Financial Literacy For Better Financial Behaviour
Studies conducted by Bank Negara Malaysia (BNM), the OECD International Network on Financial Education (OECD/INFE), Credit Councelling and Debt Management (Agensi Kaunseling dan Pengurusan Kredit [AKPK]) and the Malaysian Financial Planning Council (MFPC) between 2015 and 2018 show that the level of financial literacy among Malaysians has yet to reach a satisfactory standard.
The 2015 BNM’s Financial Capabililty and Inclusion Demand Side Survey, for instance, reveals that despite the availability of a well-developed financial infrastruture to promote access to financial products and services in the country, consumers still lack the ability to make good financial decisions.
The findings of the BNM’s survey concurred with the outcome of the OECD/INFE International Survey Of Adult Financial Literacy Competencies conducted in 2016. In the OECD/INFE report, the level of financial literacy is indicated by combining scores on knowledge, attitude and behaviour. While the average score across all participating countries is 13.2 out of possible 21 (a combination of a maximum of 7 for knowledge, 9 for behaviour and 5 for attitude), Malaysia only scored 12.3 (3.6 for knowledge; 5.7 for behaviour and 3.0 for attitude)—a below average mark which ranks it at a lowly 26 position among 30 surveyed countries. In its executive summary, the OECD/INFE report recommended Malaysia to raise the level of financial knowledge among its population to enable them to fully understand the financial decisions they make.
Perhaps one might argue the findings do not necessarily reflect the current reality in Malaysia as both BNM and OECD/INFE findings were released back in 2015 and 2016 respectively. Nevertheless, the most recent studies by AKPK and MFPC also show the same conclusion.
The AKPK Financial Behaviour Survey 2018 which focuses on the financial behaviour of Malaysian working adults (MWAs) in terms of their spending, savings and debt management reveals that there is much room for enhancement in terms of their financial well-being. In fact, Deputy Prime Minister, Datuk Seri Dr Wan Azizah Wan Ismail, in her speech during the launching of the report at AKPK Financial Literacy Symposium 2018 in November last year used the term “dismal levels” to describe the state of the financial well-being of the respondents. This was cited due to the inability of respondents to save for emergency needs, high percentage of borrowers of personal loans especially among government employees and more than half of those about to retire were still servicing housing and car loans.
The last study concerns the Financial Capability & Utilization of Financial Advisory Services in Malaysia released by MPFC in 2018. The objectives of the study, as the subject implies, mainly have to do with the Malaysians’ levels of literacy on capital market and their preferences with regard to financial advisory services. However, in addition to the two objectives, it also investigates the general financial literacy and financial capability of the respondents.
Among the worrying findings from the study is that almost 83.7% of the respondents feel that it is all right to allow expenses to be occasionally higher than income in their general management of cash flows. While the Employee Provident Fund (EPF) data shows that more than two-thirds (68%) of its members aged 54 have less than RM50,000 in their EPF savings and the amount could sustain them for 4.5 years; 43.8% of the respondents believe that they could rely on EPF savings for their living cost after retirement. Another disturbing discovery is that 57% of respondents are illiterate in risk management that makes buying insurance policy less significant in their list of priority.
Similar to what had been suggested by the OECD/INFE, the AKPK and MPFC reports stress on the importance of financial education for it can improve the level of literacy which subsequently shape better financial behaviour among individuals.
Indeed, in a living environment where most of us are cornered by several economic challenges and risks ranging from the escalating cost of living, inflation, and slow wage growth among others, it is paramount to have a good understanding and equip ourselves with the right skills on how to take care of our hard-earned money.
In addition, being financially literate will not only help us to weather economic difficulties we encounter in our lives, but also open opportunities for individuals—through informed financial decisions—to grow or protect their wealth if they choose products or services that able to deliver their expectations.
Knowledge liberates man from ignorance and prejudice. In the Quran, the manifestation of reading in Surah al-Alaq (the first revealed verses); and writing in Surah al-Qalam (the second revealed verses) strongly signify that Islam gives a strong emphasis on the quest for knowledge. The gatekeeper to knowledge is education and literacy. With knowledge, man can empower himself and excel in any field or endeavour he undertakes. This includes, but is not limited by any means to financial matters as cited here .
Nevertheless, Muslims should observe the principles of halal and haram in all their actions and behaviour including financial affairs. Indeed, perpetuating the conventional financial systems will not contribute to the progress of the Islamic financial system. Besides, the conventional financial system tolerates riba, maysir (gambling) and gharar (uncertainty) which are strictly prohibited in Islam. Being involved in whatever form associated with such three elements will bring nothing positive but sin upon oneself.