Financial literacy key to staying out of debt

IN recent years, Malaysia has seen a surge in the popularity of buy now, pay later (BNPL) services. These platforms allow consumers to shop now and pay in instalments, often without interest.

While BNPL can seem like a convenient way to manage short-term purchases, it’s becoming clear that many users are falling into debt due to inability to settle their payments.

To make matters worse, some are turning to their Employees Provident Fund (EPF) savings, specifically EPF Account 3 (Akaun Fleksibel), to cover their BNPL obligations. But is this a sustainable solution?

According to Finance Minister II Datuk Seri Amir Hamzah Azizan, BNPL transactions surged in the second half of 2024, reaching RM7.1bil, up from RM4.9bil in the first half of the year.

While BNPL services are marketed as flexible payment options, they have created a debt trap for many, especially among younger consumers and those with limited income.

Statistics show that 47% of BNPL users are aged between 31 and 45, and many are earning below RM5,000 a month.

For these individuals, the ease of deferred payments becomes an invitation to overspend. However, when the due dates arrive, many find themselves unable to pay off their balance in full. This leads to late fees, accumulated interest, and a negative impact on their credit scores.

Some Malaysians, struggling to pay off their BNPL debts, then look to their EPF Account 3 to make ends meet.

Account 3 was introduced to give members access to their savings for non-retirement needs, such as medical expenses or urgent financial emergencies. As of late 2024, Malaysians had withdrawn over RM10.78bil from Account 3 with millions of members under 55 accessing their funds for short-term relief.

While this flexibility offers immediate support, withdrawing from EPF is not without consequences. The funds in EPF are intended to secure our retirement.

When we dip into these savings prematurely, we’re not just taking money out of our account, but we are also eroding the compound growth that would have bolstered our retirement funds.

What seems like a short-term fix today could result in a long-term financial shortfall.

Relying on EPF withdrawals to pay off BNPL debt is a dangerous cycle. The real solution lies in better financial management and awareness.

The government and financial institutions must do more to educate consumers about the risks of BNPL and the importance of saving for retirement. Financial literacy should be taught not only at the university level but also integrated into the school curriculum so that people can start managing their money wisely from an early age.

For those already in debt, it’s essential to seek professional advice and explore alternatives to EPF withdrawals.

Debt restructuring, creating a strict budget, and prioritising essential expenses over discretionary spending can help reduce reliance on credit.

By focusing on long-term financial well-being and making informed, responsible decisions now, we can avoid the pitfalls of debt and create a financially secure future for ourselves and our families.

SALINA ABDULLAH

Senior lecturer

Faculty of Accountancy

Universiti Teknologi MARA Melaka Branch