So a Bank Negara financial literacy survey just revealed that three out of four Malaysians can’t even pull together RM1,000 if there was an emergency that required a little extra spending. I have to say that I am not surprised.
Personally, I have started to feel that crunch in the economy that everyone has been talking about and to be honest, it has nothing to do with financial illiteracy. Most people in Malaysia are pretty aware of the need for proper financial management.
It’s not that they do not know how to handle the finances, it’s just that the finances are limited and what we can do with one ringgit today is so little compared to what could be done with it maybe a decade or two ago.
When I started working in 2000, the starting pay for a fresh graduate with a college degree was about RM2,000. I started with that pay and within five years, I managed to buy an affordable local car and a medium-cost walk-up apartment.
Today, almost 20 years later, the starting pay for a fresh graduate with a college degree is still around RM2,000. But what is that worth today? With car prices and real estate skyrocketing, it’s a tough situation.
I thought I would try to do some basic calculations using what is considered the average monthly household income in Malaysia, and that would be RM5,900, which is what the latest available research says in 2014.
The average income may be the average income. But does it mean that we can lead a good quality of life with that income? We most definitely need to consider the costs as well and we all know that is rising almost by the day now.
Okay, let’s say an average family living in an average city in Malaysia is earning the average monthly income of RM5,900 and spending on all the average living costs that they have to incur today.
Income tax and EPF
Let’s say the total deduction for both comes to roughly 30 percent of the monthly salary. That would mean a RM1,770 deduction. So now they’re left with RM4,130.
Let’s say the home costs about RM300,000 and the rent or loan instalment equals to about RM1,300 a month. The balance is RM2,830.
A car is almost a necessity in Malaysia. And a small locally-made one could set you back another RM400 a month. Now what is left is RM2,430.
Food and groceries
An average family of four would probably spend about RM600 a month on a little bit of quality meats and vegetables (and not to mention other household items). So now there is RM1,830 left.
Electricity, water, telephone, etc, all can add up to quite a lot too. So let’s just lump that all into a cool estimate of RM600 a month. RM1,230 is what’s left.
Kids go to school and incur lots of other costs like daycare, etc. No one will stinge on their children’s basic necessities. Maybe around RM600 goes to this and there’s RM630 in the bank.
Some allocation has to go towards building up a nest egg or even for a rainy day. RM300 a month isn’t much, but it’s better than nothing. That leaves only RM330.
With only RM330 left in the bank every month, what else is there for an average family to do? Sure, you can survive, but what kind of existence would it be? Other than school and work, that would mean the family would just be sitting in the house the rest of the time.
And mind you, this is only taking into consideration a family that earns the average household monthly income in Malaysia. How about those earning less? And we know of many people earning below that. Fresh graduates are prime examples.
So when the Bank Negara financial literacy survey showed that many Malaysians can’t even scrape together RM1,000 in an emergency, it is hardly impossible to believe. Now, that begs the question of what to do about this problem.
Should there be a raise in the monthly income of fresh graduates? If there is a raise, how much would it be? Or instead of raising income, should steps be taken to ensure that cost of living doesn’t skyrocket without control? And is that even within our control?
The fact of the matter is that the economy is in shambles and people are slowly starting to feel the crunch. If many people thought they were not going to be affected just because they are financially literate and prudent, think again.
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