means to get new income sources, what do you think should be the best punishment for the scammer?

This is an important question that the Finance Minister should address when he delivers his maiden budget this Friday.

Scams are happening every minute across the globe and millions have been lost to them. Those scammed are left powerless and poorer with no avenue to regain their monies.

Perhaps, using capital punishment for the worst scammers may deter some and that is Manulife Investment Management (M) Bhd licenced financial planner Rajen Devadason’s view.

“The government should change our laws and allow judges, when circumstances warrant it, to use capital punishment for the worst scammers,’’ he said.

Lack of financial literacy is a main factor why people fall for scams and no doubt many agencies are involved in furthering financial literacy but more needs to be done.

“Scams are also getting more creative and adaptive to the changing environment since the level of financial literacy is low.

“It’s best to teach good habits like how to budget, live within one’s means and control impulsive spending in schools because this is when the young people have few risks.

“It’s best to incorporate personal financial management in school’s education,’’ Uno Advisers Sdn Bhd licensed financial planner Kimberly Law said.

Devadason added that the government, in its efforts to further promote financial literacy, should look into ways to elevate the quality of education in English, Mandarin, science, technology, engineering and mathematics.

On top of that, the government should extend specific grants to several agencies for two purposes:

> To run free-to-the-public financial literacy, financial planning and retirement planning workshops and talks throughout the country;

> Low-cost one-hour consultations with vetted members of the public needing to speak to licensed financial planners throughout the year.

The need for financial planning, freedom and literacy is key to people being able to manage their finances better. It also allows them to plan ahead for their future and retirement.

Recent reports highlighted that the Employees Provident Fund (EPF) withdrawals over the past two years have put pressure on retirement savings for many.

More than 8.1 million EPF members have seen their median savings drop by 50% in 2022, a report said.

Mixed feelings

Allowing people to withdraw the EPF savings may have helped them then. But there are mixed feelings over future withdrawal schemes.

Law said the savings into EPF should be “used when you stop working or retire. It should not be withdrawn and used now when you’re still working.’’

Then again, every once in a while the idea of having tiered dividend rates for EPF pops up.

To this, Devadason said: “It is a bad, unfair and counterproductive suggestion. Bad because it penalises those who have worked hard, unfair because those with high balances have already paid the lion’s share of income tax collected in Malaysia.

“It is ineffective because the more than three million EPF account holders with less than RM1,000 in the superannuation fund will not see any material improvement in their long run balances that way because their base capital sums are too low.’’

To help people save for their retirement, Devadason recommended that Malaysia moves its retirement age up, before 2026, to at least 65 to help deal with the fast-ageing population.

Law added that the government should promote or incentivise efforts and initiatives for more voluntary EPF contribution or setting up separate retirement funds like endowments (besides EPF) to raise retirement savings.

To save more and ride through the current challenging times, there may be a need to “work overtime or do some side gigs” to make more money.

“This can result in the better motivated and more industrious among us choosing to ramp up our weekly working hours from about 40 hours to 80 hours a week to bring in more money and the excess funds should be used to get out of debt faster and to beef up retirement savings,” he said.

He believes that’s how we can rehabilitate our national retirement shortfalls, not by waiting for government handouts.

Law concurs and added that education is the main key to help people retire with enough savings and not to rely on handouts.

“We should be responsible to educate ourselves to build good financial habits,’’ she said.

Given the government’s financial situation, it may be too early to hope for personal tax cuts. Devadason believes that Malaysia’s fiscal position is truly dismal after decades of rampant corruption, the tolerance of wastage, and deep pockets of incompetence in some parts of the public sector.

“Our fragile finances mean we don’t have the financial latitude to lower taxes. I think we have to raise them, but very carefully. As soon as possible we have to widen our tax base by ensuring more people pay income tax,’’ he said.

He also said that “along the way we should ferociously punish corruption and diligently eliminate wastage by acting on the useful insights from each year’s auditor-general’s report.’’

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