By A Sivarajan
Bank Negara, Malaysia’s central bank, recently released the findings of its financial capability and inclusion demand-side survey for 2024.
This report, conducted every three years, captures the financial capability of the people to determine their financial literacy, behaviour and attitude. The aim is to formulate a Malaysian fiinancial literacy and capability index.
What startled and drove me to write this piece was the dire financial situation that people in Malaysia are experiencing.
First, the survey reveals that 56% attributed the reason they run out of money to low or insufficient income. This should come as no surprise, as rising living costs, worsened by a decline in real wages, have been an unresolved problem since the Covid pandemic.
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The report also reveals that wage growth has not kept up with these rising costs. From the fourth quarter of 2019 to the last quarter of 2024, food and beverage costs soared by 17.4%, but nominal private sector wages only rose by 7%.
Even though labour productivity jumped to 2.4% in 2024 from 0.7% in 2023, wages only rose by 2.9% in 2024, down from the 3.8% increase in 2023.
With a median monthly salary of RM2,745 (in September 2024) and a minimum wage of RM 1,700, the struggle of the working class to make ends meet is real.
The report shows that 61% of Malaysians are unable to come up with RM1,000 during emergencies.
These figures should have raised a red flag among policymakers, who should realise that many more than just the identified poor are struggling.
Many more households – beyond the often-cited poverty figure of 6.2% (2022) – are in a dire financial situation.
It is unbecoming of the government to rejoice that it has overcome hardcore poverty or that poverty is low, as these figures hardly reflect the daily challenges faced by many in Malaysia.
Imagine, more than half are unable to raise funds for emergencies. This shows that most households have minimal extra income after paying for basic needs.
So it is misleading to determine financial wellbeing by looking only at household incomes, as most politicians prefer to do.
The question that policymakers should ask is, what are the major household expenses seriously depleting their incomes?
Official figures show that housing and utilities take up 23.2%, food 16.3% and transport 11.3% of total household expenditure.
The severity of poverty may be better understood by looking at residual income rather than total household income. Households are considered ‘shelter poor’ if their actual housing cost payments exceed the income necessary to support their minimal non-housing consumption (Rangel et al, 2019, pp 966-984).
The incidence of households falling into poverty after paying for housing costs is known as housing cost-induced poverty. These are households that did not experience poverty until housing costs were taken into account.
Increasing housing costs, either rents or paying for mortgages, are becoming a significant contributing factor pushing people into poverty even in developed countries.
Joseph Rowntree Foundation’s “Poverty in the UK 2024” report reveals that more than four in ten social renters (43%) and a third of private renters (35%) were in poverty after housing costs.
In Malaysia, a study has found that for those in the 25th income percentile range, all types of housing currently available in the market are unaffordable. This means unaffordable mortgage repayments have forced them to opt for renting (Rangel et al, 2019).
Besides, housing, Bank Negara’s 2024 financial capability survey also reveals that students and gig workers experience debt stress. Students struggle with education loan repayments. Gig workers struggle to fulfil their monthly commitment for housing, vehicles and credit cards due because of their unstable incomes.
The report finds that reliance on Employees Provident Fund retirement savings dropped to 36% among Malaysians over 50, probably due to insufficient savings for their golden years.
The report clearly identifies low, unstable incomes and rising living costs as the factors impeding many from practising sound financial management.
Unfortunately, Bank Negara offers flimsy policy solutions to overcome this problem: enhancement of financial literacy, Perlindungan Tenang (Calm Protection) insurance schemes and financial digitalisation.
And so, Malaysia’s decades-old cheap wage policies continues to haunt the labour market. The reality is the true value of workers’ labour is being suppressed to encourage foreign direct investment.
The heavy dependence on easily exploited low-skill migrant workers and refugees adds to the wage suppression.
Thus these low wages need to be compensated by ‘social wages’. Social wages are benefits directly from the government, either through cash transfers or in kind (public goods) to individuals. These public goods are usually education, healthcare, social security, welfare and housing.
The government needs to urgently boost such social wages instead of preaching financial literacy to the frugal. The rising housing and other living costs are clearly beyond the control of individuals.
The government might counter by showing how much it has spent on subsidies. But the hardships revealed in the Bank Negara report cannot be solved with greater financial literacy.
Instead, the government needs to urgently reduce housing costs by either regulating housing prices or increasing the supply of public housing with affordable rents.
Second, student debts and rising food prices have to be seriously investigated to substantially ease living costs.
Third, with Malaysia’s ageing society and shrinking EPF savings, a monthly pension for all those above 65 should be introduced.
Finally, the government cannot remain oblivious to these striking realities and provide solutions that do little to tackle the core issues.
Many people beyond the identified poor are suffering in silence. They are unable to provide a decent life for their families with their low household residual incomes.
Yes, the minimum wage has to be increased to reflect higher living costs. But that is not enough. The government has to provide a higher social wage to ensure the affordability of public goods.
A Sivarajan is a central committee member of the socialist party PSM.
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Well said Mr Selva.it has been the norm for bank Negara to come out with flashy report in support of the sitting govt.. truth is time has long been due for Malaysians earning below 3k to find 2nd income.migrate to better pasture or depart in silence.
Just teh tarik From 50cents to 2.50 has denied most the right to their daily cupper BUT the vendor has expand physically n financially.
Mr Selva all said, nothing will change if the same group of leaders of the 60’s continuec to govern.
We need brains not mouths