In the Introduction parts, the contents are breakdown into several subtopics. There are Financial Knowledge definition, background of research, justification, problem statement, research objective, research scope and limitation and organizational research. To better understanding of this study, under the background of research, there are three different types of scenario in Malaysia related to the topic which consist of Youth’s Financial Knowledge Education in Malaysia, The use of Information and Communication Technology (ICT) in Malaysia, and Youth’s Debt and Spending Pattern in Malaysia.
1.2 Defining Financial Knowledge
Financial knowledge enable individuals to navigate the financial world make informed decisions about their money and minimize their chances of being misled on financial matters (Beal and Delpachitra, 2003). The need for financial literacy has become significant with the deregulation of financial markets and the easier access to credit as financial institutions compete strongly with each other for market share, the rapid growth in development and marketing of financial products, and the Government’s encouragement for people to take more responsibility for their retirement incomes. According to Vitt et al. (2000), financial knowledge is defined as the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being.
It includes the ability to discern financial choices, discuss money and financial issues without or despite discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy. Hogarth (2002), described the consistencies in behavioral terms, stating that individuals who are financially literate are: 1) knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes; 2) understand the basic concepts underlying the management of money and assets; and 3) use that knowledge and understanding to plan and implement financial decisions.
In recent years, financial literacy has gained the attention of a wide range of major banking companies, government agencies, grass-roots consumer and community interest groups, and other organizations. Interested groups, including policymakers, are concerned that consumers lack a working knowledge of financial concepts and do not have the tools they need to make decisions most advantageous to their economic well-being. Such financial literacy deficiencies can affect an individual’s or family’s day-to-day money management and ability to save for long-term goals such as buying a home, seeking higher education, or financing retirement.
Ineffective money management can also result in behaviors that make consumers vulnerable to severe financial crises. From a broader perspective, market operations and competitive forces are compromised when consumers do not have the skills to manage their finances effectively. Informed participants help create a more competitive, more efficient market. As knowledgeable consumers demand products that meet their short and long-term financial needs, providers compete to create products having the characteristics that best respond to those demands (Braunstein and Welch 2002).
1.2.1 The Importance of financial literacy
Financial literacy is important at many levels. Certainly, it is most important for the individual who must make complex and expensive financial decisions on behalf of him/herself and of dependents (Mandell, 2006).
The need for financial literacy has become increasingly significant with the deregulation of financial markets and the easier access to credit; the ready issue of credit cards; the rapid growth in marketing financial products and the Government’s encouragement for its citizens to take more self-responsibility for their retirement incomes (Marcolin and Abraham, 2006).
Students who lack financial knowledge have increased financial difficulties that continue into later years. It found that students with less financial knowledge had more negative opinions about finances and made more incorrect financial decisions. They pointed out that having a low level of financial knowledge limits student’s ability to make informed decisions (Ibrahim et al, 2009).
The need for financial skills has grown rapidly over the last decade because financial markets have been deregulated and credit has become easier to obtain as financial institutions compete strongly with each other for market share. The ready availability of credit cards together with easier access to personal loans, interest free and other payment options, has led to an increase in spending on consumption and a rapid rise in both personal and household debt levels. Moreover, the development and marketing of financial products and services has grown rapidly (Beal and Delpachitra, 2003).
The credit card indebtedness issues and bankruptcies have got serious attention from media. It is alarming that it was reported the majority of the individuals who went bankrupts were from the age between 20s and 30s (Arif, 2004). This might lead to stress and also might affect the productivity of future potential workers. Increasingly, most of the individuals are in charge of securing their own financial well-being after retirement. This can be shown by the shifting from defined contribution pensions, which makes today’s workers have to decide on how much to save and also how to allocate their retirement wealth.
Source: Malaysia Department of Insolvency (2010)
The complexity of financial market had increasing and become more complex, and individuals are facing with proliferation of different kind of investment products. The opportunities of investment have been expanded beyond natural borders, which permit individuals to invest in different range of assets. However, the difficulties to navigate the new financial system and the consequences of mistake that probably can be devastating, it is seem that individual to be questioned of how well equipped do they have to make financial decision. The most important thing before financial decision to be made is that the individuals also to be questioned on how much do they know about economics and finance.
Numerous factors have led to a complex, specialized financial services marketplace that requires consumers to be actively engaged if they are to manage their finances effectively. The forces of technology and market innovation, driven by increased competition, have resulted in a sophisticated industry in which consumers are offered a broad spectrum of services by a wide array of providers. Compelling consumer issues, such as the very visible issue of predatory lending, high levels of consumer debt, and low saving rates, have also added to the sense of urgency surrounding financial literacy.
