Financial literacy is everyone’s responsibility — Amanda Yeo | What you think

APRIL 25 – The upcoming Raya celebration in early May would mark a new start in the movement towards the endemic period – with all restrictions on business opening hours removed and prayer activities allowed without physical distancing, between others. However, the number of requests received by the Special Employees Provident Fund (EPF) Withdrawal Facility throughout this month indicated that the rakyat need more money to settle their outstanding debts and current expenses. .

As of April 15, EPF had received a total of 5.3 million applications, or RM40.1 billion within two weeks of opening the application on April 1. Out of 11.95 million eligible EPF contributors, 44% decided to withdraw up to RM10,000. per person of their savings during this round.

In the previous three cycles of EPF withdrawals during the Covid-19 pandemic in 2020 – i-Lestari, i-Sinar and i-Citra, some 7.34 million EPF members withdrew 101.1 billion RM.

However, this does not prevent more EPF contributors from withdrawing their savings for immediate financial assistance.

In October 2021, EPF warned that a total of 6.1 million members now had less than RM10,000 in savings in their pension funds. The worst part is that 3.6 million backers have less than RM1000 in their accounts.

Of the 3.6 million contributors, two million Bumiputera members have less than RM1,000 in savings.

During the month of April, more than half of eligible B40 and M40 members requested the latest withdrawal facility – at 55% and 59%, respectively. At the same time, 39 percent of T20 members and 29 percent of informal (self-employed or without formal employment) and inactive members are also among the 5.3 million applications.

In terms of ethnicity, EPF found that most applicants were Bumiputera Malays (63%), followed by Chinese (12%) and Indians (7%). The remaining 17% of applicants were Bumiputera Sabah and Sarawak and non-Malaysians.

As the Raya festival approaches, it is plausible for Malaysian members to use the extra EPF funds to purchase a traditional Malay costume or pay accrued expenses ranging from utilities, rent, car installments or loan and education of children.

In addition, the current ETH withdrawal scheme will be applicable to married Malaysian couples in the lower income bracket who do not have enough money to pack duit raya for their children and relatives who remain unmarried.

Nonetheless, EPF withdrawal schemes could reduce the financial burden, especially among contributors who are suffering from the pandemic and short-term flood losses. However, when EPF contributors exhaust all their savings later, they will sink deeper into poverty and debt. They might not even be able to afford daily necessities to support themselves.

This phenomenon is particularly true among self-employed workers whose earnings can vary widely. They may not have the capacity to commit to annual bonuses or may not have sufficient credit ratings to access loans from banks.

If they cannot access loans from formal financial institutions, their last resort is to borrow money from lenders with high or exorbitant interest rates. When they cannot repay the debt within a specific time, suicide could be a way out of their financial misery.

In the long term, the decline in pension savings of Malaysians could trigger more social problems in Malaysia. When more individuals are unable to feed themselves, they are at risk of committing crimes for their survival, even though they are aware that the crime is a harmful act not only for themselves and for the victims, but also for the community. at large.

A South Korean Netflix drama series, squid game, published last year, encapsulates the bleak and harsh reality faced by low-income groups, particularly when it comes to indebtedness. Although South Korea has become a developed country, some South Koreans still face barriers to earning higher disposable income due to soaring real estate prices and limited upskilling and job opportunities. .

With food price inflation continuing to rise in Malaysia, Malaysians reaching the official retirement age of 60 may have to deplete their savings to survive old age or obtain loans to start small businesses.

There are growing concerns that in addition to the current ETH Special Withdrawal Facility, the Buy Now Pay Later (BNPL) and Touch n Go's (TNG) GOpinjam schemes will result in more young Malaysians contracting more debts than savings.  — Photo by Hari Anggara
There are growing concerns that in addition to the current ETH Special Withdrawal Facility, the Buy Now Pay Later (BNPL) and Touch n Go’s (TNG) GOpinjam schemes will result in more young Malaysians contracting more debts than savings. — Photo by Hari Anggara

The Department of Statistics Malaysia (DOSM) showed that the latest Consumer Price Index (CPI) rose moderately by 2.2% from 122.5 in February 2021 to 125.2 in February 2022. Main ingredients such as condensed milk and evaporated milk for making coffee or tea, vegetables, poultry, eggs and other food products are becoming increasingly expensive.

