The Malaysian economy once again sits at a crossroads where its destiny is guided by the decisions of its leaders.
The gross domestic product (GDP) grew at a rate of 4.5 per cent year-on-year in the first quarter of this year, while the surplus in the current account widened to RM16.4 billion. The employment rate is high while income growth is expected to remain resilient, in spite of diminishing public sector spending given continued fiscal consolidation by the government.
These facts indicate that Malaysia is showing no signs of abating socio-economic progress. Although business leaders and professionals may delight in reading these statistics, the man on the street may not be able to decipher what all this means let alone understand the impact these numbers can have on them.
This is because the rate of financial literacy in our country is extremely low. This has been proven time and time again by various academics, as well as non-academic reports. For example, the “Financial Capability and Financial Planning Advisory Services in Malaysia” report published by the Malaysian Financial Planning Council in 2018 stresses this point.
Numerous initiatives have been put forward by institutions in the public and private sectors. The latest initiative is a collaboration involving statutory bodies in Malaysia, to provide a list of strategies to tackle the poor level of financial literacy. However, in spite of this, real observable change is yet to be visible. While being financially literate is a must for all, some segments of society are more in need of it due to the nature of the risks associated with their chosen profession.
With this in mind, a different and targeted approach is needed to ensure that particular segments of society are not left behind in the government’s bid to raise the financial literacy rate among the general population. In a study conducted under the auspices of the Faculty of Economics and Administration, Universiti Malaya, it was found that the self-employed sector is a critical segment that the government cannot overlook.
This sector is poised to constitute a huge segment of the labour sector, helmed by urban youths given the rise of the technology-driven gig economy. However, the risk associated with this trend is that they have yet to be accorded any proper retirement saving schemes, aside from already available voluntary retirement savings schemes such as the Private Retirement Scheme (PRS). This poses a potentially serious socio-economic problem when this community approaches retirement age.
In the study that was undertaken, the youths chosen were 18 to 38 years old and had been self-employed for at least three months consecutively, to ensure that their employment status was not transitionary. Eighty-two per cent of the respondents were from the Klang Valley with Penang trailing behind at five per cent, indicating that a majority were city dwellers.
Interestingly, it was found that these youths were financially literate and prepared for retirement. However, there are certain important aspects that must not be overlooked as it can heavily impact the realities of their future financial health, such as the calculation of interest rates on loans taken and the volume of their insurance coverage.
Despite their seemingly high marks in components of financial literacy and retirement preparedness, an observable trend was that this group had no idea about current interest rates, or how it was determined when loans were taken, nor were they aware of the inflation rate. 65.7 per cent of the respondents failed at calculating correctly the compounding impact of interest rates on loans.
Meanwhile, only 8.3 per cent of respondents allocated more than half their savings for retirement purposes, indicating that concerns about their wellbeing after they retire were not a top priority. Another point worth highlighting is that 57.7 per cent of this group did not understand the main role of insurance as a financial measure in mitigating risks. This finding is in line with previous research conducted by institutions such as the Malaysian Financial Planning Council in 2018.
What all this boils down to is that while authorities are figuring out a way to address the lack of financial literacy among the general population, it must be understood that a cookie-cutter approach such as a general financial literacy outreach programme for Malaysians of all walks of life might not be the answer.
A more targeted group-based approach is imperative, such as smaller-scale programmes based on education level, income level or occupation of participants. Different segments of society have different characteristics and, as such, would have different mindsets about the importance of financial literacy.
While such targeted programmes might cost the government more, the result could well be a much more financially literate generation of Malaysians, especially among self-employed youths, one also well-prepared for retirement. How well-informed this young generation will be is primarily up to the authorities as they have to take the lead to prepare Malaysians to be financially secure when they retire.
The writers are from the Faculty of Economics & Administration, Universiti Malaya
