Challenges to live within a healthy budget lie in low income and high housing costs
Malaysia, 3 April 2018 – In response to the Employees Provident Fund (EPF) Belanjawanku expenditure guide[1], iMoney ran a survey with 1,000 respondents based in the Klang Valley to check if the guide tallies with the real cost of living in Malaysia.
According to the ‘iMoney Monthly Budget Survey’ 2019, there are two discrepancies in the Belanjawanku guide that makes the budget challenging for single people to adhere to:
- Single people are spending over 360% more on housing
- Recommended budgets do not match median income for singles and Malaysians are making up for it with personal loans
Reality #1: Single people are spending 360% more on housing
The Belanjawanku guide recommends single people to send RM300 on housing, however our survey found that the average single person spends approximately RM1,100 every month on housing. This brings their monthly budget up by over 360% when compared to the budget allocated by the Belanjawanku guide
According to the National Housing Department, Malaysian houses have become unaffordable. The average market price of a property is RM372,801 while the annual median household income is only at RM188,208. Based on the multiple median approaches, a home is only considered affordable if the median home price is less than three times the median household annual income[2].
While the government has taken necessary steps to boost homeownership and affordability such as with the Residential Tenancy Act and the National Housing Policy, many of the homes remain unaffordable and continue to put a large dent on the average Malaysian’s monthly budgets.
Reality #2: Recommended budgets do not match median income for singles and Malaysians are making up for it with personal loans
The median wage for singles was reported by EPF in the Belanjwanku guide to be approximately RM2,650 in Kuala Lumpur. When compared to the Belanjawanku guide, it leaves a little buffer for more savings for an average single Malaysian. However, based on our survey, single-car owning individuals spend a total of RM2,695, without taking into account expenses for personal care, annual expenses and savings.
To make up for the actual costs of living, Malaysians have been increasingly leaning on personal loans. Based on iMoney’s internal data and customer surveys, there has been a sharp rise in applications for personal loans between 2016 and 2018 with a 370% spike by the end of 2018. Majority of applications (36%) were made with the intention of personal refinancing and debt consolidation, indicating that there is a substantial number of Malaysians still struggling with debt.
This data corresponds with the Credit Counseling and Management Agency’s (AKPK) Financial Well-Being Survey 2018; which showed that 28% Malaysians have had to borrow money in order to buy essential goods[3]. AKPK’s survey also showed that half of its respondents only have enough money to cover essential needs, unable to spend on things they want instead of solely on things that they need.
So what should Malaysians do?
It becomes even more important for Malaysians to understand their financial standing so they can take up a credit product, if they need to, in times of need.
The first step is to scrutinize at their monthly budget and see how it can be trimmed. It’s definitely a warning sign if their expenditure is higher than their wage.
“The spike in personal loan applications, as well as loan defaults in personal financing, is an indicator of the challenges Malaysians are facing in maintaining good financial health. There is a crucial need to improve financial literacy not only through providing more educational content and workshops but also by ensuring that there are facilities such as an accessible credit score report and consultation that can help with better decision making when it comes to personal finance,” said Mitul Lakhani, Group Chief Executive Officer of the iMoney Group.
“We have provided the iMoney CreditScore tool for free so that Malaysians can access their credit score to better understand their credit health and debt-service ratio. With that information on hand, Malaysians will be better informed when making financial decisions, particularly when selecting and applying for financial products. It’s important for Malaysians to obtain a full picture of their financial health and we hope that this will encourage them to be more responsible in their borrowing and managing of personal finance,” he added.
[1] http://www.kwsp.gov.my/portal/documents/10180/6462229/Panduan_Belanjawanku_03032019.pdf
[2] http://www.bernama.com/en/news.php?id=1711923
[3] https://www.akpk.org.my/sites/default/files/AKPK_Financial%20Behaviour%20and%20State%20of%20Finanical%20Well-being%20of%20Malaysian%20Working%20Adult.pdf