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LAST_UPDATEMon, 20 Nov 2017 2am

More Malaysians Are Spending Well Beyond Their Means

Consumers are grappling with surging living costs and drowning in debts Pic: barisannasional.org,myConsumers are grappling with surging living costs and drowning in debts Pic: barisannasional.org,my

AMIDST the tough times ahead – with rising cost of living, subsidy cuts and the impending implementation of Good and Services Tax (GST), which will take effect on 1 April next year, Malaysians current spending habit are heading towards a downward financial spiral.

Earlier this year, Bank Negara annual report concluded that Malaysia’s household debt has risen to a record 86.8 per cent of gross domestic product (GDP) at the end of 2013 making Malaysia the highest in Asia.

According to the report, since 2003, household debt in the country has grown at a faster pace of 12.7 per cent in 10 years.

What’s also alarming is that last year, the debt-service-ratio of households in Malaysia stood at 43.5 per cent above the acceptable 30 per cent, according to a local news daily.

Worse, bankruptcy is prevalent in the country - with 60 Malaysians being declared bankrupt every day, according to a BBC news report last year. As of December last year, Malaysian Department of Insolvency (MDI) recorded the total number of bankrupts to be 253,635, with an 11 per cent rise in the average number of bankruptcies from 2012 to 2013.AKPK corporate communications head Mohd Khalil Jamaldin. Pic:BernamaAKPK corporate communications head Mohd Khalil Jamaldin. Pic:Bernama

When contacted by Malaysian Digest, wholly owned subsidiary of Bank Negara Malaysia, Agensi Kaunseling Dan Pengurusan Kredit (AKPK) corporate communication head Mohd Khalil Jamaldin attributes poor financial planning as the major factor among their customers with major debt problem, which according to AKPK figures, accounts for 22.7 per cent of Debt Management Programme (DMP) enrollers.

“Now, it has become more important than ever to differentiate needs and wants. The bottom line is to spend wisely,” he said when asked about how one can cope with the rising cost of living.

Sounds easy enough, right? Although it is probably easier said than done, there are a million reasons to curb our spending: surging living cost, subsidy cuts, impending GST, rising inflation rate (climbed to 3 per cent in November), global oil price slump (which hit a five-year-low recently).

Still, what’s more important is the realization that we can no longer afford the ‘luxury’ to spend the money we don’t have.

Crippled With Debts

There is a saying by former vice-president of United States Calvin Coolidge, “there is no dignity quite so impressive, and no independence quite so important, as living within your means”.

If only this is our personal mantra, we would not be way over our head with debts.

According to AKPK’s latest figure, up to November 2014, 303,885 individuals have attended their counselling services and from that 119,474, more than a third of those who sought for help are in serious debt and have enrolled in the DMP.

Not surprisingly, the highest percentage of DMP enrollers, accounting for 82.3 per cent have a combination of two or more debts - including credit card, personal loan, housing loan or hire purchase (car loans).

Even though more than 6,000 cases with outstanding debts of RM270.5 million have exited their DMP programme, this is only the tip of the iceberg of the hundreds of thousands Malaysians, who are errant defaulters yet to seek for any help.

“No matter which public policies the government implemented or will implement, what is more important is that a consumer needs to manage their finances better,” Fomca secretary-general Datuk Paul Selvaraj also shared with Malaysian Digest.

Fomca secretary-general Datuk Paul Selvaraj. Pic:Astro AwaniFomca secretary-general Datuk Paul Selvaraj. Pic:Astro AwaniSelvaraj said youngsters are the most at risk with debt. In its affiliate Consumer Research and Resource Centre’s (CRRC) survey on young workers in 2012, 37 per cent have admitted that they are living beyond their means while 47 per cent of youth have excessive debt (more than 30 per cent of their income).

This has been echoed in a Malaysian Digest report in February citing over 47 per cent of young adults between the age of 18-35 are having serious debts due to living beyond their means. However, older adults didn’t fare well either, with those aged 35 years and above making up a large chunk of bankrupts in 2012.

Mohd Munir Omar, a sole proprietor who earns a five-figure salary said that the main problem with Malaysians is they are bad spenders and that they don’t know how to create or stick to a budget.

“It’s better for us to stay within our capabilities. Let’ go back to figures. If you know how to take care of your coins, your dollars will be taken care of.”

The 45-year-old who resides in Sri Hartamas said that although the nearest supermarket in Sri Hartamas is more upscale, he and his family go out of their way to find cheaper options, by frequenting hypermarkets like Tesco and Giant.

“Of course living in Sri Hartamas is more expensive, but there are always cheaper options and one has to be savvy about spending money,” he added.

What Has The Government Done, Besides Handing Out BR1M?

