Go ahead and spend but do so smartly, urge experts

PETALING JAYA: While there is no harm in spending to make the Chinese New Year holidays special and enjoyable, Malaysians have been advised against racking up debts by splurging unnecessarily.

Experts have advised against pent-up spending following the full reopening of the economy in the Covid-19 endemic era.

“The strong pace of spending is a combination of revenge spending and the normalisation of consumer spending,” said Prof Dr Yeah Kim Leng of Sunway University.

He said that while recognising that consumer spending is a critical component of the economy, the government will need to encourage sustainable spending.

“It means those who can afford to spend, especially the middle and upper income groups, should resume normal spending,” said Prof Yeah.He explained that middle-class spending is crucial to sustain the economic recovery and offset the expected decline in external demand arising from the impending global slowdown or recession.

The low-income groups, on the other hand, should be encouraged to spend within their means and work towards rebuilding their retirement savings depleted by the pandemic downturn, he said.

During the many festive and holiday seasons Malaysians are blessed with, Prof Yeah said Malaysians should refrain from borrowing for big ticket items.

“Excessive debt is the biggest cause of financial distress and consumers should avoid being caught in a debt trap through prudent spending and saving habits,” he said.

Prof Dr Geoffrey Williams of the Malaysia University of Science and Technology said the additional spending last year was being supported by credit, debt and running down savings, especially Employees Provident Fund (EPF) withdrawals, as incomes were still subdued and had not returned to pre-Covid levels for many people.

Wages were suppressed as well, he said.

“It is a switch from a stock of wealth to a flow of spending, which has been very dangerous because spending and debt have gone up but savings have been wiped out for millions of people.

“In some cases, the EPF withdrawals were used to pay off debt and now consumers are running up the debt again,” he said.

Prof Williams added that spending sustainably was a question of being a smarter consumer.

“Better financial literacy and more personal responsibility are the most important things. You just need to plan better,” he said.“When there are price controls on chicken and eggs, for example, retailers quietly raise the prices of other products to recapture the lost profit.

“So prices rise for frozen, packaged and even non-food products. Again, they are passing on their costs to consumers. Consumer awareness is essential to controlling prices. We must not be fooled,” he said.Consumer Association of Penang education officer NV Subbarow suggested that using cash would help people be more in control of their spending as it was easier to overspend by going cashless.

“If you have money in your pocket, you know what to buy but with a cashless culture, more money will be spent, leading to more debt and more borrowing,” he said.

He reminded people to be mindful during the festivities and avoid splurging on non-essentials such as new cars, clothes or costly dinners.