Financial literacy levels FINDINGS AND DISCUSSIONS
MIICEMA 2014 10-11 November 2014
Hotel Bangi-Putrajaya, Malaysia
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indicator of understanding 4
Calculation of interest plus principle
Open response and a correct answer is therefore a good
indicator of applied numeracy 54
61 5
Compound interest Multiple response
30 37
6 Risk and return
Yesno question 82
77 7
Definition of inflation Yesno question
74 94
8 Diversification
Yesno question 43
55 Total score
51 53
For Malaysia and UK, the findings show that more than half of the respondents gave correct responses to at least ¾ of the questions. High score on the division 93 especially in Malaysia
show that most of the respondents could use mental arithmetic to undertake a simple division. On the follow-up question designed to identify those who understand how time difference could
affect the value of money in relation to the investment, compounding and discounting concepts, fewer respondents gave a logical answer for both Malaysia 62 and UK 61. The concept of
interest being paid on a loan or the term return earned a loan specifically used for Malaysia to reflect the duality of the financial system appears to be widely understood; indeed in both
countries more than 90 percent gave a correct response. This question requires a simple arithmetic with an open ended response in order to minimise the possibility that respondents give
the answer by guessing. Respondents found it more difficult to calculate a percentage than the question on division in which around half of the respondents gave a correct answer on the
calculation of interest plus principle. The following question on the compounding of interest or return was found to be harder still for both Malaysia 30 and UK 37. On the concept of risk
and return, which are the central paradigms of investment, respondents in both countries were most likely to understand the basic concept of risk and return, 82 for Malaysia and 77 for
UK. For the question on inflation, over 90 percent of respondents in UK knew that high inflation meant that cost of living was increasing, suggesting an awareness of the simple economic terms
as compared to Malaysia 74. On diversification, another important concept of investment, only 43 percent of respondents in Malaysia gave the correct answer as compared to 55 percent in
UK. For the overall score on the aspect of financial knowledge, respondents from both countries demonstrate an average levels of financial literacy, Malaysia 51 and UK 53.
Financial behaviour
Table 2: Scores for financial behaviour Question
Score Malaysia Score UK
Behaviour statements
1 Carefully considers purchases
92 77
2 Pays bills on time
69 89
3 Keeps close watch on personal
financial affairs 78
80 4
Sets long term goals and strives to achieve them
64 43
5 Responsible
and has
a 74 43
MIICEMA 2014 10-11 November 2014
Hotel Bangi-Putrajaya, Malaysia
578
household budget 6
Has been actively saving or buying investments in the past
year 97
68
Financial product choice
7 After gathering some info
39 29
8 After shopping around and
using independent info or advice
3 16
9 Has not borrowed to make ends
meet 79
91 Total score
67 51
On the statements used to reflect the financial behaviour, a financially literate person will always have an idea of the amount of money they can afford to purchase things. The first behaviour
statement shows that respondents in Malaysia 92 typically did consider whether they could afford potential purchases as compared to UK 77 indicating that 23 percent of the respondents
tended not to consider affordability in their purchase .
Financial literacy also requires individual organisational skills in meeting their financial obligations and thus avoid problems such as reduced access to affordable credit or fines for non-
payment. The question asks is whether the respondents usually pay their bills on time. Most respondents in UK reported that they did, however a sizeable proportion of respondents in
Malaysia 31 indicated that they were not paying many bills on time. These response is supported by the report saying that Malaysians have problem with their debts. Such findings may
be due to a variety of reasons including insufficient funds, lack of access to e-payment facilities or a tendency to be disorganized or unwilling to meet responsibilities on time. This case suggest
that a sizeable proportion of consumers could be encouraged to improve this aspect of financial behaviour.
The third question is with regard to how often respondents keep a close personal watch over their financial affairs. This is important since for those who use financial products, it is essential to be
aware of anticipated withdrawals from their account and checking their bank statements in order to detect fraudulent activity, such as unauthorized use of credit cards. This behaviour is also
essential in order to keep savings safe, smooth expenditure and pay bills on time. Majority of the respondents in Malaysia 78 and UK 80 suggesting that they are aware on their own
finances.
