Plan­ning vi­tal to keep fi­nan­cial stress at bay

> Al­most four out of five Malaysians have no sav­ings to fall back on in case of loss of in­come

The Sun (Malaysia) - - MEDIA & MARKETING - BY EE ANN NEE

KUALA LUMPUR: Malaysia may be one of the few coun­tries in the world which is still see­ing good growth when it comes to gross do­mes­tic prod­uct (GDP), but with house­hold debt stand­ing at 89.1% of GDP and al­most four out of five Malaysians hav­ing no sav­ings to fall back on in case of loss of in­come, ev­ery work­ing adult could face fi­nan­cial stress at some point.

Credit Coun­selling and Debt Man­age­ment Agency (AKPK) fi­nan­cial ed­u­ca­tion man­ager Nir­mala Supra­ma­niam said even though Malaysia’s house­hold debt is high, this does not mean that the peo­ple are in trou­ble.

“There are no sta­tis­tics to say that we’re fi­nan­cially stressed be­cause stress is a feel­ing. It could be that peo­ple have prop­er­ties and as­sets, which are not de­fined in cash value. Com­mit­ments are high but peo­ple are still pay­ing (their loans) so you can’t de­fine it as trou­ble yet, but what can lead to trou­ble is if there’s a change in your in­come, it drops and you don’t have a con­tin­gency plan,” Nir­mala told Sun­Biz in an in­ter­view re­cently.

In ag­gre­gate, most house­hold debt was un­der­taken to fi­nance house pur­chases, ac­cord­ing to the Khaz­anah Re­search In­sti­tute re­port, The State of House­holds II. Nonethe­less, the over­all house­hold bal­ance sheet is still healthy, as house­holds con­tinue to ac­cu­mu­late more fi­nan­cial as­sets than debt.

Nir­mala said fi­nan­cial stress can be felt when peo­ple are wor­ried that they do not have enough money, they might miss their loan pay­ments and not hav­ing enough sav­ings for an emer­gency. The top rea­son for de­fault or debt prob­lems is poor fi­nan­cial plan­ning.

“When tak­ing a loan, peo­ple usu­ally look at how much is be­ing of­fered but we should look at how much we can af­ford. Af­ford­abil­ity is im­por­tant so you

HOW TO DEAL WITH FI­NAN­CIAL STRESS

Ad­mit Ac­knowl­edge that when you can­not af­ford to pay your in­stal­ments and you don’t have sav­ings, these are signs of fi­nan­cial prob­lems.

Anal­yse Study how much you owe, your loan bal­ance, monthly pay­ments, loan ten­ure, cash flow, de­tailed bud­get. You have to track your expenses daily to see how much you’re spend­ing. When you track, you can see where to re­duce your spend­ing and use that money to pay your loans.

Act on it If you have prob­lems pay­ing your loans, talk and ne­go­ti­ate with your fi­nancier. Deal with le­gal in­sti­tu­tions as there are third par­ties who claim that they can re­struc­ture your loans for a fee.

Fi­nan­cial coun­selling The Credit Coun­selling and Debt Man­age­ment Agency (AKPK) of­fers fi­nan­cial coun­selling. Since its in­cep­tion up to July 31, 2016, 460,031 in­di­vid­u­als have at­tended AKPK’s coun­selling ser­vices and, from that, 156,892 in­di­vid­u­als have ap­plied to en­rol into its Debt Man­age­ment Pro­gramme (DMP). As at July 31, 2016, 10,869 cases had suc­cess­fully ex­ited from DMP with RM443.8 mil­lion set­tled. can as­sess how big a loan you can take. There’s a lack of plan­ning for the long term and many of us don’t do those cal­cu­la­tions. We will just cross the bridge when we come to it. No plan­ning, no bud­get­ing, no cash flow man­age­ment, all these come un­der poor fi­nan­cial plan­ning,” she ex­plained.

When peo­ple do not plan, they tend to over­bor­row, Nir­mala said, adding that when giv­ing out loans, banks will look at 60% of one’s in­come but the ideal debt-to-in­come ra­tio should be be­low 40%.

A ma­jor com­po­nent of fi­nan­cial re­silience is sav­ings.

Nir­mala said the lack of sav­ings can cause fi­nan­cial stress as many peo­ple are liv­ing month-to-month, within one’s means for sur­vival and hav­ing noth­ing ex­tra.

Bank Ne­gara Malaysia’s Fi­nan­cial In­clu­sion and Ca­pa­bil­ity Study found that only 6% of Malaysians can sur­vive more than six months, and 18% up to three months, af­ter los­ing their main source of in­come.

“Most of the peo­ple who come to us (AKPK) bor­row when an emer­gency hap­pens. That’s when they look for fast cash, per­sonal loans. Car break­down, hospi­tal emer­gen­cies ... these small emer­gen­cies make you start to bor­row and even­tu­ally it grows big,” said Nir­mala.

She said peo­ple go through the fi­nan­cial prob­lem phase in life but how fast a per­son takes ac­tion is what makes the per­son dif­fer­ent.

“You should im­me­di­ately move on, seek help, seek ad­vice and change your habits,” said Nir­mala.

Fi­nan­cial Plan­ning As­so­ci­a­tion of Malaysia CEO Lin­net Lee said fi­nan­cial stress af­fects a per­son’s per­sonal life in terms of re­la­tion­ships with fam­ily, friends and col­leagues, as well as work life in terms of pro­duc­tiv­ity, ab­sen­teeism, health and fi­nan­cial in­tegrity.

“Among Malaysians, fi­nan­cial stress is high, look­ing at house­hold debt. Those who are in the 89% will have a cer­tain amount of fi­nan­cial stress, es­pe­cially those with money woes,” Lee told Sun­Biz, adding that the high house­hold debt is an alarm­ing sit­u­a­tion due to the cur­rent eco­nomic cli­mate.

“Although a lot of house­hold debts have as­sets like cars or houses to back them up, look­ing at the econ­omy now, a lot of peo­ple are find­ing it hard to pay bills. If you can’t pay, you may lose your house. That is wor­ry­ing,” said Lee.

Con­se­quences of se­vere fi­nan­cial stress in­clude sui­cide due to high debts, bro­ken re­la­tion­ships due to ar­gu­ments over fi­nances and young peo­ple go­ing bank­rupt early on in their ca­reer.

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