Important to have savings

ACCORDING to CNNMoney, Americans between the ages of 18 and 26 and households with income brackets of US$30,000 to US$50,000 are more likely to have six months of savings now compared to before the global financial crisis of 2008/2009.

The report said the percentage of those with adequate savings that can cover at least six months of expenses has jumped to 31% from 28% last year and 22% in 2015. This is a big deal because Americans have traditionally been not known to be big savers when compared with the rest of the world.

Which brings the discussion back to Malaysians. Do we save enough?

Evidently not. The Statistics Department’s latest available data on savings for the period between 2006 and 2013 showed that Malaysian household savings averaged 1.6% in this period. For 2013, Malaysian households saved 1.4% compared to American households, which saved 5% of adjusted disposable income. The data includes savings from the Employees Provident Fund (EPF) and also withdrawals.

According to Khazanah Research Institute’s (Kris) State of Households 2 report that came out last August, Malaysian households have one of the lowest savings rates among a basket of countries for which data is available. That pretty much debunks the myth of Malaysians being savers.

A Bank Negara survey on financial literacy that was conducted in 2015 but only revealed recently also showed that three out of four Malaysians will find it hard to raise even RM1,000 in the event of an emergency. In fact, the 2016 Kris report noted how vulnerable urban households were to financial shocks, with only 10.8% able to withstand one.

The report showed that more than a fifth of these households would only be able to survive for less than three months if their incomes were cut off, while more than half the households surveyed did not have any savings. Another report by Bank Negara also showed that only 6% of Malaysians can survive more than six months and 18% up to three months after losing their main source of income.

Why are Malaysians not able to save more? Buying on impulse is one reason. But the real reason is productivity. Because productivity is low, the pace of wage growth is slow. Coupled with rising inflation, the average wage-earner will not be able to save more for a rainy day or even for retirement since many will not make enough for their EPF contributions to be meaningful.