They should strive to have adequate savings first to meet unforeseen emergencies
by ASILA JALIL / pic by TMR FILE
MILLENNIALS’ inability to save can be attributed to slow wage increases, the rising cost of living and a more urbanised consumption-oriented lifestyle, on top of lack of financial literacy.
Experts say this age group needs to be equipped with adequate financial planning knowledge and skills which would enable them to have a better understanding of their budgetary needs and priorities.
Sunway University Business School economist Prof Dr Yeah Kim Leng (picture) said it is vital to inculcate healthy savings and investment habits among millennials by equipping them with sound financial planning skills and knowledge.
“A high level of financial literacy will enhance the resilience of the millennials to the vagaries of the economy and better protect themselves from the various economic and financial shocks that have been occurring more frequently these days.
“Countries with high savings rate are less dependent on foreign funds. They are, therefore, more resilient to shocks in the global financial markets and capital flows.
“While a high savings economy will elicit investor confidence, it is high productivity and competitive economy driven by strong technological capabilities and a skilled workforce that attract investments and catalyse high growth that will eventually translate into rising wages,” Yeah told The Malaysian Reserve (TMR).
To survive in an increasingly volatile world, he added that millennials should strive to have adequate savings first to meet unforeseen emergencies and then expand over time to meet their other needs.
He said millennials can afford to take more risks and dive into riskier investments that provide higher returns and longer-term capital appreciation opportunities, given their longer working life.
On March 9, Finance Minister Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz said 40% of millennials are spending beyond their means.
He also cited a statistic from Bank Negara Malaysia which stated that 47% of Malaysian youths have high credit card debt.
Those who wish to have RM1 million in savings when they reach 60 would need to save about RM500 per month, assuming an annual return of 6%, said the minister.
Director of financial planning at Finwealth Management Sdn Bhd Felix Neoh said besides improving their financial literacy, millennials should automate their savings.
“Anything above the six months emergency fund without a short-term goal in mind should be invested for the long-term according to your risk profile and investment horizon,” he told TMR.
The millennials can begin their emergency fund with RM1,000 then build up the amount to between three and six months of their expenses.
To save more and have a stronger financial position, Neoh said millennials can consider increasing their income by reskilling themselves to gain opportunity in sectors that offer higher wages or optimise their free time with a side business.
They can also put aside more money for savings and track their budget so they can spend according to their needs.
He added that the government plays a role in ensuring the younger generation is aware of their financial situation by increasing financial literacy from primary to secondary education.
“Government also needs to help the public instead of making the public access their own retirement savings to spend today. This will create a bigger retirement security issue for the country in the future,” he said.
Meanwhile, former financial training officer Kevin Ooi told TMR that the younger generation often fall into impulse buying instead of “need-based decision making” when it comes to their spending habits.
“I would attribute the millennial debt problem to the poor education system. Imagine if we learned how to manage our money, our taxes, our debt, how to get a loan and how to invest.
“Millennials or the younger generation will come out more knowledgeable and capable to face life,” he said.
He added that an education system that does not touch on financial literacy could lead to careless spending among millennials and they would not have enough savings for themselves in the future.
They should also know the benefits that the government agencies offer should they become jobless and are cash-strapped.
Ooi said it is very common for the younger generation to seek financial planning as they are unsure of the assistance that government agencies offer that could actually alleviate their struggles.
Read our previous report here