Other important demographic and market trends contributing to concerns include increased diversity of the population, resulting in households that may face language, cultural, or other barriers to establishing a banking relationship, expanded access to credit for younger populations, and increased employee responsibility for directing their own investments in employer-sponsored retirement and pension plans.
1.3 Background of research
1.3.1 Youth’s Financial Education in Malaysia
The National Youth Development Policy of Malaysia defines youth as people aged between 15 and 40 years. Malaysia’s national education policy has been formulated in the context of the country’s aim to attain developed nation status by 2020. The education system has been reformed to ensure the development of a highly educated, highly skilled and strongly motivated professional workforce. Consumers can effectively participate in the economy if they are properly informed and have the requisite knowledge and skills.
Enhancing the levels of financial literacy is being accorded high priority in many countries, including Malaysia due to the current environment of rapid change in technology, product innovation, deregulation and greater competition that have dramatically transformed the financial system. This new environment has created a greater need for consumers to be equipped with financial knowledge and skills to make sound financial decision and to promote consumer activism to drive competition, improve efficiency and performance of financial institution as well as enhance the potential for the economy to prosper (Lian, 2008).
Bank Negara Malaysia has embarked some approach to enhance the financial capability of consumers, e.g. developing and disseminating educational materials financial products and services through booklets and websites. To raise the financial capability of consumers to enable them to make informed and confident decisions on financial matters, Bank Negara Malaysia initiated consumer education programmes for adults, including young adults, known as bankinginfo and insuranceinfo in 2003. These programmes are intents to:
Promote greater understanding of, and more informed decision on financial products and services
Enable consumers to have greater access to reliable information, thus able to take greater responsibility and management on their financial matters.
Under the programme, youngsters are educated on a wide range of issues to equip them with the necessary knowledge ad skills to manage their financial matter effectively. The components of the programme are tailored to the level of understanding of each target group. These include knowledge and skills on:
Planning – Saving and budgeting
Spending – Buying tips and comparative shopping
Financial products – Features of financial products and services (banking, Islamic banking, insurance and takaful), risks and liabilities involved, salient terms and conditions as well as rights and responsibilities as a financial consumer
Credit and debt – Borrowing and debt management, and rights and responsibilities as borrowers and guarantors
Risk management – Basic insurance and insurance planning
Market awareness – Avenues for redress, illegal schemes, currency related matters, role and functions of financial players and credit bureau
In the beginning of 2007, students aged 17 attending the compulsory National Service Programme are taught various aspects of financial management such as budgeting, managing spending by making smart financial choices and banking information to enable them to have a better appreciation of money management. Annually, a total of 120,000 students are involved in this programme (Lian, 2008).
For institution of higher learning, the Credit Counseling and Debt Management Agency, which is a subsdiary of Bank Negara Malaysia, is collaborating with the public universities to incorporate the subject of ‘Personal Finance’ into the curriculum. Once introduced, financial education with emphasis in personal finance will be provided as a mandatory subject to undergraduates from the age of 20 to 24 years old, with the aim of preparing graduates to face the challenges of managing their finance wisely at the start of their careers (Lian, 2008).
While the Government is trying to put things in order to help us get out of the middle income trap to reach a high level income society, there is still a missing link. We need to start looking into a national strategy to help Malaysians improve their personal financial literacy and develop the necessary skills to keep their personal financial matters in the proper perspective. Financial literacy is important to everyone. Financial stress is not biased based on race, age, gender, marital status or different income groups. Just because a person might be below the middle-income group doesn’t mean he or she may need financial education more than others. Just as likely, the children of wealthy parents need to be educated to maintain family wealth. Similar to reading and writing literacy, financial literacy is necessary to all. When a nation has a high level of financial literacy, it is easy to promote healthy financial ethics and values across different generations, from young to the old (Yip, 2010).
1.3.2 The Use of ICT to Disseminate Personal financial knowledge in Malaysia.
The Asia Pacific Region has experienced the rapid growth rate in ICT especially in telecommunication sector in the last couple of decades. The evidences can be shown, for instance in South Asia where the compound annual growth rates for fixed lines and cellular phones are 20% and 78% during the period of 1990 to 2000. The same progress can also be seen in the Central and South East Asian countries where the cellular penetration rate has increased significantly amid the relatively lower growth in the fixed line penetration rate. In addition, Asia region in general has also been largely supported by the enlargement of the Total factor Productivity (TFP) which increases about 1.65% per annum due to the rapid investment in telecommunication sector up to 2003.
