Millennials facing financial woes

Our economists have learned lessons from past financial meltdowns but many Gen Ys appear to be living beyond their means.

RECENT headlines, international and local, recall a very dark past for Malaysia and other so-called Asian Tigers.

Twenty years ago, Malaysia and other Asian nations were caught up in the turmoil of a currency crisis that swept across the continent, battering economies, pushing millions into poverty and forcing governments to seek emergency aid.

The 1997 Asian Financial Crisis sent currencies and stock markets tumbling, companies went bankrupt and governments like Thailand and South Korea were forced to seek bailouts from the International Monetary Fund.

Malaysians of the Baby Boomer and Gen X years recall the crisis as a period when the good times came to an end and we were forced into adopting severe austerity measures. But 20 years down the line, former Bank Negara Governor Tan Sri Zeti Akhtar Aziz feels that the country is in a much stronger position to withstand a similar crisis.

“We now have an integrated crisis management framework that, in the event that we see an imminent crisis, we will come together – whether it’s financial crisis in financial markets or whether it’s affecting financial institutions – we will come together to manage it collec- tively. So this is one very positive legacy that has come out of the crisis,” Zeti told StarBiz in a recent interview.

But while the country itself has safeguards that may enable it to withstand a similar financial meltdown, I am less positive about the younger generation, specifically our millennials – the early 30s and below age group.

Statistics show that there is an unprecedented debt accumulation amongst Malaysia’s millennials or Gen Ys. These young people are experiencing significant financial stress early in their life, with many living beyond their means and trapped in emotional spending, according to a study by the Asian Institute of Finance (AIF).

The survey showed a majority of Gen Ys were relying on high-cost borrowing, with 38% reported to be taking personal loans and 47% engaged in expensive credit card borrowings, while only 28% felt confident in their financial literacy.

It also showed that an alarming 75% of Gen Ys have at least one source of long-term debt such as car loans, education loans and mortgages, while 70% of those who own credit cards tended to pay the minimum monthly payment and 45% did not pay debt on time at some point.

“Despite being the most educated generation to date, Gen Ys are accruing debt at an earlier age and lack understanding when it comes to financial planning,” said AIF chief executive officer Dr Raymond Madden, when commenting on the study.

“Many of them are on the back foot when it comes to long-term financial security, as they accrue debt before they even enter their professional careers.

“With the ever-increasing complexity and diversity in financial products and markets, the millennials are more likely to bear more financial risk than previous generations, pointing to a critical need for behavioural changes in money management.”

The AIF report, themed “Finance Matters: Understanding Gen Y – Bridging the Knowledge Gap of Malaysia’s Millennials”, was based on a survey of over 1,000 young professionals aged between 20 and 33 years old.

Today, Malaysia and other Asean nations are much better off, given that the experience they went through has made these countries much more prudent and wiser in terms of managing another potential financial crisis.

However, I wonder if our young adult Malaysians are ready for a financial crisis, given that all the economies in the world go through a cyclical situation.

Even if our economy does not go through a crisis, I am concerned that young Malaysians have very, very little financial prudence. It is disturbing that the number of bankruptcy cases and financially distressed young adults is on the rise in Malaysia.

Bank Negara’s debt counselling agency, AKPK, has recorded an alarming increase in young people joining its debt management programme. Half-yearly figures show that almost 3,500 Malaysian Gen Ys have sought AKPK’s assistance, compared to about 4,500 people for the whole of 2016.

“On one hand, we welcome these millennials seeking our advice to restructure their personal debt, but the yearly increase in the number of young people who are getting into debt is worrying,” the agency’s corporate communications head Mohamad Khalil Jamaldin told me.

Khalil said that while his agency does provide free financial education classes, he believes that it is important that the young should be taught financial prudence from an early age and especially when they are in university.

I am sure AKPK is doing an excellent job in assisting our millennials, but I wonder if that is the solution. Parents need to play a greater role in educating their children and middle-class parents especially, who seem to be bent on giving their kids everything while not preparing them for tough situations, should stop the hand-outs.

The old adage comes to mind – cut your coat according to your cloth. The writer agrees with Dr Madden, that managing money well and making sound financial decisions are essential life skills that must be learned over a lifetime, to ensure financial fitness in the future.