Workers are consumers and consumers are workers. Unless an employee earns an income, he would not be able to spend, that is be a consumer. Unless a consumer spends, in a market economy, there will be no demand for goods and services, and thus no production of goods and services and thus no employment. Thus the interests and well-being of workers and consumers are very much intertwined.
Bank Negara Malaysia has reported that household debt to gross domestic product ratio has risen to a new peak of 93.3% as at December 2020, from the previous record high of 87.5% in June 2020. According to the BNM report, those earning less than RM 3,000 a monthly were stretched financially with low financial buffers and substantially higher debt to income ratio. Further, even borrowers earning less than RM 5,000 monthly were showing signs of financial stress as observed from those seeking repayment assistance from the borrowing institutions. It has been suggested that these borrowers will continue to face challenges in 2021 due to the weak and uneven economic recovery.
In the context of the impact of covid on jobs and workers/consumer welfare, how should we move forward?
Certainly the critical key is economic recovery to create and save jobs. Thus the report by the UN Conference on Trade and Development (Unctad) in February 2021, that foreign direct investment into Malaysia had plunged by more than two thirds to just US$2.5 billion (RM 10.3 billion), the worst in the region was extremely worrying. This has serious implications not only for those seeking jobs in the current market, either because of job loss during the covid or seeking employment for the first time after school or university; this also has serious implications for future school leavers and graduates. There may simply be not enough jobs for future job seekers.
Secondly, we need to strengthen our social safety nets. Current irregular payments to those in distress is not enough. We need a social safety net to support households for a longer term. A social safety net should automatically provide targeted financial assistance to households under distress such as job loss or income loss, without the need for additional policy deliberation. A substantial part of their income is for essentials, food and children’s education, and as a caring nation, the social safety net should automatically cater for these essential needs.
Thirdly, we need to focus on financial literacy programmes. Financial literacy is an essential life skill that empowers consumers to deal effectively with money and essential financial matters in everyday life. Actually, even before the pandemic, Malaysian workers/consumers were facing challenges in managing their finances. Incomes are relatively low. Savings are low. It has been reported that 88% of households reported zero savings. In facing emergencies, 76% of Malaysia would find it difficult to raise RM 1,000 of emergency cash if they had to. Credit behaviour is also worrisome. 47% of young workers had high credit card debts. In one study, it was found that 79% of the respondents failed to meet the minimum guidelines of having emergency funds equivalent to at least three months of living expenses if they lose their main source of income.
While to address the issue of poor financial management and empowering consumers to a more responsible financial behaviour, there are many tools, applications and educations kits, the most critical factor in improving financial behaviour is discipline and self-control. Of course for many consumers, discipline and self-control is not easy. There are indeed too many needs, wants and temptations. Often in financial management, the crux of discipline and self-discipline is reducing expenditure and increasing savings.
But what if this discipline and self-control is forced upon us externally, say for example by a health crises like the covid crises which we are going through currently?
It has been reported by the Statistics Department, that Malaysians are spending less than half the average during the movement control order then before and farther that their spending patterns have changed. Before the MCO, the average spending of households was RM 6,317, but it had gone down by 55% to RM 2,813 in the first three weeks of the MCO.
This could be a valuable lesson in self-control; we can if we have to. Maybe next, we should because we want to.
Under normal circumstances, such reduction would indeed be a challenge. There are too many needs, wants and temptations. Yet, we have proved to ourselves that we can if we had to. Thus one of the crucial lessons of the MCO should be that as consumers, tough as it may be to reduce our expenses, we indeed can do it. At the current moment it may be not be our choice, but we have been forced into it by the covid crises. After the MCO, we will need to call into our own discipline and self-control if we want to continue to manage our finances responsibly.
To financially brace for the corona virus recession, FOMCA would suggest consumers to empower themselves with financial education and financial management skills including steps to set and stick to a budget, cutting back on spending, building an emergency saving fund and targeting and reducing debts and further to use technology to het to stay on track.
Finally, scams increased during the pandemic. Consumers must always be wary of scammers out there taking advantage of the difficult environment to profit for themselves. The Macau Scam and the Love Scam were rampant. Consumers at all times need to be wary of “best opportunities to earn an exceptional income”, “call by the authorities about some so called crime” or “online love that just needs some money to transferred to his/her account”. Caution is not only the best but sometimes the only protection against scams.
The pandemic has had a severe negative impact on workers and consumers. Yet, it should not be a wasted opportunity to learn from the crises to better empower ourselves to face the current and future economic challenges. From the lessons learnt we can be smarter consumers and be more prepared to face future e challenges.