On the setting of long term financial goals, this behaviour may be related to accruing money for specific expenses for instance education fees, wedding, investment strategies, saving for
retirement, business and careers. In UK, this behaviour does not appear to be widespread in which only 43 percent of the respondents are the most likely to set long term goals, as many as one in
five respondents as compared to Malaysia 64. The next question relate to the information on the extent to which the respondents take responsibility for household finance and budgeting.
More than 3 quarter of respondents in Malaysia are financially responsible and do budgeting as compared to UK 43.
MIICEMA 2014 10-11 November 2014
Hotel Bangi-Putrajaya, Malaysia
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Building financial security and reducing heavy reliance on credit are related to saving behaviour and is one of the important elements of financial literacy. Respondents were asked on their
savings for the past 12 months in terms of types of saving namely saving money at home, informal savings, saving accounts and investment instruments. In Malaysia 97 percent
respondents reported that they had been saving indicating a clear culture of saving. Conversely in UK, only 68 percent responded positively.
How people behave when they want to buy financial products is another aspect of financial literacy. In order to meet their needs and wants in an optimal way, people will more likely to
choose appropriate products if they use independent advice or make an informed decision by shopping around. On this aspect shopping around and gathering information are behaviours that
are most relevant. Consumers in UK were most likely to have made active financial products choices by shopping around and using independent information or advice, whereas for consumers
in Malaysia only 3 percent have done so.
Financial literate person will have strategies to smooth income flows and have a tendency to avoid using credit for basic needs such as food and utilities. A reliance on credit for basic needs
can become very dangerous. The results show that respondents in Malaysia 21 and UK 9 were unlikely to have resorted to credit use to make ends meet. The score on financial behaviour
show that Malaysia has higher numbers of positive financial behaviours 67 as compared to UK 52 which indicates an average levels of financial behaviour.
Financial attitudes Table 3: Scores for financial attitude
Questions Score Malaysia
Score UK I find it more satisfying to spend money than to save it for the long term
I tend to live for today and let tomorrow take care of itself Money is there to be spent
Percentage of respondents with average score over 3
53 49
For the first statement, the results suggest that respondents in UK found equal satisfaction in spending and saving. The responses to the second statement show that in most countries
respondents tended not to live for the day. The third attitude statement relates specifically to individual’s attitude towards money. The distribution of scores show that Malaysia and UK have
a much more positive attitudes towards the long term that are considered to be positively related to financial wellbeing.
MIICEMA 2014 10-11 November 2014
Hotel Bangi-Putrajaya, Malaysia
580
Figure 1 Score for Malaysia
Figure 2 Score for United Kingdom In general, the findings for Malaysia show that a country wide financial levels are higher in terms
of behaviour. As compared to knowledge and attitude. For the UK, financial levels are higher in terms of knowledge.
Socio-demographics perspective It is clear that levels of financial literacy vary between countries and it is therefore useful to
provide a clear picture on how they vary across particular socio-economic groups. The most important is gender differences, followed by age and income. In some countries middle age is
associated with higher levels of financial literacy whilst the oldest and youngest respondents are more likely to have no high scores. Regression analysis confirms that higher income respondents
are more likely to gain high scores that lower income groups.
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Studies have also shown a positive relationship between education and financial literacy. Higher educated individuals are more likely to exhibit positive behaviours and attitudes as well as show
advanced levels of knowledge.
Gender differences Financial literacy: Women display lower financial knowledge than men in most of the countries
surveyed. In particular, young woman, widows, less educated and low income women lack financial knowledge the most. Gender differences in financial knowledge are in part, but not
entirely, related to demographic and socio-economic factors.
The overall financial literacy level of 58.30 for Malaysia and for United Kingdom among all respondents is not encouraging. This shows that in these countries people are still not much aware
about their finance related issues. The results suggest that level of financial literacy varies significantly among respondents based on various demographic and socio-economic factors. It
can be concluded that financial literacy level gets affected by gender, education, income, nature of employment and place of work whereas it does not get affected by age and geographic region.