The business environment in the sector is showing the more promising environment given the independent role of the national telecommunication regulator in many countries and market liberalization which simultaneously give incentives for the new entrants to compete into the market (Rohman and Bohlin, 2010).
The extent of the effects of ICT has been shown to vary between countries. In general, the developed countries have shown more significant positive effect on productivity growth compared to the developing countries. Initial study on ICT development in Malaysia based in the development of telecommunication infrastructure development and Gross Domestic Product (GDP) growth, impacted a positive effect on the economy as a whole (Ramlan, 2001).
Malaysia is preparing to be part of the Information Age in the new millennium by transforming itself towards a knowledge-based economy. Recognizing that ICT and multimedia will be the future enabling tool to increase the efficiency, productivity and competitiveness of the eonomy, various initiatives were taken to promote the use and development of IT during the review period. The National Information Technology Agenda (NITA) was formulated in 1996 to provide the framework for a coordinated and integrated approach in developing the strategic elements comprising human resource, info structure and IT based applications. To provide the catalyst for the expansion of IT and multimedia industries, the Multimedia Super Corridor (MSC) was launched (Ahmed, 2008). The decision to achieve a developed country status by the year 2020 using ICT as the vehicle is further strengthened by the development of MSC which is the national ICT initiative.
Financial education website ‘Duitsaku.com’
In line with the development of IT and the growing usage of computer among younger population, Bank Negara Malaysia in collaboration with the Ministry of Education, has created an interactive financial education website in October 2004, to enhance financial literacy among students. Students can participate in interactive financial games, contents, quizzes, financial calculations and other activities related to personal financial management. Currently, the website has attracted more than 85,000 members (Lian, 2008).
The existence of ICT in real life is not only making human life easier, but also in the education perspective. ICT could spread out the financial knowledge to youth in an easier way. As many youth starts to use internet to browse the financial knowledge instead of playing online games, in such interactive website could provide youth a basic financial knowledge. The use of ICT to disseminate financial knowledge definitely will help in increasing the youth knowledge about financial thing. Therefore, the percentage of failure in managing such their personal finance in the future will be decrease.
1.3.3 Youth’s Debt and Spending Pattern in Malaysia
There have been two clear shifts in the way Malaysians spent money over the last decade, the first being that they spent less on basic items like food and more on discretionary ones like restaurants, hotels and personal care. The second, their spending on services outpaced that on goods. These shifts in household spending reflect the fact that people grew more affluent over that period, Bank Negara Malaysia (BNM) said in its 2010 annual report. The main factor is the growing affluence of Malaysians, supported by the steady rise in disposable income and accumulation of wealth. Between 2004 and 2009, nominal per capital gross domestic product (GDP) increased by 6.8 per cent annually, with mean monthly gross household income rising by 4.4 per cent annually from RM 3,249 in 2004 to RM 4,025 in 2009. Favorable demographics were also a factor, given Malaysia’s relatively young and large working-age population. The younger set tends to spend more on non-essential goods and services.
Greater financial deepening also played a role, with BNM explaining that greater access to credit allowed individuals to fund discretionary spending. In the period between 2000 and 2009, household debt grew at an annual rate of 13.5 per cent. Meanwhile, technological innovations encouraged consumer spending in areas like Internet services, mobile communication equipment, data services, cable television services and audio visual equipment. These trends in spending are, apparently, consistent with that observed in other countries. The trends also seem to indicate that as income rises, the share of expenditure on basic necessities tend to decline while that on services tends to increase, BNM said (Malaysiandailynews, 2011).
The BNM report showed that between 2000 and 2009, Malaysian spending on discretionary items (such as restaurants and hotels, communications, recreation and culture) was particularly strong, followed by spending on miscellaneous goods and services (such as personal care, financial, insurance and other services). The share of these components of income-sensitive spending rose to 34.7 per cent of total household expenditure in 2009, from 26.5 per cent in 2000. In contrast, the proportion of household expenditure on basic necessities has declined gradually since 2002. Spending on food items as a share of total household expenditure fell to 21.8 per cent in 2009 from 24.1 per cent in 2000. Similarly, the average household spending on housing and utilities fell to 16.7 per cent in 2009 from 21.7 per cent in 2000 (Malaysiandailynews, 2011).
Malaysia’s consumer lifestyle has been evolving and changing due, in part, to rising affluence and education levels. Malaysian also has a strong shopping fetish, especially during the weekends and on public holidays. However, the consumers comes in three categories: those whose purchasing power is high enough to go on periodic shopping sprees, people who shop for necessities, and bargain hunters (Pricewaterhouse Cooper, 2006).