There are also growing concerns that in addition to the current ETH Special Withdrawal Facility, the Buy Now Pay Later (BNPL) and Touch n Go’s (TNG) GOpinjam schemes will cause more young Malaysians to contract more debt than savings.

BNPL is a type of short-term financing that allows consumers to buy first and then pay with no interest charges imposed over a short-term period (i.e. 3 or 6 months).

The GOpinjam program provides so-called “small” or “manageable” (unsecured) loans to low-income individuals and households.

Millennials and Gen Z just entering the workforce would be attracted to both programs because they could stretch their payments over several months. However, if customers cannot make payment within the specified time, they must pay an additional penalty under the BNPL. If they ultimately couldn’t repay the debt, BNPL companies could potentially notify debt collectors.

In his recent article entitled “Buy now, pay later ‘schemes need regulation’ (The Star, April 12, 2022), the Secretary General of the Federation of Malaysian Consumer Associations (Fomca), Dr Paul Selva Raj, revealed that 68% of Malaysians felt they were not saving enough. In addition, 52% say they would struggle to raise RM1,000 for an emergency and 47% admit to being excessively over-indebted.

Although the minimum monthly salary required under the GOpinjam scheme is only RM800 and Malaysian citizens between the ages of 21 and 63 can borrow from RM100 up to a maximum of RM10,000, some customers may have trouble paying the accrued interest of 8%. up to 36% per year.

So, for Malaysians to manage their spending and budget wisely, EMIR Research has several policy recommendations to recommend to different stakeholders:

For the government:

  1. Raise awareness and shine a light on financial easing schemes (EPF, BNPL and TNG GOpinjam withdrawals, etc.) – terms and conditions, especially on hidden costs and impact on contributors/consumers financial outlook ETH after frequent money withdrawals and borrowings. One avenue would be to hold roadshows at shopping malls, sidewalks, One Stop Centers (OSCs) at government service delivery offices (such as the National Department of Records, Department of Road Transport, etc.) . In addition, other methods include short messaging system (SMS) communications, Facebook, and radio and television broadcast (public service announcement/PSA).
  2. Incorporate financial literacy into the curriculum from the elementary level. While teachers teach students the differences between income, savings, and expenses (theory), parents need to show good examples (practice) to their children by identifying what to spend first (prioritize).

When kids realize the importance of financial literacy, they can adjust their lifestyle expectations as they grow up trying to buy more affordable products based on their needs and budget constraints. They could also manage their debts accordingly and accumulate more savings for their retirement.

  1. Stimulate new jobs focusing on lower M40 and B40. Those who have lost their jobs should receive support from employment services and requalification programs that target their entry or reintegration into work.

After the training, the government should continue to monitor their progress for at least six months to ensure that the programs have lasting positive effects.

  1. Raising the statutory retirement age to 65 alongside the age of re-employment (i.e. employment beyond statutory retirement) to 67 as part of the long-term plan for accumulation of retirement savings.
  2. Strengthen the supervision and regulation of systems such as BNPL and TNG GOpinjam. Bank Negara, in cooperation with the Ministry of Finance (MOF) and the Securities Commission (SC), is drafting the Consumer Credit Act (2022) which strengthens the regulatory framework for all consumer credit activities .

For BNPL and TNG GOpinjam service providers:

  1. Ensure that consumers have access to a system of recourse in the event of consumer-lender disputes — before any action in the event of a default.
  2. Require transparency on late fees and the consequences of late payments. This information must not only be transparent but visible and easy to understand.

Citizens must also be responsible in managing their personal finances.

In a nutshell, financial literacy is everyone’s responsibility.

* Amanda Yeo is a research analyst at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

* This is the personal opinion of the author or publication and does not necessarily represent the views of malaysian mail.