Instilling Financial Prudence
Posted at May 24, 2012
JEREMY (name changed for privacy)
applied for a RM10,000 loan to help finance a purchase. Upon verifying
his earnings capacity and financial track record, a bank granted Jeremy a
RM40,000 loan.
Jeremy took up the RM40,000 loan and armed with more cash in hand, bought more than he had planned.
When the time came to repay his loan, Jeremy found it tough to service his debt.
He ended up at the doorstep of Agensi Kaunseling dan Pengurusan Kredit (AKPK) seeking help to restructure his loan.
Stories like Jeremy’s are not uncommon
and Koid Swee Lian, chief executive officer of AKPK, recalls many
similar cases of individuals being in tight financial situations.
“Malaysia is well known for its easy
access to funding. Because funding is so easily available, people don’t
think much about their spending,” Koid said.
AKPK is a wholly owned subsidiary of Bank Negara Malaysia (BNM).
The agency was set up in 2006 to
proactively ensure the financial resilience of households by providing
an avenue for individual borrowers and potential borrowers to seek
advice and assistance in managing their finances and debts.
AKPK’s main services include providing
counselling on financial management, a debt management programme to
assist financially distressed consumers regain control of budgets and
financial education.
Interestingly, Koid noted that after six
years in operation, only 14% of the population is aware of the
existence of AKPK and its role.
As at March 2012, there have been
181,175 individuals who have attended AKPK’s counselling sessions, and
73,744 customers enrolled in its Debt Management Programme. Out of the
73,744 cases, 1,618 have successfully exited the programme.
Of the cases that have come to AKPK for
assistance, Koid said 24% had difficulty servicing their debt due to
poor financial planning while another 24% was due to high medical
expenses.
About 15% of cases were indebted due to failure in businesses and 14% lost control of their credit cards usage.
The majority of these cases are above the age of 30.
Koid observed that about 77% of their cases involve married individuals. Being indebted is no laughing matter to Koid.
Statistics obtained from BNM show that total household loans rose 13.1% year-on-year to RM553.2bil as at end-2011.
This constitutes about 55.1% of loans totalling RM1 trillion given out last year.
Meanwhile, bankruptcy cases have been rising steadily over the years.
In 2010, the number of individual
bankruptcy cases rose 11.2% to 18,053 cases from the year before and
increased 6.2% to 19,167 cases in 2011.
This year, in the first three months alone, 2,870 cases have already been recorded by the central bank.
However, not many people come forward to seek AKPK’s assistance to manage their finances and restructure their loans, Koid says.
“There is a stigma surrounding people
who come to AKPK and because of that, people are reluctant to come and
seek help,” she said.
However, she said people should not be
embarrassed to seek proper help instead of suffering in silence or worse
still, seek help in all the wrong places.
“People need to know they are not alone when it comes to dealing with these issues,” she says.
AKPK is looking at providing online application forms so that consumers can fill them up in the privacy of their own homes.
Koid, who was previously with BNM, firmly believes that prevention is better than cure.
Thus, AKPK has big plans for its efforts in financial education to instil proper financial habits in consumers.
“We don’t just want people who are
burdened by debt to come here. Ultimately, we want to take a pre-emptive
approach and provide people with financial education so that they can
make informed decisions.
“We prefer that in future, people come
to seek financial advice before making any decisions that can lead to
being over-indebted,” she said.
Koid notes that the first Financial
Master Plan drawn up by the central bank had already included elements
of consumer protection goals.
These include educating consumers to
empower them to make sound financial decisions and ensuring that
financial institutions display disclosures and charges so that consumers
can make informed decisions. For example, ATM machines now run notices
to inform consumers that RM1 will be charged for every transaction
carried out using the Malaysian Electronic Payment System (MEPS).
Nirmala Supramaniam, senior executive of
AKPK’s financial education department, said consumers need to know the
financial products available in the market and to shop around for the
best available product that can meet their needs.
“There are different types of loans
available, some with rates charged on a flat amount and others
onreducing rates that are charged on the loan balance.
“So consumers need to be proactive to
find out all this information before they decide on a loan instead of
just taking the first loan that is shoved at them.
“We are also doing our part to ensure this information is available to them,” she said.
Additionally, consumers need to learn how to be prudent in their spending.
Nirmala said budgeting is crucial in every occasion to ensure that you stretch every ringgit that is available to you.
“Know your priorities and involve the family when you are drawing up your family budget,” she said.
She adds that AKPK is trying to find the right way to educate people on prudent financial management.
The agency has set up a new website to offer consumers financial advice.
“We have links there to direct them to
other related sites. There are also financial calculators and tutorials
on financial management. So the site is really useful for everyone,” she
says.
Koid said most of their educational
efforts are targeted at young working adults as these are the people who
will be potential borrowers. However, she adds that it is never too
early to be educated in the matters of financial planning.
“Financial education is not something
that we can achieve overnight. If we are exposed to financial education
from a young age, it would help. We need to train our children from
young to understand the basics of financial management,” she said.
For more information on financial management, visit http://power.akpk.org.my/.
