In 2014, S&P Global has conducted Global Financial Literacy Survey [1]. Based on this survey, our financial literacy was so bad. We scored 36%, for adults who is financial literate. Financial literacy was measured using questions assessing basic knowledge of 4 fundamental concepts in financial decision making:
- Knowledge of interest rates
- Interest compounding
- Inflation
- Risk diversification
Current State
As of 2020, Malaysia’s financial literacy standing was improved significantly! We scored 59.7% [2]. This increment is equivalent to 1.65 fold from previous state. The compound annual growth rate, CAGR stands at 8.8%. We should be proud of our achievement within 6 years time frame. However we are still lagging behind in terms of world’s average who is currently sitting at 60.5%. We need to buckle up a little bit to match with the world.
59.7% Financial Literacy
Based on OECD, 2,818 respondents were participating to the survey. Malaysian 59.7% financial literacy can be breakdown into several segment. Namely:
- Financial Knowledge – 52.3%
- Financial Behaviour – 68.1%
- Financial Attitude – 54.9%
Financial Knowledge
In Financial Knowledge segment, respondents were asked the following questions:
- Time, value of Money – 35.7%
- Understanding interest paid on a loan – 56.1%
- Simple interest calculation – 42.9%
- Understanding correctly both simple and compound interest – 24.8%
- Understanding risk and return – 77.6%
- Understanding the definition of inflation – 76.5%
- Understanding risk diversification – 52.1%
Financial Behaviour
In Financial Behaviour segment, respondents were asked the following questions:
- related to budget – 71.5%
- related to finance product (credit, insurance, payment, and saving/investment/retirement product)
- related to saving money – 84.9%
- related to controlling expenditure and avoiding indebtedness
Financial Attitude
In Financial Attitude segment, respondents were asked the following questions:
- related to long term investment
- related to saving
Filling the Gap
Based on this survey, although Malaysians are showing healthy money management for instance budgeting and living within means, we are still lagging behind in terms of product knowledge, financial numeracy and planning for long terms goals. This is very crucial for our futures and making sure retirement days is well plan. On top of that avoiding unnecessary reliance to family members and government assistance.
To improve Financial Literacy Rate
Although Malaysian financial literacy [3] has improved significantly, we should strive for the betterment. In order to do so, BNM [4] has come out with elated initiative to empower Malaysians’ Personal Finance. According to BNM, Malaysian need to elevate their financial well being. It refers to an individual’s ability to:
- Meet ongoing financial obligations
- Stay resilient to income shocks
- Achieve future financial goals
- Make financial decisions to improve one’s overall quality of life.
Moving Forward
Malaysian need to develop a good financial behavioural. This includes:
- To develop a habit of saving, investing, and planning for retirement at an early age
- Cultivating sound financial judgement. Including to guard against behavioural biases such as herd behaviour and susceptibility to financial scams
Source:
- S&P Global Platts
- OECD
- SC
- BNM