Besides the worrying household debt increment, the escalating cost of living is a real cause for concern. Low-income and middle-income earners are hit the worse by surging living costs.

“People are being squeezed. It is a lot tougher for consumers now more than ever. And things may get a lot worse,” said Selvaraj.

Although the falling ringgit has experienced the highest surge last Wednesday, as ringgit closed sharply against the US dollar at RM3.46, it is unlikely that the price of goods and services will come down anytime soon, considering other economic factors.

Many feel that there is more that the government can do to alleviate consumers’ burden - instead of just giving out cash handouts like 1Malaysia People’s Aid (BR1M).

Last Friday, former prime minister Tun Dr Mahathir Mohamad lambasted Najib’s administration, saying that BR1M cash handouts is a big mistake - as giving ‘free’ money will not encourage hard work among Malaysians.

Universiti Malaysia Sabah’s School of Business, Economics and Accounting lecturer Prof. Dr. Syed Azizi Wafa Syed Khalid Wafa agrees with Tun M’s view.Prof. Dr. Syed Azizi Wafa Syed Khalid WafaProf. Dr. Syed Azizi Wafa Syed Khalid Wafa

“Why give young adults ‘free money’ (with BR1M handouts)? Some of them are just waiting for this money so that they don’t have to look for it on their own just because of sheer laziness. If they want extra money, they have to work harder.

“However, if the government wants BR1M handouts to be given to those who are less fortunate, for example the elderly, single mothers or the disabled, then that’s fine,” he said.

Dr. Azizi noted that not only will the ‘feel good’ handout not help in the long run, handing BR1M to the youth could encourage subsidy mentality. “I thought the whole reason for subsidy cuts is to get rid of subsidy mentality? Doesn’t this defeat the purpose of the (subsidy) cuts,” he told Malaysian Digest.

Prime Minister Najib Razak has unleashed a series of price increases as part of the government’s long term subsidy rationalization programme - to reduce dependency on subsidy, improve national finances and ensure the subsidies reach the target groups.

The programme, which took effect on September 3, 2013 has seen the introduction of higher power tariffs and managed float system for fuel price to reflect global prices and reduce subsidies. This has proven to be an unpopular move as Najib’s approval rating has dropped to 48 per cent in October from 54 per cent in August, according to a survey by Merdeka Centre For Opinion Research.

Instead of BR1M, Selvaraj and Dr Azizi think that the government should foster competition to bring down prices as well as enforcing the Competition Act 2010 and monitoring ‘price fixing’.

“Government can’t control the price because it is dependent on the free market. What we can do is to encourage more businesses, which will lead to more competitive prices of goods and services,” Dr Azizi said, adding that the government should be more committed to enforcing the existing policy, such as the Competition Act for this purpose.

Malaysians Should Stop Hoping For A Miracle And Face Reality

It is evident that prices daily necessities are not coming down anytime soon. Our observation shows that while there are differences in living costs in different areas of Klang Valley area, across the board there is a steep price increase compared to three years ago.

Mizzyla MydeanMizzyla MydeanMizzyla Mydean, 38, whose household income averaging RM7000 per month said that her monthly commitment does not allow for savings.

“As budget is very tight, my husband and I only save through our life insurance policy, which doubles as saving. In the last three years, our expenses have gone up more than double from RM3000 three years ago,” she said adding that most of her expenses goes to rent and transportation (around RM3000 per month).

The business owner, who owns a coaching and consultancy company said they have to curb their spending, especially on buying branded items and even have to eat out less, a luxury that the couple previously could easily afford.

Mizzyla, who lives in Ampang, said often, she felt duped when eating out as some places quoted similar prices but with lower value for money by giving smaller portions.

“Our standard of living is the same but the cost has gone up. All we can do is to cut down on our expenses and look for cheaper options,” she said.

On the contrary, Suhaimi Fariz, 28, is less concerned with the rising living costs, due to his frugal spending and modest lifestyle.Suhaimi FarizSuhaimi Fariz

“The rising cost of living is a given. We must be willing to adapt and change the way we live to combat the issue rather than playing blame games and find excuses,” he said, noting that to cut down spending one can carpool and pack lunches.

The digital communication executive at a multinational firm, who earns more than RM4000 monthly added: “Obviously there will be obstacles in implementing change but you must have the will to change it. To be honest, the rising cost of living isn’t exactly a new phenomenon. It’s been going on for ages. If the older generation can survive, why can’t the current generation?”

We can’t deny the bare truth that living costs are rising and will continue to spiral. With GST implementation next year, Malaysians should stop hoping for a miracle, stop committing to more than our earnings and being more proactive to control our spending

In buckling down to face today’s harsh reality, the Malay saying,”ukur baju di badan sendiri” (one should know one’s abilities), will go a long way.

- mD