Smart Investor Malaysia

Are You Blind to Financial Literacy?

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Welcome to the start of a hopeful and smooth new year. You’ve survived a challenging and unprecedented 2020 where the Covid-19 pandemic paralysed the global economy, companies laid off countless workers people, and there was a huge spike in retrenchment and unemployment rates. In addition, the rise in financial scams and internet frauds has raised significant concerns during this challenging time.

“For the first 6 months of 2020 alone, Malaysian were reported to have lost a total of RM914 million to scams” – Datuk Syed Zaid Albar, Chairman of Securities Commission Malaysia 

Poor financial literacy hinders the ability of individuals seeking to be financially secure. It could happen in all spectrums across society, even among those who are well-educated or with high-paying jobs. It’s not uncommon to hear of high-ranking corporate individuals or professionals stumbling upon financial problems. The biggest barrier to achieving financial independence is the alarmingly low rate of financial literacy among Malaysians. 

Ignoring Financial Literacy is Costly

A lack of financial knowledge coupled with irrational investing and being ignorant could end up costing thousands, if not more! I was recently told by my General Practitioner client in her 30s that she lost a five-figure sum of money in December 2019 to yet another Macau scam syndicate.

She received a call from a man who identified himself as a Bank Negara Malaysia officer informing her that her credit card was involved in offshore money laundering. Naturally, she was warned not to tell anyone, and that the matter could be resolved immediately by transferring a certain amount of money to a given account, failing which, Bank Negara would freeze her account and she would be arrested. Out of fear, she complied but only to realise later that it was a scam after she shared her ordeal with her sister.

Mistakes in life do happen, but when it comes to money, mistakes tend to be painful and very expensive. Most people don’t get professional help when it comes to finances. Instead, they try to solve it themselves by “Googling”. It’s no real surprise that many individuals, including well- educated professionals are tight-lipped when it comes to revealing their financial losses.

Cultural Barriers to Blame?

Most Asians are brought up with the culture of “The Money Taboo”, which means that issues pertaining to money and finances are never discussed or talked about. This leads to money becoming a touchy subject for most people. If you aren’t talking about money, you may lack the exposure to financial education, which can subsequently lead to poor investment decisions or diversification in asset allocation. 

Many people don’t talk about money because it’s “sensitive” – they may feel ashamed about their unwise financial mistakes. Well, if you aren’t aware about your financial situation, it’s likely that you’ll never do any better since there’s a lack of understanding about how your financial decisions affect you over the short, medium and long-term.

Poor financial literacy is highly correlated to ineffective spending and bad financial planning; this may result in expensive borrowing and getting into high debt. The influence of materialism is widespread, and is particularly prominent on social media where the many advertisements place a high importance on luxury goods such as expensive smartphones, designer clothes, frequently eating out, and more.

It’s pretty common nowadays to see many people rack up various types of debt, including personal loans, credit card debts, and hire purchase loans. If you start building up huge amounts of debt, it could potentially leak into your relationships and possibly even ruin your marriage or your life!

Perhaps the year 2020 will force us to rethink the importance of financial literacy and having strong cash flow during unforeseen or major catastrophes. Being financially literate allows you to make sound financial decisions, have better money management, and protect yourself from financial scams. 

In today’s world, financial literacy is crucial for everyone to survive in our current society. Understanding budgeting and borrowing costs is particularly important in lean times. Like every other skill, financial literacy takes practice and I highly recommend starting as early as possible to get a valuable head start. Values are shaped through education when we’re growing up, and it’s the same when it comes to the way we look at the value of money.

If talking about money is taboo, how can we educate the next generation about their personal finances? Should you start talking about it?

About the Author

Lim B’Shen is a licensed financial planner that specialises in investment, asset allocation and SME solutions. She can be contacted at bslim322@genexus.com.my

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