10 Reasons Why Malaysians Are Still Broke
Your decision to buy that RM18 cup of frappucino from that hipster coffee place every day can impact your likelihood of achieving your financial goals.
On the other hand, wise money decisions you take today can help you pave a path to a more secured financial future.
So, why do Malaysians find it extremely hard to achieve their financial dreams? These 10 worst money habits are probably the culprit:
1. Consumed by the culture of consumerism
Every time we step into the shopping mall, we are faced with a barrage of sales and promotions – left, right and centre. If you are not a pro in avoiding it (read: has zero will power), it can get pretty overwhelming, and downright impossible to resist.
From back-to-school sale, to mega sale and the Merdeka sale – you name it, we have it. Not to mention the all-too-common warehouse clearance sales. It is not unusual to see Malaysians swarm warehouse sales and stores to grab some good bargains, and sometimes even in bulks.
It’s all good and fair, who doesn’t like saving some money during a sale? However, it becomes a bad money habit when you are grabbing everything in sight, even when you don’t need the items.
If you are doing that, you are unleashing your inner shopaholic that is no longer logical or objective.
When it comes to non-essential items like another designer handbag or premium chocolate, just take yourself out of the temptation by not going to the sale, or make a strict list of items that you need to buy and stick to it. You may need a shopping partner who will be able to help you with that.
2. Only considering one aspect when making a purchase – the price
So often, we tend to only look at the price of an item before deciding to buy it, without considering if the quality is worthy and long-lasting, or even if you need it in the first place.
How often have you been asked by the person behind the Starbucks or McDonald’s counter to upgrade your drink to a large one, because it only cost RM1 more? What does it matter if you can’t finish such a large cup of drink – it’s just RM1 more? That’s RM1 you don’t intend or need to spend.
This concept work both ways. Cheap does not always mean good. There are some things in life that you shouldn’t cut back on. Sometimes it’s better to buy something of a higher quality that will last longer versus cheap products which can harm you or need to be replaced often.
This applies to healthcare products, food and house or car maintenance. In some instances, you can end up spending more due to frequent re-purchases, than saving more.
Do your homework first. Research about it online and read customer reviews. You can also ask friends who have used or bought the item before to get their feedback, or speak to a friend who is a professional in that field. For example, you can talk to a make-up artist before getting a make-up set.
Follow a fan community page on social media to see what others are sharing on the product or service. For certain products, such as skincare, you can ask for a sample to try and see if it’s suitable for you before buying it.
Once you’ve done your research and know what you want and need, you won’t be easily swayed by sweet talking promoters.
3. Not managing your subscriptions smartly
Have you gotten a random call from one of your service providers offering you an once-in-a-lifetime special promotion to upgrade your plan? How about a reward for being a great customer in the form of a loan?
We’ve all gotten these calls before, and they all sound pretty awesome. Who doesn’t want a free personal accident coverage when you sign up for a credit card? If you have signed up for products or services through these calls, you would probably think you were indulging in a money saving effort.
You might think that paying an additional RM20 for a bigger data capacity for your mobile plan is a steal, but the reality is, you’ve just spent more than you’ve intended to. Some sign-up offers can look financially attractive in the beginning, but later turn out to a burden on your wallet after the promotional period ends.
For example, assuming you upgraded your 3GB data to 8GB for RM20. Whether you fully utilise the 5GB plan each month, you will be paying an extra of RM240 every year. If you don’t need the additional data, that’s really money that you don’t need to spend.
This is especially true for long-term subscription because you are committing to a lot of money over a long period. Paying RM10 a month may not seem like much, but that’s RM120 in a year – money that could be saved or spent elsewhere.
Think long-term when signing up for subscriptions to really understand the financial impact.
4. Being penny wise, pound foolish
We go through great lengths to save small amounts of money, but are careless when it comes to larger amounts.
The perfect example would be how Malaysians would go extra distance to avoid paying toll but end up using more petrol. We are simply channelling the money saved from toll to pay for our petrol. At the end of the day, financially, we are not getting anywhere.
Likewise, going in circles to find a free parking or parking indiscriminately just to save a few bucks. You could end up spending more if you get a ticket for illegal parking, or your car is damaged in an unattended parking area.
It all goes back to the same thing. Consider long-term impact in these situations to see if it’s worth the time and hassle to save a few bucks.
5. Obsessing with instalment plans
Malaysians generally define affordability by the ability to pay the monthly instalment. This is the mentality that Malaysians adopt when they plan to purchase something they can’t afford upfront, but can ‘afford’ via instalment. This mentality has led many Malaysians to financial despair.
We can almost purchase anything via instalment today – be it furniture, mobile phones, or electronic items. This may seem like good news for those who can’t afford it at one go, but it also means they can easily purchase something that is really beyond their means.
When this happens, you may end up missing a payment which will result in interest charges. If you are using your credit card to sign up for easy payment plan, missing a payment could result in at least 15% interest per annum!
