More and more Malaysian consumers are getting into serious financial problems due to poor financial knowledge, wrong attitudes and poor financial habits leading to irresponsible financial behaviour. And yet, despite the overwhelming data, the government appears unwilling or unable to commit to a national strategic plan to address the issue. Current financial education efforts are fragmented, piecemeal, ad hoc and lacking a clear strategic direction.
Despite the so-called National Financial Blueprint 2011-2020, which seeks to build a “comprehensive and holistic approach towards consumer protection and education”, we still have a long way to go. FOMCA has been strongly advocating for a National Financial Education Strategy to ensure a systematic and strategic approach to financial education, to ensure that all consumers, especially those who need it most, will have access to financial information that would help develop responsible financial behaviour as well as make informed decisions on the increasingly complex financial products and services.
The macro and micro level data of the financial behaviour of Malaysian consumers is not encouraging. In 2016, the then Deputy Minister of Finance had reported that household debt stood at 89% of Gross Domestic Product. It had been reported that this was the highest household debt to the gross domestic product in Asia. A high level of debt increases the sensitivity to households to any shock of their incomes. Next, the level of savings of Malaysian households is low. According to the Malaysian Human Development report, 53% of Malaysian households have no financial assets while 88% of households reported zero savings. Further, income levels of Malaysian consumers are low. According to Khazanah Research Institute, for individuals, the median salary is RM1,700 per month. Further, 62% of active Employees Provident Fund (EPF) members earn less than RM2,000 while 25% of EPF members earn a monthly salary below the poverty line of RM930.
The number of consumers being declared bankrupt and those seeking assistance from the Credit Counselling and Debt Management Agency (AKPK) are also increasing. A total of 294,000 consumers have been declared bankrupt due to failure to settle their car loans, hire-purchase loans, credit card loans, personal loans, housing loans and social guarantor debts. 70% of those declared bankrupt were individuals between the ages of 35 and 45. Since the formation of AKPK in 2006, 619,000 consumers have attended AKPK’s counselling services and out of this number 195,000 have enrolled in their debt management programmes. Out of the 195,000, AKPK assisted 14,000 to fully settle their debts totalling RM593 million. According to AKPK’s statistics, the major reason faced by clients was poor financial planning.
Studies have also been conducted on the financial behaviour of young workers. In their study, the Asian Institute of Finance (AIF) found that 75% of consumers aged 20 to 33 had at least one long-term debt and 37% had more than one long-term debt. To offset this, respondents were relying on high cost borrowings that 47% were engaged in expensive credit card borrowing while 38% reported taking personal loans. FOMCA in their own study found that 47% of young workers were excessively indebted. The AIF report further indicated that 70% were living beyond their means.
The respondents in the AIF study were also not confident of their financial knowledge. Only 28% of the respondents felt confident with their financial knowledge. The report also suggested that young workers have little knowledge on how to make wise purchasing decisions.
Interestingly, the AIF study found that there was a positive correlation between financial knowledge and responsible financial behaviours. That is those with higher financial knowledge saved and invested more than those with low financial knowledge.
Another study was conducted by Universiti Putra Malaysia on young workers between the ages of 20 and 40 in five public housing areas in and around Kuala Lumpur. Most of the incomes of the respondents were below RM3,000. Their incomes were barely sufficient to cover expenses with nothing left to save. Further, some of the problems being faced by the young workers were late bill payments (88.9%), spending beyond their means (69.8%), not enough money for medicines (61.1%), lack of cash to face emergencies (58.1%), inability to pay instalments (55.7%), borrowing from family and friends (55.4%), the need to borrow to buy basic food items (48.9%) and borrowing from loan sharks (22.3%). 19.4% declared that they were facing bankruptcy procedures. There were also personal consequences because of financial problems. 72% reported being depressed, 56.6% reported that they could not concentrate on their work and 57.5% reported that they have regular arguments with their spouses.
Clearly consumers, especially young workers and young families, lack the knowledge and skills to manage their finances responsibly. Thus, FOMCA has since 2011 been advocating for stronger policy and programme initiatives towards empowering consumers through a strategic approach in financial education. In 2011, we launched the Financial Literacy Month, celebrated annually in October to create awareness among both policymakers and consumers on the importance of financial education programmes. FOMCA has also been involved in various financial education initiatives including publication of a monthly financial education bulletin, financial education programmes at pre-school, primary and secondary schools, institutions of higher learning, worker organisations, women organisations and low and middle income communities. FOMCA has also used mainstream and social media to strongly create awareness and empower consumers through financial literacy programmes.
Current approaches to financial education in Malaysia are fragmented and ad-hoc, without any clear direction. At another level, FOMCA has been strongly advocating for a National Financial Education Strategy, where we could clearly plan Malaysia’s way forward to ensure that all Malaysians, especially those in most need, have access to financial education opportunities. The National Financial Strategy would seek to undertake financial literacy programmes to assist Malaysians to develop the knowledge, skills, behaviours and attitudes to make informed decisions, manage their money day-to-day and to plan for their financial future.
FOMCA has been involved in a number of stakeholder engagements to push for financial education to be given priority as a vital national agenda. We have yet to see it being given the priority it deserves.
FOMCA sincerely hopes that the new Government places the empowerment of consumers as a key national agenda. Failing which, we fear even more Malaysians would get into serious financial problems not only affecting themselves but their families, the community and the nation. Both at the macro level and micro level, Malaysia needs consumers who effectively manage their consumption and their finances responsibly to enhance both personal and community well-being.
Professor Dr Marimuthu Nadason is the president of FOMCA.