Plan for the future


‘You can be young without money, but you can’t be old without money,’ said playwright Tennessee Williams. That’s something Malaysians need to keep in mind before embracing the festive mood to spend money during the holidays, say experts.

’TIS the season to be jolly – as long as you cut your coat according to your cloth.

With holiday spirits in the air, people are thronging malls to shop, but experts are urging Malaysians, especially the younger generation, to exercise control and spend only what they can afford.

Whether it’s the season of sales or an ordinary time of the year, Malaysians have to strike a balance between the mounting cost of living and saving for their future while dealing with a slowdown in the rise in salaries.

If these factors persist, more people are expected to live beyond their means and have higher amounts of debt in the near future, foresees Balqais Yusoff, Employees Provident Fund (EPF) strategy management department head.

She says while this scenario is not unique to Malaysia, it is true that Malaysians are forking out more for the average consumer’s basket of goods due to inflation compared with the past.

“A luxury in the past is now a necessity, such as having a car and a handphone,” she points out.

Furthermore, Malaysians pay an average of five and half times more than their annual salary to buy property compared with people in other countries who pay, on average, only three times more.

If we want to have a financially secure future in our old age, Balqais says, Malaysians, especially Gen Yers, must learn how to tell the difference between needs and wants, and must be able to prioritise how money should be spent.

Some Gen Yers also seem to be too loose with their purse strings, as 40% of them said in a recent study that they spend more than they can afford.

Around 70% of Gen Yers with credit cards also paid only the minimum monthly payment due at one point, according to the study released last month by the Asian Institute of Finance.

The study, which surveyed over 1,000 young Malaysian professionals aged between 20 and 33, also showed that only 55% of Gen Yers paid their debts on time – which means nearly half of the Gen Yers surveyed delay paying off debts.

A separate survey in 2010 found that 70% of Malaysian workers aged between 18 and 35 said they can only sustain themselves for up to four months if they had to stop working.

Out of the 70%, about 15% had zero savings, according to the “Survey of Financial Behaviours and Financial Habits of Young Workers”.

This poll also showed that 37% of the 1,002 respondents have never thought about their retirement.

Stressing that more people should be exposed to financial education, Balqais says that saving also boils down to consumer discipline.

“Nobody can stop you from buying something you really want. It all depends on you in the end,” she points out.

Considering that Malaysians are now living longer, she emphasises that it is crucial for everyone to save enough for their retirement.

“For people to maintain their current lifestyle during retirement, they must have 60% to 70% of their last drawn monthly income to spend every month,” she says.

However, according to EPF, only 33% of active members have the basic saving requirements: a minimum savings of RM820 per month for 20 years, which would come up to RM196,800 in his or her old age.

“Our policies enable members to use part of their EPF savings to pay for a house and education, and this will benefit them in the long run.

For example, using your EPF savings to pay for a home ensures you will have a roof over your head when you retire,” she says.

While consumers need to better manage their finances, the Federation of Malaysian Consumers Association secretary-general Datuk Paul Selvaraj adds that the Government, too, should play a part.

He calls on the Government to implement policies to help Malaysians cope with the escalating cost of living: “Without the proper policies in place, the ecosystem will not improve,” he says.

Citing several examples, Selvaraj says the Government should ensure that costs for services and items like public transportation, housing, and healthcare remain affordable.

Times will only get tougher in the years ahead, and that is something inescapable, Selvaraj feels.

Yet Malaysians, especially youths, do not seem to be serious about saving for and thinking about their retirement.

“With the rising cost of living, there is more pressure on consumers. The more difficult things are now, the more there should be an urgency to plan for the future,” Selvaraj says.

However, he says the hard reality is that people are caught up in worrying only about day-to-day expenses, and this may prevent them from saving as much as they should.

azaddin ngah tasir

“About 20% of a worker’s salary is used to pay for petrol or public transportation. If the worker has a house loan, another big chunk is taken away,” Selvaraj illustrates.

He also proposes that the Government set up a financial education commission to build financial knowledge and skills among young people.

Selvaraj says people should also track their expenditure so that they know where their money goes and can cut back on unnecessary items.

Credit Counselling and Debt Management Agency (AKPK) CEO Azaddin Ngah Tasir says workers should voluntarily tuck away about 10% of their salaries for long-term savings, on top of the 23% set aside from their monthly wages by the EPF.

“This means about 30% of a person’s monthly salary is for the future. AKPK also recommends against people having monthly loan repayments exceeding 40% of their monthly income,” he says.

Azaddin observes that current lifestyle pressures are different from the past, such as the demand for expensive coffee among the younger generation today.

“Last time, earning RM5,000 a month could provide a comfortable life, but now the same amount is easily spent on a variety of costs. Loan repayments for cars, houses and rental of properties are also higher today,” he says.

Based on data from the AKPK in September, “poor financial management” is cited as the top reason for debt problems among Malaysians.

This constitutes 22.1% of total default or debt problems, followed by a failure or slowdown in businesses at 16.7%. High medical expenses (14.2%) is also another factor while other reasons are losing control of credit card usage (10%), retrenchment (9%), and the high cost of living (7.4%).

Malaysian Trades Union Congress secretary-general N. Gopal Kishnam attributes the lack of savings among young Malaysians to the relatively low salaries paid here.

“The Government needs to come up with proper policies to increase wages so that there is enough for expenses and savings,” Gopal Kishnam says.

He says a large number of workers withdraw their salaries within a few days of it being banked into their accounts to pay off loans and other expenses.

“Having EPF savings alone is not enough. If our income is not even enough for survival, how are we going to save?” he questions.

For Malaysians to have more disposable income, Malaysian Employers Federation executive director Datuk Shamsuddin Bardan suggests that there should be a reduction in monthly EPF contributions by employees.

“Maybe for the time being, the percentage of income that goes into an employee’s EPF account could be reduced. Hard times require hard measures,” he says.

Shamsuddin suggests that the Government also allow employers to contribute more EPF savings for their workers instead of capping the limit at 19%.

“Some caring employers contribute up to 19% to their workers’ EPF accounts. But why should it stop at 19%? If some companies want to give more, why stop them?” he asks.

Independent financial adviser Yap Ming Hui stresses that one of the most important habits that Malaysians should have now is to stick to a proper budget according to one’s income. He adds that a high income does not guarantee a debt-free life.

“Some people believe that just because they earn RM20,000 or RM30,000 a month, they will not have a problem. But your expenses can still exceed your salary if you are not careful,” he says.

Yap says there is “too much temptation” for Malaysians to spend on, especially for Gen Yers.

“Sales and promotions are quite frequent here. A lot of expensive and attractive items are in the market, like smart phones.

“If we couple that with the convenience of a credit card, it is very easy to overspend if you do not control yourself,” he says.

A good rule of thumb that Yap believes every Malaysian should have is to save something, no matter how much or how little one earns.

“Such habits should be cultivated from young to counter the temptation to spend,” he says.


News source: (The Star/Yuen MeiKeng)

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