Managing Money in the Era of Easy Credit

How well are Malaysians really managing their finances?

By Tan Sri Izzuddin bin Dali, Chairman of CTOS Data Systems Sdn Bhd

The rising level of debt remains a huge concern among many Malaysians in today’s economic situation. Quite simply, Malaysians do not fully understand financial management and the implications of their purchasing decisions and habits.

A global survey by the World Bank in 2016 found that only 36% of Malaysians are financially literate. The report coincides with the 2016 Bank Negara Financial Inclusion and Capability Study, stating that only 18% of Malaysians could survive more than three months financially if they lost their main source of income.

These figures are supported by the increase in Malaysians filing for bankruptcy, with more than 20,000 reported over the past five years. While there could be many factors that have led to this (e.g. business failure), much of it chalks up to the lack of financial management and literacy.

Despite being in an environment where information is easily accessible, the lifestyle habits and priorities – especially among Malaysian millennials – have shifted drastically to produce a spendthrift society that thrives on immediate gratification. The practice of saving in anticipation of a new mobile phone is no longer a norm as many now use the option of “charging it to our card”, without thinking twice about the implications that come with that purchasing decision. Financial management and stability is not a priority.

At the recent Karnival Kewangan 2017 hosted by Bank Negara, Datuk Muhammad bin Ibrahim, the Governor of Bank Negara Malaysia commented that “the pursuit of financial knowledge is a key economic imperative. In today’s world, the ability and knowledge to save, invest and borrow are essential life skills, be it for individuals or businesses”.

Whilst these are abilities that may have been inculcated in consumers starting from a young age, over the years they may no longer be a priority as one starts pursuing lifestyle needs.

Contrary to popular belief, managing finances is no difficult task, but does require a certain amount of discipline. One of the most common habits among consumers is making late payments or partial payments on credit card debts. The reason being, most of the public do not fully realise the consequences of these type of payments to their borrowing amounts.

While many of us can enjoy the luxury of charging purchases to our credit cards, the downside is that many of us also do not realise how the interest rate affects our personal finances. Thus, when it comes to credit cards, one should always aim to pay the statement in full to avoid being charged interest on outstanding balances. The best way is to commit to a limit that you are confident can be paid off each month.

Another habit that we all need to instil in ourselves is budgeting. We all have no issues in keeping to a budget during work, yet forget how beneficial this practice is in managing our daily expenses. One effective way is to map out a financial calendar for monthly expenditures, coupled with reminders on when bills and other payments are due. This not only allows you to meet your payment deadlines, but also gives you a better idea and understanding of where your money goes and what you spend on most. This will make it easier to allocate certain percentages of your income to financial priorities.

Hence, financial agencies and organisations such as CTOS, have an important role in advocating healthy financial habits and incentivising consumers to manage their finances better. CTOS provides an avenue to get a sense of your financial health by providing a highly predictive credit score – CTOS Score.

Through the credit score, consumers can clearly see where they are in terms of their financial standing and are able to set realistic aspirations for their lifestyle choices. For instance, the CTOS Score considers a consumer’s payment track record, amount owed, type of debts and credit history in determining the credit score.  The availability of such a system will help drive Malaysians to be more mindful about their spending habits while becoming more disciplined with their payments to acquire and maintain a good credit score. This, in turn, will inculcate positive financial management and payment habits in consumers.

Malaysians have yet to comprehend the enormity of the consequences from neglecting these basic financial practices. As such, there is a critical need among the public for awareness, education and deeper understanding of the impact and consequences when it comes to financial management. Following simple financial management practices will help consumers hold on to what they already have.

Ten years ago, our physical health was not a top priority and was taken for granted by most, yet today medical coverage is one of our first concerns when joining a new company. Just as it is with financial health today, let us not wait ten years for us to realise the impact of poor financial management in our everyday lives.


This story first appeared in the Business Today magazine (August 2017 issue)

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