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Bank Negara Reveals The 4 Biggest Mistakes Malaysians Make When It Comes To Money

Statistics from the police revealed that many Malaysians are prone to financial fraud and abuse.

Cover image via The Business Times

1. "Malaysians tend to have low financial resilience and are vulnerable to financial shocks."

Abdul Rasheed cited BNM's Financial Capability and Inclusion (FCI) Survey that was conducted in 2015, which found more than 75% of Malaysians said it was a challenge to raise even RM1,000 of immediate cash money in the event of an emergency.

Results from the survey also revealed that only 32% of Malaysians have enough money to cover a week's expenses, at most, should they lose their source of income.

If there's an emergency, Malaysians usually resort to cutting down on spending; or borrowing from friends and family members, or other external sources; or depending on credit lines, such as credit cards and instalment plans.

"An ideal situation is to have a financial buffer that is sufficient to cover living expenses of at least three to six months in the event of loss of income," Abdul Rasheed said.

2. "A significant number of Malaysians like to 'live for the moment' and display short-sighted tendencies – focusing on 'instant gratification'."

He pointed out this tendency to focus on instant gratification is more prominent among the millennials.

"Millennials are more passionate in keeping pace with the latest digital lifestyle," Abdul Rasheed said.

He shared the statistics from a study by the Asian Institute of Finance in 2015 which found that a majority of youth to be living on high borrowing costs – 38% of youths rely on personal loans, while another 47% engage in expensive credit card borrowings.

"Often, they will soon find these debts burdensome and resulting in financial problems," he remarked.

The number of youths seeking for financial help from AKPK (Agensi Kaunseling & Pengurusan Kredit) has also increased. It was revealed that more than 3,400 youths betweens the ages of 20 to 30 years old have sought for AKPK's assistance in the first eight months of 2017, compared to 3,450 youths for the entire year of 2016.

3. "Majority of Malaysians do not practice long term financial planning. "

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"Only 40% of Malaysians consider themselves financially ready for retirement, despite the steadily increasing life expectancy of Malaysians," Abdul Rasheed said.

According to EPF (Employees Provident Fund), people would need a minimum savings of RM228,000 when they reach 55 to generate sufficient investment income to live above the poverty line for the next 20 years.

However, based on studies by the Khazanah Research Institute, those in the 51–55 age group, only have about RM160,000 of EPF savings, which is lesser than the targeted minimum amount.

"Lack of awareness on the importance of having sufficient saving for retirement can lead to profound results, including the struggle to meet post-retirement standard of living," Abdul Rasheed commented.

4. "Malaysians still lack understanding on risk and return and are not able to make rational financial decisions."

It was pointed out that many Malaysians are still prone to financial fraud, and they also fall victim to financial scams.

Abdul Rasheed referred to statistics from the police, which revealed that 1,883 cases related to financial scams were recorded between 2015 up to the first quarter of 2017. The total loss from these cases amounted to RM379 million.

"This suggests that greed and ignorance can give way to rational financial decisions for many victims," he said.

Abdul Rasheed said that education is key in order to ensure that Malaysians are equipped with the knowledge and ability to better manage their finances

He stressed that BNM is committed to ensuring that Malaysians' financial well-being is taken care of.

According to him, a five-year national strategy is in place and they are to be implemented through BNM's continuous financial education programmes.

"The national strategy for financial literacy has identified five strategic priorities which cover all life stages – from nurturing values among young children to inculcating positive behaviour for adults and preparing Malaysians to retire comfortably."

"Specific action plans would be formulated to reach out to the masses, as well as meeting the needs of specific target groups," Abdul Rasheed said.

Last year, Bank Negara established the Financial Education Network (FE Network) to address the growing concern on the low financial literacy level of Malaysians by driving specific initiatives to improve the current situation.

Do you think education is crucial for improving financial literacy levels among Malaysians? Share with us your thoughts on the issue in the comment section below.

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