Yes, some offers can be attractive with 0% interest easy payment plan but signing up for instalment plan on your credit card will still be reflected on your credit utilisation and credit health. Because at the end of the day, you are still buying it on credit.
Remember, a credit card is not a tool for us to make purchases we cannot afford. It is merely a tool to make our financial life more convenient.
If the answer is no, then you are better off not purchasing it instead of racking up high interest charges when you fail to make payment. Easy payment plan can be a boon for those who know how to manage their cash flow, and if you don’t fall into that category, it’s best for you to steer clear and stick to cash.
6. Being financially illiterate
According to a study by the Asian Institute of Finance (AIF), only 28% of the respondents are confident of their financial literacy while 58% admit to having only “average” financial knowledge.
This is not entirely shocking as hundreds of thousands of Malaysians are still struggling to afford their first home, or even just to cope with the increasing cost of living.
According to Credit Counselling and Debt Management Agency (AKPK), close to half a million of Malaysians have participated in their debt management programme, with debts totalling RM437.4 million from 2006 till June 2016.
This is backed up by the the Asian Institute of Finance (AIF) study, which revealed that young Malaysians experience significant financial stress, live beyond their means, and are trapped in emotional spending. Among the respondents of the survey, 38% have personal loans while 47% are struggling with high-interest-rate credit cards. The survey also revealed that only 70% pay minimum monthly repayment on their credit cards while 45% fail to pay their debts on time.
These stats are shocking and the reason why Malaysians find themselves in this situation is because they lack the understanding of how financial products work, and how they should manage their money.
Engage a professional advisor if you need to or seek advice from your peers that are more experienced in this area. Learn from your mistakes and never repeat the same mistake again.
7. Do not have a budget
How many of you actually have a budget? Do you write down your budget that includes your income and expenses before starting off the month? Most of us would most probably say no.
Once we get our salary, we simply make several transfers or withdrawals to pay our bills and spend whatever that’s left. We do not stop to see how much or where we are spending and how we are saving, or if we are saving at all. In worse cases, some of us actually spend more than we earn!
This is a financial catastrophe waiting to happen.
You will likely find that you are spending way too much. The good thing about having a budget is, you can identify where you are spending and where to cut down. Discipline and perseverance are needed to make a budget work!
8. Not investing
Sure, you won’t lose your money if the market trend downwards, but in the long run your savings will be eroded by inflation.
For example, your FD savings generate approximately 4% returns a year. However, with inflation at 3% a year on average, you are only left with 1% returns – which is almost insignificant in growing your money.
With inflation, you will lose more money by not investing. To make investment less intimidating, read up, study and understand it, so you will go into it with your eyes wide open.
9. Putting off insurance coverage
If a sudden disease or accident puts you in the hospital, the hospitalisation cost and financial consequences can be devastating. Worst still, if you are the breadwinner of your family, you and/or your family can exhaust all family savings or run into deep debts just to pay your medical fees.
This is a terrible financial habit among Malaysians as only 50% of Malaysians have insurance coverage, with 90% of them are found to be underinsured. This percentage reflects that a Malaysian family is only compensated for the first two years.
If you are uninsured, it’s time to get the right insurance coverage. If you are already insured, review your coverage and sum assured regularly to ensure that you, your family and your assets are properly protected. Find out which type of life insurance is the best for you.
10. Depending only on EPF for retirement
According to EPF, 78% of the 68 million EPF contributors do not have the basic amount of RM196,800 saved for their retirement. Of the 78%, 65% have less than RM50,000 in their savings, while only 22% have reached the RM196,800 or more threshold. This is nowhere sufficient to lead a comfortable retirement lifestyle.
Based on another survey conducted by the AIA Group, the average amount that Malaysians wish to retire with is RM1.9 million. This amount will translate to RM10,556 a month, for 15 years.
The stark difference in the retirement fund proves that one cannot just depend on their EPF savings to fund their golden years – at least not the golden years they desire to have.
You may need a professional financial planner to help you draw up a strategy to execute the plan. Your plan could include an investment portfolio of Private Retirement Scheme (PRS), unit trust funds, bonds and even real estate.
Old habits die hard. But it is important to strike a balance in your spending, saving and income. These bad money habits can lead you down a path riddled with debts, financial misery and unfulfilled life goals.
I ain’t no saint when it comes to managing my finances too, but I have learnt that changing small habits can go a long way in good financial management. If you are addicted to online shopping, start by unsubscribing to newsletter about sales and promotions. This will definitely help you eliminate temptations.
We need to adopt good financial habits and always make money decisions according to our individual financial ability. This make us less susceptible to money mistakes that can lead to financial distress in the long run. Learn to differentiate between ‘wants’ and ‘needs’. Think twice, plan well and spend wisely – and you could be on your way to a good financial position.