Improve financial education

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 lack 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. This is to ensure that all consumers 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 are 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 gross domestic product in Asia. A high level of debt increases the sensitivity of households to any shock to 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 Employee Provident Fund (EPF) members earn less than RM2,000 while 25% of EPF members earn a monthly salary that’s 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) is also increasing. A total of 294,000 consumers have been declared bankrupt due to failure in settling their car loans, hire-purchase loans, credit card loans, personal loans, housing loans and social guarantor debts.

Seventy per cent 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 man- agement 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 20-33 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, where 47% were engaged in expensive credit card borrowings 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.

Interestingly, the AIF report 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.

Since 2011, Fomca has 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 policy makers and consumers on the importance of financial education programmes.

Fomca has also been involved in various financial education initiatives 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.

A National Financial Education Strategy would seek to undertake financial literacy programmes to assist Malaysians in developing the knowledge, skills, behaviours and attitudes to make informed decisions, manage their money day-today and to plan for their financial future.

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. Both at the macro and micro levels, Malaysia needs consumers who effectively manage their consumption and their finances responsibly to enhance both personal and community well-being.

PROF DATUK DR MARIMUTHU NADASON President Fomca