The unprecedented effects of COVID-19 overturned people’s realities and upended lives, giving rise to issues one could never have anticipated just months prior. What started as a threat to public health quickly morphed into something much bigger — not just impacting our physical well-being, but also our financial health.
The pandemic has witnessed rising unemployment, a fall in average salaries and more businesses having to shut down due to insufficient revenues. Consequently, many individuals struggled to make ends meet and had to fend for themselves during a time of economic decline.
In UNICEF’s February 2021 Families on the Edge report, it was found that 63% of low-income urban households experienced difficulties in acquiring basic essentials, 57% were unable to obtain enough food, and 56% could not pay their bills on time. The poverty rate among these families was also alarmingly high at 42%.
What is deeply worrying is that 7 in 10 of these households did not have precautionary savings, making it difficult for them to cope with the economic impacts of COVID-19.
As our nation reckons with these new realities, it is clear that there is much that we could learn from this crisis to ensure better financial preparedness in the future. Most importantly however, the pandemic reveals an urgent need for us to come to terms with a glaring problem — the need for greater financial literacy amongst Malaysians.
Pre-Covid Findings Reveal Dismal Financial Literacy Levels
A report released by the Malaysian Financial Planning Council (MFPC) in 2018 discloses troubling results regarding financial literacy and wellbeing in our country.
According to the survey, 83.7% of the respondents allow expenses to be sometimes higher than income in their general management of cash flows. This indicates a worrying propensity to overspend.
More than half of the respondents (57%) recorded low literacy in risk management as they do not understand the need to buy insurance, perceiving it as something “nice to have” instead of a “need to have” on their list of priorities.
Furthermore, 43.8% of the respondents believe that they could depend on their EPF savings for their living expenses after retirement. This is alarming considering that just a year prior, the Employee Provident Fund (EPF) revealed data showing that more than two-thirds (68%) of its members aged 54 have less than RM50,000 in their EPF savings. This amount can only sustain them for 4.5 years, and is simply not sufficient to enable retirees to stay out of poverty after retirement.
Unequipped with sufficient financial literacy, it is no surprise that the onslaught of COVID-19 caught many individuals off guard. Its economic ramifications have led to severe financial distress — the intensity of which could have been diminished or allayed if Malaysians were more financially sound prior to the crisis.
Should greater uncertainties arise in the future, it is paramount that we learn from these mistakes, and strive towards inculcating better habits to safeguard our financial wellbeing.
Never Too Late to Start
There is a common misconception that financial education is only meant for youths. And while it is certainly ideal to start educating our children about money at an early age, the truth is that the learning cannot and should not stop there.
All of us, regardless of our age, race, ethnic background, gender, or educational level, need to know how to effectively manage our finances. It is part of being an independent and secure adult — whether you are 21 and just starting out on your own, 30 and starting a family, or 65 and looking forward to retirement.
Sound financial knowledge can help us set practical and clear financial goals, which subsequently leads to better financial well-being. Sudden financial shocks and emergencies can also be coped with better if we consciously adopt saving habits, which contributes to greater financial resilience in the long run.
COVID-19 has certainly proven to be a great wake-up call, revealing to us the importance of financial literacy and precautionary planning before it’s too late.
“Financial literacy is critical; it empowers Malaysians to become smart consumers, manage their debt, set short-term and long-term financial goals, and plan for a more secure financial future. It also provides them with the much-needed knowledge of making strategic investment decisions for their retirement or their children’s education.” Assoc. Prof. Dr. Mohamad Fazli Sabri, Research Head of the MFPC Report
Key Financial Takeaways From COVID-19
Listed below are some crucial financial lessons we’ve learned during this unprecedented time.
#1 Emergencies do happen, and we need to prepare for it
One clear lesson from the past tumultuous year is that more Malaysians should work towards building an emergency fund of at least one month of spending. An accessible emergency fund (kept in an easy-to-access form like a savings or checking account) can help alleviate the need for drastic cuts in spending when facing temporary shocks to your income.
“Time is of the essence and the trick is to start early. You do not have to put in one lump sum, but make small regular savings and increase the contributions as your career progresses.” – Husaini Hussin, CEO of PPA
#2 Keep your retirement savings intact
If you are facing a period of uncertainty, preserving your retirement savings should remain a priority. Avoid dipping into your retirement savings. Instead, review your budget or adjust your expenses accordingly.
