Originally published at New Straits Time

About 84,805 Malaysians were declared bankrupt between 2015 and 2019. Based on the figure provided by the Insolvency Department, people below the age of 34 made up 26 per cent of the bankruptcy cases.

Worse yet, in 2018, it was stated by the then Bank Negara Malaysia (BNM) Assistant Governor, Nazrul Hisyam Mohd Noh, that 47 per cent of Malaysian youth have high credit card debt. Most of the bankruptcy cases were primarily due to the inability to sustain debt made of installment purchases, personal loans, and credit card debt.

This is alarming because it reflects that the level of financial literacy among young Malaysians on the ground is still lacking. Financial literacy as defined by the National Financial Educators Council is the ability to manage financial resources effectively for a lifetime pf financial security.

When someone is being financially illiterate, it will lead to poor financial decisions such as overutilisation of credit cards and overspending, which end up in low financial well-being as what has been happening to the youth of Malaysia in recent years. But, earlier this year, the world was hit with an unprecedented event, the Covid-19 pandemic which has brought a significant impact to Malaysians as a whole.

It has not only been limiting people’s mobility, but also affecting economic activity where small business owners, generally the small and medium-sized enterprises (SMEs) and services, are not allowed to open their shops due to the Movement Control Order (MCO).

Consequently, it leads to a sharp downturn in profit, a permanent shutdown of businesses, loss of active income, as well as individuals going bankrupt. During this challenging time, savings have become more imperative than ever. Savings act as an emergency cushion to cover any unexpected expenses when unforeseen circumstances like this occur.

For this reason, it is important to understand the importance of being financially literate and acquire the necessary skills in managing financial resources, especially for youth. As a start, it is vital to practice the 2B’s: budgeting and balancing in life. Budgeting is basically identifying how much money is coming in every month (income) and how much is going out every month (expenses).

On the other hand, balancing is making sure total expenses shall not exceed the amount of income every month. Malaysian youth may start utilising various initiatives initiated by the government and independent bodies in Malaysia, including Belanjawanku, an expenditure guideline for Malaysian individuals and families in managing their personal finances in a wise manner.

At the same time, various outreach programmes have been organised by the Insolvency Department, Malaysian Financial Planning Council (MFPC), and the Credit Counselling and Debt Management Agency (AKPK) to expose youth to basic knowledge on financial management and increase the level of awareness about the ripple effects and risks of being indebted and declared bankrupt at a young age.

Financial literacy may seem hard to possess because there is no manual or textbook on how to attain it but, it is important for youth to learn and acquire the essential skills and knowledge from a young age in order to make the right decisions in managing debt and planning finances in the future. It is hoped that our generation will be more resilient and prepared to face the next crisis.

Athirah Mohamad

Institute for Research and Development of Policy (IRDP)