Financial Planning During Pandemic – An Urge to Malaysians
One would think that the pandemic and its effects on the economy would force any sensible person to rethink their financial behaviour and future plans. We can’t expect to coast through life living paycheck to paycheck, no matter how much we hope for a plain sailing journey with no hiccups.
Chances are, we will inevitably run into situations when we would need to spend a necessary amount of money to solve an unexpected problem, or we could have our source(s) of income cut off due to no fault of our own.
The prolonged presence of COVID-19 in Malaysia caused both of these problems to many citizens. Many employees were laid off, while businesses saw profits drop steeply, some walked straight into financial ruins.
We do not blame anyone for this, because surely no one could have foreseen the magnitude and longevity of the pandemic, we can only plan so much ahead of time. However, this is not to say that there is nothing we can do to soften the blow or cushion our landing.
Had most people prepared an emergency fund way ahead of time, they would have been able to buy more time for themselves to seek solutions to their problems.
So, did Malaysians learn anything about good financial planning during the pandemic? According to a recent survey from Ringgitplus, yes and no.
Spending Behaviour and Savings
Based on the survey results, 76% of the respondents believed they are in control of their finances, which surprisingly, is an increase from last year.
However, almost half (46%) of them reported that they are spending exactly what they earn each month, or even more, which isn’t a telling sign that many have lost their jobs in the pandemic.
More alarmingly, over half the respondents (53%) stated that they wouldn’t be able to survive more than 3 months with their current savings should they lose their source of income. A majority of this group of respondents are younger people below the age of 35, which is a worrying trend for the future. 19% even said that they still do not have monthly savings!
One immediately measurable consequence of a lack of savings is how many people have stated they are not ready to resume loan repayments when the moratorium ends.
16% indicated they are not ready for repayment, that’s 1.2 million out of 7.7 million borrowers. Yet, only 640,000 borrowers have applied for post-moratorium assistance, the remaining will be at risk of defaulting their loans.
When large numbers of borrowers default, the banking sector will be hit hard, while defaulters will find it hard to obtain any credit in the future, and might have personal property seized.
Long Term Prospects
The survey also highlighted some problems that might arise in the long term, mainly concerning retirement.
70% of all respondents claimed that EPF savings alone won’t be enough to cover retirement, but still 45% of them have yet to begin planning for retirement.
This indicates an understanding of the problem, but a lack of action to solve it. Perhaps a majority are still unfamiliar with services such as private retirement schemes (PRS.)
This will hopefully change with the increasing efforts from bodies such as the Financial Education Network (FEN) on increasing financial literacy in the country.
Fortunately, the survey also highlighted some positive points such as Malaysians’ usage of contactless payment and e-wallets. 90% of the respondents shared that they have e-wallets, likely driven by government handouts and germs on paper currency.
39% also stated they are more receptive of online transactions now, perhaps paving a road for a more digitised consumer market and economy.
The government sanctioned loan moratorium has had an impact on alleviating financial woes of certain income groups. 14% of the respondents were able to save RM 2,001 and above, compared to just 9% last year.
In addition, another silver lining to this is that Malaysians were introduced to various new financial terms, including “moratorium” itself, “debt restructuring,” and “rescheduling & restructuring.”
Conclusion from Findings
The silver lining to the current financial crisis would be that it has forced some Malaysians to learn about financial services and terms previously unknown to them.
However, Malaysians really have not changed their personal finance habits much from last year. Whether this is down to an inability to adapt to a lifestyle change, lack of resources, or unfortunate circumstances (eg: sole breadwinner on low pay etc.) something has to change soon as we’re still not expecting the pandemic to end anytime soon.
So, Malaysians, it’s time to adapt to the new norm, not just socially and hygienically, but also financially!
RinggitPlus Malaysian Financial Literacy Survey (RMFLS 2020) – RinggitPlus (2020)