ON the surface, all seemed good. He operated a bakery on the outskirts of Kuala Lumpur, drove a second-hand BMW an‎d did not want for much. On the surface, all seemed good.

Last week, the brittle facade cracked when a sharp drop in sales for consecutive months laid bare this fact: Simon had no savings to help him tide over the downturn in his three-year-old business.  

He had to seek an urgent RM2,000 loan from a friend to keep the business afloat. He had not planned for a rainy day. He had no buffer to cushion the sudden drop in sales.

Sadly, the father of a young girl is not alone. A recently revealed Bank Negara survey on financial literacy showed that three out of four Malaysians find it difficult to raise even RM1,000 for an emergency.

The 2015 BNM survey also showed that a majority of Malaysians tend to spend on instant gratification instead of planning long term. Only one in four has any form of investment. 

The findings dovetail with an earlier survey by The Malaysian Insight, which found that low-ranking civil servants were unable to save any money each month after spending on their families.

The civil servants said they were unable to save because their incomes have not been able to keep pace with the rising cost of living.

What little savings they had were depleted by a minor emergency, such as when they needed to repair a vehicle or replace an electrical appliance.

But economists and activists interviewed by The Malaysian Insight said the low rate of savings has more to do with the rise in household expenditure rather than low levels of financial literacy.

Economist Ali Salman said: “Savings are a function of income and expenditure. If expenditure rises but incomes do not rise proportionately, then there will be little savings.”

The government’s own data shows that the average income per person has fallen by 15% from US$10,345 in 2013 to US$8,821 in 2016, said Ali of the Institute for Democracy and Economic Affairs (IDEAS).

Consumer affairs advocate Paul Selva Raj supported this observation, saying that poor financial planning was only half of the cause of the low savings rate.

“The other big factor is the rise in the price of goods. This includes food, household products and services,” said Selavaraj, secretary-general of the Federation of Malaysian Consumers Association.

The survey was revealed by Bank Negara deputy governor Abdul Rasheed Ghaffour during his speech at the launch of a teaching module called the “Financial management for retirement” on April 7.

Other salient points of the survey included the fact that a majority of Malaysians do not have adequate knowledge of financial matters to make informed decisions.

“Most Malaysians also indicated that they will face financial pressure should there be a loss of income,” Rasheed said.

“For individuals and households, financial literacy has become a key life skill. Those who go through life by making sound financial decisions will potentially be more resilient and end up with a much higher standard of living throughout their lifetime, including during retirement.”

Fomca’s own study found that 47% of respondents said they lived beyond their means.

Retiring poor

The ability of Malaysians to retire with enough savings was also an issue, as BNM found that only 40% of Malaysians were financially ready for retirement, said Rasheed.

“Generally, the younger population aged between 20 and 35 years old perceive long-term financial planning as applying to a time horizon of only the next 10 to 20 years.

“A recent focus group discussion with retirees shows that they would still rely on their children or purchase using credit in the event of emergency or for higher value items.”

The Malaysian Insight’s survey among public servants earning below RM3,000 per month supports this fact.

“Most Malaysian consumers don’t have money for emergencies, what more retirement,” said Selvaraj.

Zainal, a local council gardener The Malaysian Insight interviewed, said he was “leaving it up to fate and his children” when asked about his savings for retirement.

One government pensioner, Karim, said he could not even depend on his own adult children for money as they themselves had trouble keeping afloat in the Klang Valley.

Zainal and Karim gave only their first names as they are civil servants and are not allowed to speak to the press.

“My children give me money when I need it. But the next month, they themselves come back and borrow from me. So, in the end, it’s the same, I am not getting any extra money.”

Ali said having more affordable insurance schemes can go a long way to helping consumers tackle a sudden spike in expenses caused by emergencies. – April 12, 2017.