According to the Malaysian Communication a& Multimedia Commission, the number of internet users in Malaysia reaches 9.9 million as of end 2004 and 13.2 million at the end of first quarter 2005, representing almost 39% of the nation’s total population in 2004. Internet shopping has gained popularity form 24% of internet users as a percentage of the Malaysian population in 2002 to 28% in 2003. At least one-third of internet users have purchased items online and the bulk o this spending went to consumers goods such as books, CDs, clothing and flowers (45%), computing product (18%), and travel products (7%) (Pricewaterhouse Cooper, 2006).
In Malaysia, The Consumer Price Index (CPI) for the period January to March 2011 increased by 2.8 per cent to 102.2 compared with that of 99.4 in the same period last year. When compared to the same month in 2010, the CPI for March registered an increase of 3.0 per cent from 99.4 to 102.4 and when compared with the previous month, the CPI increased by 0.1 per cent.
The index for Food & Non-Alcoholic Beverages and Non-Food for the month of March 2011 showed increases of 4.7 and 2.3 per cent respectively as compared to the same month in 2010. For the period January to March 2011, the index for Food & Non-Alcoholic Beverages and Non-Food increased by 4.3 per cent and 2.2 per cent respectively. Comparison made to the previous month for Non-Food showed an increase of 0.1 per cent while the index for Food & Non-Alcoholic Beverages remained unchanged at 103.7 (figure 1). The CPI for main group in Malaysia, for the year 2010-2011 is shown in appendix
Moreover, the credit cards loan is another hot issue. In Malaysia credit cards were first introduced in the mid-1970s (Loke, 2007). At the early stage, credit cards were only issued to professionals or those considered successful businesspersons by card issuing companies. By the end of 1970s, an estimated 20,000 cards were issued. During that time, owning a credit card was considered a symbol of prestige. However, with the passage of time, eligibility criteria for obtaining credit cards have been increasingly relaxed. As a result, the number of cardholders reached to about three million by the turn of the last century. The proliferation of credit cardholders has brought an indiscriminate spending by users with many side effects. Many Malaysian consumers seem to display excessive buying behavior, commonly known as ”compulsive buying.” Easy availability of credit and compulsive buying has led to many adverse consequences such as addiction to shopping and excessive debt (Ahmed et al, 2010).
Another noteworthy feature of card users in Malaysia is that they use the card to grant loans for themselves. It is easier to obtain credit cards in Malaysia rather than applying for personal loans, which requires the applicant to comply with more formalities like providing guarantors or collaterals. It was reported that outstanding debts from credit card holders amounted to RM15.719 billion by the year March 2009 (RM or Ringitt Malaysia is the local currency, 3.40 RM was approximately equal to 1 USD at the time of study). By the year 2009 outstanding credit card debts accounted for 1.35 percent of the total loans outstanding or 11.41 percent of the total consumer credit (Bank Negara Malaysia, 2009). On a more serious note, 6.43 percent of the outstanding debts had to be converted to non-performing loans. An alarming increase in the number of credit card holders seeking bankruptcy a proceeding over the years was also reported (Ahmed et al, 2010).
The purpose of this paper is to review some of the factors that contribute in the use of ICT to disseminate personal financial knowledge on youth’s debt and spending behavior in Malaysia. The contribution of this paper may not just benefit of personal or individuals solely, it may also benefit institutions that provide Information ICT. Some of the young people in the country had well equipped about the financial knowledge, but some are not. By knowing such as young generation will be the future potential worker, it is suggested that they had a well equipped knowledge about financial thing.
With the rapid changing of technology and complexity of financial products, the role of ICT in order to spread out the knowledge of financial related, here come problems when different people perceive the ICT contribution differently. This problem is critical to understand what are the factors that cause those youth’s views differently towards ICT in order to disseminate the personal financial knowledge and action can be taken to solve the problem in order to gain a better financial planning in the future time specifically on the youth’s debt and spending behavior.
Hopefully, the result of this study will bring awareness on what are the factors that affect the use of ICT application to disseminate the personal financial knowledge. Besides, the ICT firm can take this golden opportunity to identify the factors that lead to the perception of youths to increase customer satisfaction towards the overall development of the ICT. Moreover, the government can take advantage of this study by understanding the reason that lead to youth’s perception on the use of ICT to disseminate personal financial knowledge and take action by implement some act to fix the situation. Thus, it can help them to manage their debt and spending properly to minimize any financial matter later on.
