Sunday, 25 May 2014

Financial Literacy in Malaysia - A Report By Bank Negara Malaysia

I chanced upon this report by Bank Negara Malaysia (BNM) entitled "Financial Literacy in Malaysia : Issues and Status Update" for year 2013 while "Googl-ing" for financial education in Malaysia.

After going through this report by BNM, I thought I would like to share some of the important findings in this report.

1) Financial Capability is Important for Life-long Financial Sustainability

From the perspective of financial investment literacy, I've witnessed many Malaysians trusting their hard earned money into investment vehicles that offer good returns. What many don't realize is that any investment that is capable to offer high returns also has the potential to suffer higher losses. This is a an undeniable fact about risk in investing.

Referring to point number 3, through adequate financial education, one would be able to avoid falling into of "poor market practices of Financial Service Providers". How many times have we seen investment advertisements stressing the so called high returns only to realize that if you calculate the Internal Rate of Return (IRR), it is just a little higher then your regular Fixed Deposit Rate. I've proven this point in some of my previous articles. You can find these articles by the searching for the term "IRR" in this blog.

What about the poor practices of unscrupulous consultants and agents, promising high returns in order to meet their sales targets. I'm pretty sure BNM and also Securities Commission (SC) have received their fare share of complaints from consumers with regards to this problem. There's also an article I wrote about "Mutual Fund Must Be Full of Con Men?" that you may find intriguing to read about. 

Ultimately I concur with BNM's report that through proper financial education for consumer, the issue of misleading and malpractices by certain parties in the financial industry can be eliminated.

2) Regulations has its limitation and, therefore Consumer Empowerment forms the first line of defense!

The problem with many financially illiterate Malaysians is that they love to cry over spilled milk. Boo hoo...and they go crying to BNM after realizing they have been cheated of their hard earn money. Well the truth is, there's a limit to what regulation and authorities can do to protect consumers. Instead, consumers should empower themselves through financial education. Some basic financial awareness and knowing the right questions to ask could make a big difference when it comes avoiding scams or falling into a lousy investment scheme.

3) Financial Surveys conducted by BNM
BNM has conducted numerous surveys to gauge consumer financial literacy and financial preparedness in Malaysia. Hopefully by reading the survey outcome, we can take the opportunity to identify our weaknesses and apply the right remedial actions to improve our financial well being.

a) Overall Financial Literacy Survey Outcome

b) Preparedness for Income Shock / Sudden Income Loss

c) Financial Distress and Debt Management

4) What Needs To Be Done Based on Outcome of These Financial Surveys

BNM has put in place various strategies to address the problem at hand (You can read BNM's strategies from this report. Click HERE). 

On the other hand, as individuals, we should also be empowering ourselves and our family with proper financial education. Start with reading and learning the basics from the internet or from financial magazines. 

When it comes to making important financial decisions such as buying a home, a car or even investing in a scheme, always do your homework thoroughly and understand the details first before committing.

Lastly, start planning your retirement now! Learn the basics of retirement planning HERE

That's all for this post! Cheers and Happy Planning!

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