There are various government assistance and reliefs to help you meet your monthly commitments. These include targeted moratoriums on mortgage and hire-purchase loans. Deferment on insurance premiums can also be arranged while your home or office rentals may be negotiated on a goodwill basis.
The general rule is to tap into your emergency funds and other non-retirement accounts first, because tapping your retirement savings today has consequences for the future.
“One shouldn’t touch their retirement-earmarked funds unless absolutely necessary, where one’s health and safety is compromised.” Suraya Zainuddin, Financial planning advisor and founder of RinggitohRinggit.com
#3 Financial discipline is achievable if we put our minds to it
The pandemic has taught us that financial discipline isn’t impossible after all. The restrictions on life’s pleasures, like travel and eating out, caused all of us to rethink how much we spend on these activities. By reflecting on our excess indulges, we’ll be able to realize the value of spending moderately and saving intentionally.
Life’s experiences can become catalysts for us to change existing habits and mind-sets, and this includes our financial outlook too.
“As the economy begins to recover, it is a good time for Malaysians to re-look at their finances and learn from their experiences to strengthen their financial footing post-pandemic. Instead of returning to our old bad habits, we should actively incorporate positive financial conduct into our daily lives.” – Paul Selva Raj, CEO of the Federation of Malaysian Consumers Associations (FOMCA)
#4 Accept help when you need It
Perhaps you’ve always been very independent. You take care of yourself, your family, and you give both time and money to those in need. But you may also find yourself in a really difficult financial situation because of COVID-19.
However, you should not let your pride get in the way of accessing government resources that are available to you. Check with current lenders as they may be willing to defer payments in some circumstances. You can also call utility providers to ask about the financial assistance programs they may have.
Ask for and accept help when you need it. When you are financially secure, you can repay the favour and give back to others in return.
“With so much uncertainty with the global economy, the extra cash in hand can make a big difference three, four months down the line – you’ll never know what will happen. Plus, with so many high-yield savings accounts and fixed deposit promotions, you can even earn interest on these deferred instalments (and offset the interest charged on your existing loans).” – Hann Liew, CEO of RinggitPlus
Malaysian Financial Literacy Platforms You Should Know About
Want to improve your financial knowledge but don’t know where to start? Here’s a compilation of websites and resources you can explore!
Multiply is an online platform with easy-to-understand information on personal finance. They are a non-profit initiative by Creador Foundation and their carefully researched content is neutral and free.
Through videos, guides, blog posts, calculators and infographics, Multiply seeks to help you make sense of finance so you can make better financial decisions.
RinggitPlus.com is Malaysia’s leading financial comparison website that helps you get more for your money – whether you’re applying for a credit card, personal loan, an insurance plan, a home loan for your dream house, and much more.
The RinggitPlus team makes it easy for you to search for the right choices for your needs, and breaks down complex financial concepts into language that’s simple to understand. Through their website, you can obtain information on everything you need to make empowered decisions and save money on products and services you use every day.
Fun(d) For Life portal is a One-Stop-Centre consisting of interactive elements about financial literature knowledge in the form of simulations and games for students, teachers and parents.
Alongside The Adventure of Pak Pandir and Family, a financial literacy comic series for youths, the organisation also creates games, quizzes, infographics and videos to facilitate financial education among children and teens.
Financial Literacy for Youths (FLY) is an initiative started by students, for students. They are dedicated to spreading awareness regarding the importance of financial literacy and knowledge.
Through blog articles, Spotify podcasts, virtual webinars and Instagram infographics, FLY hopes to educate and empower youths through the education of economics, finance and investment.
Explore Our Sources
- 2021. Malaysiakini. Economic impacts of COVID-19 severe. Link
- 2021. UNICEF. Families on the Edge, February 2021. Link
- 2018. Malaysian Financial Planning Council. Financial capability and utilization of financial advisory services in Malaysia. Link
- 2018. PRS Live. Living your ideal lifestyle. Link
- 2020. Codeblue. Why saving for retirement is important. Link
- 2021. Malaysiakini. Useful lessons learnt from COVID-19 pandemic. Link
- 2021. Ringgitplus. Life after MCO: Money fixes and preparing for a new normal. Link