WHILE Malaysians do have financial knowledge, they tend to fall short when it comes to financial behaviour and making sound decisions, said Credit Counselling and Debt Management Agency general manager Nor Fazleen Zakaria.

According to Bank Negara Malaysia’s financial literacy and capability (MYFLIC) index, the literacy rate of Malaysians showed a marginal increase in 2018 to 57.1 from 56.5 in 2016. 

The index measures literacy levels based on awareness, knowledge, skill, behaviour and attitude of financial consumers.

“Knowledge is relatively okay. People say they know that they need to budget, live within their means and prepare for rainy days.

“These are the basics which they know but when it comes to behaviour, we want people to act on it,” Nor Fazleen told The Malaysian Insight.

It’s not enough to have financial knowledge alone as Malaysians tend to have problems when it comes to making sound financial decisions, she said.

Buying stuff they can’t afford on credit is an example of poor financial decisions. 

Nor Fazleen said AKPK is working towards improving positive financial behaviour through efforts, such as financial education at institutes of higher learning. It also recently launched the national strategy for financial literacy 2019-2023. 

She said 37.5% of participants of AKPK’s debt management programme cite poor financial planning as the reason for their problems.

This was followed by high cost of living (32%), failure or slowdown in business (12%), high medical expenses (6.7%), loss of breadwinner’s job (9.0%) and others (1.8%).

Some don’t understand how compound interest on credit cards works and flat interest rates that hire purchase and personal loans are subjected to, she said.

Instead of thoroughly vetting through the details of the financial facilities, many Malaysians prefer to only know if they can afford to service the debt.

Borrowers should be prudent managing expenditure and must ensure that borrowings don’t exceed 40% of their net income, she said.

While banks may offer products that could take up to 50% of one’s net income, financial literacy comes into play when deciding whether such arrangements are viable.

After setting aside allocations from monthly income for necessities, such as transport, housing, food and utilities, one should also try to save a portion of the remaining income, she said. 

On whether the minimum RM240,000 that Employees Provident Fund (EPF) requires members to have at age 55 is sufficient, Nor Fazleen said the retirement fund alone is not enough to sustain life after leaving the workforce. 

People should take into account factors, such as cost of living at the time of retirement and the fact that many will have healthcare needs, she said.

Malaysians working in the private sector and contributing to the EPF as well as civil servants who are beneficiaries of the government pension scheme managed by the Retirement Fund Inc (KWAP) tend to think that those savings are enough, she said.

“We have this mentality that our retirement funds are enough. We don’t think about inflation and how cost is going to be like when we retire.

“We need to have other side savings,” she said, adding that retirement planning should start from young. 

Open to receiving help

Nor Fazleen said AKPK has seen an increase in the number people coming in for counselling services over the years. 

Besides counselling, the non-profit organisation also provides financial education and debt management programmes. 

When AKPK first started, people were hesitant to be associated with the agency or to seek help, she said. However, there has been a shift in perception as more people are coming forward to seek its services. 

“When we first started, people were embarrassed to be seen coming to AKPK but now the number of people coming in for counselling has gone up.

“It’s okay to come forward, you are seen as being proactive in that sense.”

She also cleared the notion that those seeking the agency’s help are bad paymasters. 

“Those coming for our programmes are not necessarily bad paymasters. There are people who are still paying (off their debts). They just come to AKPK to restructure their debt and get it settled.”

She advised those facing difficulties servicing their debts to take advantage of AKPK’s programmes to resolve their financial issues and settle their debts as soon as they can.

Since 2007 until end of July, 2019, AKPK has received more than 957,000 applications for counselling and 285,000 for debt management. – August 25, 2019.