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Lack of financial literacy worrying, say analysts
Published on: Tuesday, December 12, 2023
By: Annabelle Lawrence, FMT
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Lack of financial literacy worrying, say analysts
The credit card makes it easy to spend and spend, leaving many Malaysians deeply in debt. (Freepik pic)
PETALING JAYA: Times are bad, yet Malaysians are spending more.

As a matter of fact, we have become used to spending money that we have yet to earn, and for analysts such as Kimberly Law and Yugendran Sivakumaran, this is a worrying trend.

“There are too many temptations and a lot of pressure to maintain a certain lifestyle,” Law, a co-founder of financial adviser Uno Advisers, told FMT Business.

She attributed the propensity to overspend to a lack of understanding and comprehension of personal finance.

This weakness in financial literacy is reflected in many aspects of Malaysian life.

Many feel a need to spend just to keep up with the Joneses. From credit cards to easy payment schemes such as the buy-now-pay-later (BNPL) facility, it has become so much easier to spend today and pay tomorrow.

However, many end up unable to make the payments.

The extent of uncontrolled purchases is best reflected in credit card spending. As of July 2023, Malaysians collectively owe RM35.89 billion on their credit cards, according to data from Bank Negara Malaysia (BNM).

Compounding the situation is the fact that many Malaysians do not earn all that much. In fact, 50% of Malaysian wage earners take home less than RM2,250 a month, barely enough to meet necessary expenses, much less on discretionary spending.

A UCSI Poll Research Centre recently reported that around 73% of Malaysian youth are in debt, another consequence of the lack of financial literacy.

Encouraging Malaysians to start saving

Education in personal financial management is crucial to help Malaysians learn to save based on how much they earn, Yugendran told FMT Business.

“Integrating financial literacy courses at school can instil the importance of savings from a young age,” he said.

He said organising targeted workshops in low-income communities can also provide adults with the necessary financial knowledge.

“These initiatives should focus on areas where educational attainment is generally lower,” he added.

Yugendran said social media campaigns on platforms such as YouTube can also reach a wider audience if they leverage on influencers who specialise in financial literacy.

In densely populated areas, townhall events that offer incentives to encourage participation can help to enhance financial literacy to a larger segment of the population.

Law said Malaysians should have separate bank accounts for savings and spending. “(The rule is to) set aside a sum to save first, then spend the balance,” she said.

She said the use of eWallets and digital banking services should only be reserved for emergencies.

For regular payments, she recommends auto deduction when salary comes over manual transfer.

Law said that with social media gaining traction, people should turn to regulators or licensed financial planners for legitimate financial advice over “investment gurus” who lack qualifications or credentials.

Bank Muamalat Malaysia chief economist Afzanizam Rashid said more needs to be done to create greater awareness among Malaysians on the importance of financial literacy.

“(Those with inadequate financial knowledge) risk being scammed and have their savings wiped out instantly,” he told FMT Business.

He emphasises that any financial awareness campaign must be tailored according to age and level of education.

“The important thing is to get the message across and to provide the necessary infrastructure to help people save and plan their spending,” he added.

Need to raise wages

There is a limit to how much financial literacy can help. With salaries still low but cost of living rising, more are falling into the B40 group.

This makes a compelling case for wage increases, Yugendran said.

However, he also warned that artificially raising wages such as through levelling up the minimum wage could lead to job losses.

“The focus should be on developing local industries and upskilling the workforce,” he added.

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