Financial Education Network was finally launched by our PM recently. The former Bank Negara Governor, Muhammad Ibrahim on 15th November 2016 announced the establishment of a Financial Education Network (FEN) to coordinate and drive a national financial education strategy in Malaysia. Bank Negara initiated the idea of FEN and co-chaired with Securities Commission of Malaysia. The High Level Inter-Agency Steering Committee was supported by working groups established to drive specific initiatives. The initial members comprising of Ministry of Education (MOE), Perbadanan Insurans Deposit Malaysia (PIDM), Employees Provident Fund (KWSP), Credit Counselling and Debt Management Agency (AKPK) and Permodalan Nasional Berhad (PNB). Besides these ministry and agencies, the FEN also worked with other relevant government ministries, industry associations, consumer groups and other key stakeholders to deliver, monitor and measure financial education initiatives under a coordinated national strategy.
Since 2011, Federation of Malaysian Consumers Association (FOMCA) together with Education and Research Association for Consumers Malaysia (ERA) has proposed to the Government to form a National Financial Education Commission to integrate and coordinate financial education for all sectors, including schools, young workers, community and families to be taught in schools to create awareness among young Malaysians on how to manage their finances. An important plight felt on deft ears and it was not implemented. Hence, today many youngsters and young executives are bogged down with debts. It took almost 5 years for Bank Negara to embark on this vital issue and another 3 years for the network to materialize. But how long more will it take for the FEN to implement in the school curriculum rather than in stages?
FOMCA proposed the idea after obtaining results from a survey they did on Financial Behaviours and Financial Habits of Young Workers in 2011. The survey showed many Malaysian were incompetent in handing their own finances. It was an ugly truth that we have to live with. The survey was funded by Citi Foundation as one of the components in the Stretching Your Ringgit Financial Education Program. The results were indeed shocking as it found that 15% of among the young workers had no savings. Besides that 47% of young workers were in serious debt and they were paying 30% or more of their monthly gross income for the debt.
In a report that was commissioned by the Capital Market Development Fund in 2018 to investigate the financial status among Malaysians, they came out with shocking results too. According to Malaysian Financial Planning Council (MFPC), 26% of Malaysian do not save at all. The figure is staggering as compared to what the statistics that FOMCA revealed 7 years back. What is more worrying is 40% of working Malaysians do not plan ahead financially which could lead to disaster if this issue is not looked into. The government must take heed from these figures and enhance to educate the young Malaysians on issues pertaining to finances as we hope to see a financially balanced Malaysians.
FOMCA believes that these figures could have been minimized if not eradicated if the financial literacy has been introduced much earlier to consumers regardless of their age. Financial Literacy is an important aspect that each and every consumers must know. It must be implemented in schools as well as institute of higher learning and The Ministry of Education must take the lead in formulating a complete and total Financial Literacy curriculum rather than harping on issues which are not that important.
What is Financial Literacy?
Financial literacy is an avenue for consumers to obtain knowledge and education on various financial areas including topics related to managing one’s personal finance, money and investing. This topic focuses on the ability to manage personal finance matters in an efficient manner, and it includes the knowledge of making appropriate decisions about personal finance such as investing, insurance, real estate, paying for college, budgeting, retirement and tax planning.
WHY Financial Literacy is important?
The cost of living has been on the rise for the past few decades. Prices of basic needs such as houses, clothes and food have escalated making it more difficult for many Malaysian to lead a normal life. They are adversely affected as they are not able to cope with the present economic standard as compared to their wages.
According to Standards and Poor’s study on Global Literacy Financial in 2018, it reported that financial literacy rate in Malaysia is below 40%, compared to more than 60% in developed countries. This figure is something we should be worried about as even Myanmar and Bhutan have attained more than 50%.
Financial literacy helps consumers become self-sufficient so that they can achieve financial stability. Those who understand the subject should be able to answer several questions about purchases, such as whether an item is required, whether it is affordable, and whether it is an asset or a liability.
Two of the eight pillars of Consumers rights are freedom to make a choice and to get information of the products. The onus is on consumers to make the right choice taking into account of their financial status. Financial literacy will help consumers to make the best of their financial situation to invest such as in insurance as well as other legal investments which will benefit them in the future. Consumers have the freedom to choose the best policy deem fit for their budget. They should insist the agents to provide them with all the important information that they need to know before purchasing them. Consumers need to ask the agents to explain on the fine prints precisely so that they know the product they intend to invest in. This will elevate a lot of issues if consumers are aware of it.
In fact, FOMCA launched the Financial Literacy Month a few years ago with the theme Financial Responsibility Begins with Me. The programme was in collaboration with Perbadanan Insurans Deposit Malaysia (PIDM). The main idea behind this programme was to educate the consumers on how to develop and maintain healthy financial behaviours and habits for financial wellbeing.
Without early Financial literacy, many young consumers will fall into high levels of debt which might include bankruptcy. According to the Minister in the Prime Minister Department Datuk Liew Vui Keong, in 2018, there were 303,415 bankruptcy cases handled by the Insolvency Department. This will definitely affect the productivity and the revenue of the country in the long term.
Consumers these days are investing in tangible items such as electronic items which have high depreciation value. With financial literacy, they would be able to judge on the proper investments which in turn bring about good returns such as insurance policies, bonds released by the government or Amanah Saham Nasional. Nevertheless consumers should be well informed of the products and must take some initiative to study the product. This is where the financial literacy comes in. Competent and knowledgeable consumers with strong financial literacy background will make the right and wise choice.
Knowledge in financial literacy will allow consumers to make decisions within their financial capacity. It will give them the maturity to manage and preserve their wealth thus further strengthen the position of consumers. Besides that, it gives consumers the conviction to protect themselves against poor market practices and take necessary actions when treated unfairly by agents or the insurance company. Consumers with increased financial competence will be able to help themselves as well as their families by raising their standards of living. Hence, our country will be better off economically.
According to Bank Negara Malaysia, financial system needs to provide a conducive environment for maximum participation from consumers. Unfortunately, regulation has its
limitation and consumers succumb to incompetent advice from agents as well as officers from the service providers. Besides that, information asymmetry continue to persist which ends up consumers falling into the trap. Agents and consumers with bad behaviour too mar the financial environment.
Consumers must be vigilant on which financial service providers they are going to deal with. They ought to do some homework on what kind of investment they plan to invest. With basic or good financial literacy background, it will enable consumers to make better and wise decision when it comes financial matters. In a nutshell, consumers must embark into a mission to enrich themselves with financial knowledge before venturing into any financial investment.
Be a financially literate consumer.