Perbadanan Insurans Deposit Malaysia (PIDM) participated in a recent panel discussion about the importance of savings in building an individual's financial resilience.
The panel discussion, entitled "Saving Toward Financial Resilience", was organised by the United Nations Capital Development Fund (UNCDF) as part of a series of discussions on inclusive digital economies and financial health. This was held in conjunction with the Singapore Fintech Festival, between 7 and 11 December 2020.
Lim Yam Poh, Chief Operating Officer and General Counsel of PIDM, shared some findings as a result of a study commissioned by PIDM in 2020 on the landscape of financial education in Malaysia. The study highlights both delivery and population challenges, including the following:
- The financial industry expends considerable effort to educate youths and children about financial literacy. However, more can be done to reach out to the elderly, low-income and other vulnerable groups.
- Despite the wide availability of such content, these do not translate into better financial habits and literacy. Some of this might be attributed to attitude, and in some cases, to impediments such as education levels, income status and poor digital literacy.
- There needs to be more effective ways to evaluate financial literacy programmes and content. Current financial literacy programmes tend to be either generic or technical (product-specific), and have not been shown to result in behavioural changes.
Asked what aspects of financial literacy PIDM thought most important, Lim also shared that PIDM naturally advocates emergency savings, given that it is a deposit insurer. PIDM ensures that depositors will have continued access to their deposits in the event of a member bank failure.
“Whether you're an individual, company or government, as our current environment shows, emergency savings are essential. Studies show that those who have a savings habit are more resilient during times of financial stress, and less likely to fall into debt and into further financial and psychological distress, from which it is difficult to recover. Also, when things get better, these individuals are also able to sustain this habit better into the future than those who do not,” said Lim.
“However, the focus of financial literacy should not be narrowly focused on savings for emergencies only. Depending on individual circumstances (age, income, occupation, for example) and their needs, they would need a mix of tools or products so that they can better support their financial resilience.”
Other panel discussants were Hawati Abdul Hamid, a senior research associate with Khazanah Research Institute, Parul Khanna, co-founder of pinBox, and Francesca Chia, co-founder of gig work platform GoGet, and the panel session was moderated by Audrey Misquith, Data and Insights Lead – Financial Health, of UNCDF.
Key observations included the following:
- Research shows that certain groups, such as the self-employed, retired and soon-to-retire, generally, struggle to weather financial storms. One of the reasons for low savings is the high debt levels incurred by individuals for property acquisition. Whilst this could be regarded as forced savings for wealth accumulation, property is a poor proxy for emergency savings when faced with a financial shock. Social protection is also needed to accompany efforts to help these individuals be more financially resilient.
- Financial products can also be offered so that they are more accessible to the lower income group. The financial services industry should consider packaging financial products by occupation instead of by purpose, so that the target audience has products that are more relevant to their needs. pinBox, for example, offers micro-pension products that allow lower income earners to build affordable pensions for dignified retirement, especially for those who do not have organised employment benefits.
- Digital tools and programmes have a great deal of potential to help individuals achieve savings especially those with volatile income streams, such as those in the gig economy. GoGet for example, builds in 'nudges' into its app for gig workers on its GoGetter platform so that they can better save or buy insurance by leveraging on relevant moments. GoGet’s fintech partners allow GoGetters to make savings of as low as 1 sen, and buy insurance for as low as RM1, per day. Since income is volatile, the app would notify GoGetters when a payment with a significant amount has been made, and ask GoGetters if they want to save some money. The app would also prompt GoGetters to consider buying insurance if circumstances warrant it, such as on securing a longer-duration job.
In conclusion, the panel noted that there was a lot of potential for public, private and social sector co-operation in this area and also a great deal of learnings that could be derived from partnerships with those with experience and expertise, such as UNCDF. On 17 December 2020, PIDM and UNCDF announced the
signing of a Memorandum of Understanding, and their inaugural collaboration to deliver financial literacy content to GoGetters. UNCDF would be helping to support the evaluation of the effectiveness of the material and this programme.