Malaysians Are Facing High Debts With Low Savings
Findings from a report by Khazanah Research Institute found Malaysians to have high debts and inadequate savings for retirement.
The household debt to gross domestic product ratio remains high despite the growth of household debt moderating since 2010 (2015: 7.3% year-on-year).
In 2015, the ratio was at 89.1%, while in 2014, it was at 87.4%, according to Khazanah Research Institute’s fourth publication of “The State of Households II” released last week.
The household debt is mostly due to mortgages, which have expanded by 11% between 2014 and 2015.
“There is a concern that many will not have saved enough for a 20-year retirement and are taking on too much debt,” said Khazanah Research Institute managing director Datuk Charon Mokhzani when presenting the report yesterday.
This is alarming because the report also showed that the average life expectancy was now 77.4 years on average for women and 72.5 years for men, up from 65.5 and 61.6 respectively for both genders in 1970. This means, Malaysians are living longer and will have to fund for a longer retirement duration.
In 2013, household savings was reported to be at 1.4% of adjusted disposable income, and averaged at 1.6% for 2006 to 2013. This is much higher compared to the United States at 5%, though the country is generally acknowledged as having low household savings.
“In fact, save for Japan, Malaysia’s household savings rate as a percentage of adjusted disposable income in 2013 was the lowest among a selection of countries for which this data is publicly available,” he added.
Shockingly, only 10.8% of households in Malaysia can weather financial shocks due to unemployment, physical impairment, death, divorce and changes in interest rates or financial markets.
Only more than a fifth of these households would be able to sustain their family for less than three months if they lose their income.
To make matter worse, more than 50% of the households surveyed did not have any savings. These findings are similar to the findings by Bank Negara in their report titled, “Financial Inclusion and Capability Study”, which found that only 6% of Malaysians can survive more than six months, and 18% up to three months, after losing their main source of income.
Several measures to reform household debt were proposed by Khazanah Research Institute, in their previous State of Households report. These measures include requiring all providers of consumer credit to prominently advertise the true annual percentage rates, realigning the regulation of consumer credit between the various Government agencies currently in charge, and mandating the teaching of basic financial literacy in schools.
“To date, these proposals have yet to be implemented,” the report said.
Despite that, the report also said that the overall household balance sheet is still healthy, as some households continue to accumulate more financial assets than debt.
Though debts have been increasing, the total household financial asset-to-debt ratio remained above two times over the past five years. This means that some households have the financial buffer to meet their debt obligations.
Households were also found to be better off in 2014 compared with 2012 due to a higher median of RM4,585 and average income of RM6,141.
Salaries and wages are not the driver of the growth in household income, though it contributes to 60% of household incomes in Malaysia.
Charon said that paid employment fell as a source of income for the top 60% of households, as people have become slightly more reliant on income from current transfers such as the 1Malaysia People’s Aid, as well as from rent income in property and other investments.
Income from property and investment grew between 2012 and 2014, from 9.7% of the household income to 11.4%.