BY Chris Prasad
Rising concern about Malaysians overreaching with their expenses was brought to head in the latest research report by the non-profit Khazanah Research Institute.
In its findings, the institute found that Malaysians are borrowing too much and not saving enough.
While household debt growth has moderated since 2010 (2015: 7.3per cent year-on-year), the ratio of household debt to gross domestic product remains high, at 89.1per cent in 2015 against 87.4 per cent in 2014, it said in its fourth publication of The State of Households II.
The report found that most household debt was undertaken to finance house purchases, where housing loans have expanded by 11 per cent between 2014 and 2015.
“There is a concern that many will not have saved enough for a 20-year retirement and are taking on too much debt,” said Khazanah Research Institute managing director Datuk Charon Mokhzani.
This was made more prevalent by another finding in the report, which showed that average life expectancy was now 77.4 years on average for women and 72.5 years for men, up from 65.5 and 61.6 respectively for both genders in 1970.
In 2013 household savings stood at 1.4 per cent of adjusted disposable income, and averaged at 1.6 per cent for 2006–2013. By comparison, the United States household savings rate, which is generally acknowledged as being very low, is much higher at 5 per cent.
Charon said, except for Japan, Malaysia’s household savings rate as a percentage of adjusted disposable income in 2013 was the lowest among a selection of countries for which data is publicly available.
Currently, only 10.8 per cent of households in Malaysia can be considered “resilient to financial shocks” caused by factors such as unemployment, physical impairment, death, divorce and changes in interest rates or financial markets.
Additionally, more than a fifth of these households would only be able to survive for less than three months if their incomes were cut off.
The Khazanah report said more than half the households surveyed did not have any savings, which coincides with similar findings in Bank Negara Malaysia’s Financial Inclusion and Capability Study. The central bank’s research found that only 6 per cent of Malaysians can survive more than six months, and 18 per cent up to three months, after losing their main source of income.
Previously, Khazanah Research Institute had proposed several measures to reform household debt. This includes requiring all providers of consumer credit to prominently advertise the true annual percentage rates, realigning the regulation of consumer credit between the various Government agencies currently in charge, and mandating the teaching of basic financial literacy in schools.
For the moment, however, the report said the overall household balance sheet is still healthy, as some households continue to accumulate more financial assets than debt.
Charon said that paid employment fell as a source of income for the top 60 per cent of households, as people have become slightly more reliant on income from current transfers such as the 1Malaysia People’s Aid, as well as from rent income in property and other investments.
Between 2012 and 2014, the share of household income from property and investment grew from 9.7 per cent to 11.4 per cent.