Need for financial literacy
THE Federation of Malaysian Consumers Associations fully agrees with the Education Minister that the level of financial literacy among the rakyat is still low. This has resulted in poor financial management leading to bankruptcy, financial stress, problems of productivity as well as family problems.
The data on financial problems faced by Malaysians is concerning. The number of Malaysian consumers declared bankrupt is increasing every year. In 2007, that number was 13,238; it increased to 21,987 in 2013. To date, 294,000 consumers have been declared bankrupt.
What is of particular concern is that 70% of those declared bankrupt are aged between 35 and 45.
In a Bank Negara Malaysia study, only 6% of Malaysians could survive for more than six months after losing their main source of income. Further, 76% of Malaysian consumers would find it difficult to raise RM1,000 of emergency cash if they had to.
Studies have also been conducted on the financial behaviour of young workers. In its 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. To offset this, respondents were relying on high-cost borrowings – 47% were engaged in expensive credit card borrowing while 38% reported taking personal loans.
Fomca, in its own study, found that 47% of young workers were excessively indebted. The AIF report further indicated that 70% of young workers were living beyond their means.
Many young workers also reported low confidence levels in their financial knowledge, low financial knowledge and poor financial management practices. Only 28% of the respondents in the AIF study felt confident about their financial knowledge. The report also suggested that young workers have little knowledge of how to make wise purchasing decisions.
In the 21st century, the ability to deal effectively with money and financial matters is increasingly important for every person responsible for managing his/her financial affairs in everyday life.
The increasing importance of financial literacy is attributable to several demographic, societal and economic trends, such as decreasing incomes while costs of living increase; increase in life expectancy; pressure on consumers, especially children, to consume through aggressive marketing techniques; greater responsibility for consumers on retirement and the complexity and increase in the number of financial products and services.
Overall, more responsibility for financial decisions is being shifted to the individual. People need help to make the choices that are right for them, and to understand the consequences of the choices they are making.
Given the magnitude and complexity of these trends and subsequent demands on consumers, it is reasonable to assume that family socialisation and daily experience is not enough to help consumers cope. Thus, the promotion of financial literacy should become a core concern for political and educational action in every country.
According to the Malaysian National Financial Blueprint 20112020, under the subject of “empowering consumers” (Section 5.2), it has been declared that “a comprehensive approach towards consumer protection and education is essential”. The blueprint emphasises that “strengthening the financial capability of Malaysian consumers would continue to be an important priority so as to support well-informed, effective and responsible financial decisions”.
Current approaches to financial literacy are still ad-hoc, without any strategic leadership or direction. Fomca urges the government to give priority to financial literacy for all, especially those most in need. Malaysia urgently needs a national financial education strategy to provide clear leadership and strategic direction in empowering consumers through financial education.
As of June 2015, 62 countries globally are implementing some form of national financial education plan. In view of the current problems Malaysian consumers face, it is time Malaysia also had one.