It is also said to be benefit to the Malaysia country as the youth’s knowledge become higher can lead to the increasing of productivity in the country. With emphasis focused in the main issues on (objective), ICT will play its role to disseminate personal financial knowledge among youth and contribute substantial improvements on youth perception about the importance of financial knowledge on their debt and spending behavior.
1.5 Problem Statement
In Malaysia, topics on personal finance are still considered minimal. If there are programs or activities on it, they were never addressed directly to the young consumers specifically those in between aged 15 to 40 years. There are a lot of credit card indebtness issues.
The literature indicates that high school seniors are unprepared to deal with finances when they graduate. The emphasis in the high school curriculum is on preparation for college or on the acquisition of skills to obtain a job and to earn an income. The high school curriculum does not focus on how to effectively use the income in dealing with financial matters such as bank accounts, investments, mutual funds, mortgages, credit cards, loans, social security, insurance and taxes. Only if a student has taken a course in consumerism, finance or in economics while in high school would he or she be exposed to topics dealing with every day financial issues (Manton, 2006).
With the emphasis of ICT being provided and the rapid changing in technology, as well as the proliferation of financial instruments and services in the market, the nature question on this study is
“Does ICT able to disseminate the following personal financial knowledge: budgeting knowledge, saving knowledge, spending knowledge, debt knowledge, and investment knowledge on youth’s debt and spending behavior? “
1.6 Research Objective
To measure the interest and capability of more financially sophisticated individuals to engage in personal financial planning and to identify reasons why individuals fail to plan appropriately
This study is important to ensure that young generations are well equipped with at least basic knowledge of personal financial knowledge. The proliferation of financial services industry makes financial products are more complicated to be understood by novice customers. Knowing that this young generation will be part of future human capital, it is important that they are knowledgeable and are able to make decisions without imperiling their financial status (citation).
To examine the extent to which personal financial knowledge were considered by youngsters to be value for their future debt and spending behavior.
Generation Y has a relatively high level of disposable income, much of the research seems to indicate that Generation Y consumers have a low degree of financial literacy (Palmer, Pinto, and Parente, 2001). The new environment with rapid change in technology, product innovations, deregulation and greater competition, has created a greater need for consumers to be equipped with financial knowledge and skills to make sound financial decision and to promote consumer activism to drive competition, improve efficiency and performance of financial institutions as well as enhance the potential the economy to prosper (Lian, 2008).
To explore which factors affect the most of youth’s attitude and behaviors to acquire financial knowledge by using ICT and how does ICT relates to these factors
Categorized as one of the developed countries, Malaysia is not missed being one of the regions whereby financial literacy level is at the bottom end. Prior to millennium era, percentage of society knowledge on issues such as budgeting, saving, investing and insuring were minimal. There are so many books, seminars and institutions that provide information on basic financial management catering to those who want to improve their financial standing. In fact, financial institutions are actively promoting their range of services which include investment consultation and other areas attached with proper financial management. However, those who do read on the subject matter or seeking for professional advise are normally professionals, semiprofessionals or those who are familiar with money management. There are almost no programs or seminars targeting those of children and young adults. As a consequence, the familiarity level on finance among these young groups is very limited except for what they learned thru experience, family or even peers (Ibrahim et al, 2009).
1.7 Research Scope and Limitation
The main purpose of this study is to examine the use of ICT to disseminate personal financial knowledge on youth’s debt and spending behavior in Malaysia. This paper will be more focus onto how does the youth’s perception on acquiring personal financial knowledge or financial literacy by using the ICT application.
The distributions of questionnaires are the one that will be the primary data in this study. The questionnaire will be distributed to those target respondents based on youth age in Malaysia which is between 15 to 40 years old. In this study, 200 respondents will be randomly selected based on their difference in age, gender, race, marital status and educational level. For the study method tools, the questionnaires will be distributed among private and public university students in Malaysia.
1.8 Organizational Research
The chapter 1 of the research project is introduction. In chapter one, it includes overview of chapter 1, research background and research questions, research objectives, significance and justification of the study, research scope and limitation, and organizational of research. While in chapter 2, dependent variable and independent variables will be the foundation to the building of theoretical frameworks and developing hypothesis. Literature review or past study will be used to build up chapter 2. Chapter 3 is the chapter of research methodology. At first, research framework and hypothesis are developed in order to predict the relationship between the dependent variable and independent variables. Then, it will follow by questionnaire development which is explaining how the questionnaires will be developed. The next elements in chapter 3 are sampling plan, data collection method and techniques of analysis.