Financial literacy for smart consumers

FINANCIAL literacy has increasingly become an important life skill. Studies have found that consumers with a higher level of financial literacy are more capable at making sound financial decisions. This, in turn, allows them to enjoy a better standard of living throughout their lives.

With the right knowledge and skills, individuals can manage their finances better and improve the chances of achieving their financial goals.

They may, for example, ensure that they are living within their means, or invest in long-term financial plans for their future.

PIDM is a government agency that administers the Deposit Insurance System (DIS) and the Takaful and Insurance Benefits Protection System (TIPS).

It provides protection against the loss of your bank deposits up to RM250,000 as well as your insurance and takaful benefits up to RM500,000 in the unlikely event of a member bank, insurance company or takaful operator failure.

This protection is provided automatically – no application or payment is required. As a financial safety net player, PIDM has several initiatives to educate and empower financial consumers. These three simple steps from PIDM’s MoneySmart 123 awareness initiative can help you become a smart financial consumer.

Step 1: Know your financial products

Our daily lives involve interactions with various financial activities, be they conventional banking transactions, e-commerce or investing in financial products.

Financial instruments have become increasingly complex, presenting consumers with more sophisticated financial products.

Thus, we need to be able to make the right financial decision for our individual circumstances.

Understanding the type of financial product is the first step. Always ask for detailed information about the financial product, do your research, and read through the product information before making a commitment. Ask the right questions.

Research on the different types of products that can meet a specific goal or need and where to get them. By comparing different products and services, you may discover choices you hadn’t thought of before.

If you are uncertain, seek clarification or professional advice to help you make an informed decision, or avoid financial products that you do not understand.

Step 2: Know your financial risks

Begin your financial journey with clear goals in mind by setting your financial goals and the time frame for when you may need to use your savings or realise your investments.

A different strategy may be employed for short, medium or long term goals.

Next, think about how much risk you are willing to take. Your ability to cope with the changes in the value of your financial products and investments is called risk tolerance.

Being aware of your financial goals and your risk tolerance will help you identify what types of financial products are suitable for you and enable you to choose products that you can afford without risking your financial freedom or incurring unwanted debt.

For example, financial products with potentially higher returns always come with higher risk and higher potential losses.

Avoid putting all your money into a single product. There is a wide range of financial products, such as saving schemes and bank deposits, insurance or takaful products, unit trust funds, stocks and other investment products that offer a range of options to fit different financial objectives.

It is also advisable to check whether the financial product is eligible for financial protection.

For example, deposits placed with PIDM member banks or takaful and insurance benefits offered by PIDM insurer members are eligible for protection in the event the memAlways ber institution fails.

Avoid falling victim to financial scams. Fake lotteries, advancefee frauds, get-richquick schemes and Internet investment schemes are some of the scams that promise quick and high returns. Bank Negara Malaysia has a microsite to educate consumers on financial fraud at http://fraudalert.bnm. gov.my/.

Step 3: Know your financial rights

Knowing your rights and responsibilities as a financial consumer can help you navigate through any potential issues with your financial service provider should they arise.

As a smart consumer, you should know what are the fees, rates, terms and penalties associated with the financial services and products.

read the fine print before signing any agreements for financial products or services.

For deposit products, takaful certificates and insurance policies, check whether they are protected by PIDM before you proceed.

There are many government agencies and consumer organisations that can provide guidance on financial matters.

Find out who they are, what they do, and do not hesitate to get in touch with the appropriate authority if you detect a problem or need some advice.