Millennials have high debt, low financial resilience

Bede Hong

Millennials are more passionate about keeping pace with the latest digital lifestyle and are thus more likely to end up in debt. – EPA pic, October 3, 2017.

MALAYSIANS “live for the moment” when it comes to spending, resulting in high debt and low financial resilience that make them vulnerable to financial shocks, said Bank Negara Malaysia deputy governor Abdul Rasheed Ghaffour.

“This observation tends to be true particularly among the millennial generation. Millennials are more passionate about keeping pace with the latest digital lifestyle,” he said at the Federation of Malaysian Consumer Associations (Fomca) Conference 2017 in Kuala Lumpur today.

Rasheeda cited a study by the Asian Institute of Finance in 2015 which found a majority of young people to be living on high borrowings – 38%  rely on personal loans and 47% are engaged in expensive credit card borrowings. 

“Often, they will soon find these debts burdensome and resulting in financial problems.”

From January to August, more than 3,400 borrowers between the ages of 20 and 30 have sought the help of the Credit Counselling and Debt Management Agency (AKPK), compared with 3,450 borrowers in the whole of last year, said Rasheed.

Rasheed also cited the Financial Capability and Inclusion (FCI) Survey conducted in 2015, in which more than 75% of Malaysians were found to have difficulty raising even RM1,000 in an emergency.

That survey found 32% of Malaysians had enough to cover only a week’s worth of expenses, at most, should they lose their source of income. 

Rasheed said families should have a financial buffer of between three and six months’ savings. 

“In cases of emergencies, Malaysians resort to cutting down on spending; or borrowing from external sources, such as friends and family members, or even depending on credit lines, such as credit cards and instalment plans.” 

Rasheed said a majority of Malaysians do not practise long-term financial planning and only 40% of Malaysians consider themselves financially ready for retirement, despite the steadily increasing life expectancy of Malaysians. 

The poverty line in Malaysia is at RM950 per month, based on which the Employee Provident Fund (EPF) calculates that a retiree would need about RM228,000 to generate sufficient investment income to live above the poverty line for 20 years after retirement. 

According to the Khazanah Research Institute, however, the average EPF savings of those in the 51–55 age group amount to about RM160,000. 

“Lack of awareness of the importance of having sufficient savings for retirement can lead to profound results, including the struggle to meet the post-retirement standard of living,” Rasheed said. 

He said Malaysians still lacked understanding on risk and returns and are not able to make rational financial decisions. 

“We remain prone to financial fraud and abuse.”

Citing police records, Rasheed said the number of financial scams reported in Malaysia has risen to an “alarming” 1,883 cases between 2015 up to the 1st quarter of 2017, accumulating a total loss of RM379 million. 

“This suggests that greed and ignorance can give way to rational financial decisions for many victims.”

“Based on these observations, a lot more is left to be desired on the state of financial literacy to realise financial well-being for Malaysians.” – October 3, 2017.

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