CIX2003 Applied Financial Planning

Semester 1, 2019/2020

Individual Assignment

Name: Tan Yong Sheng

Matric Number: CIC 180060
IC Number: 990220-01-7839
Topic: Malaysian Households Financial Health Analysis
Lecturer: Dr. Md Mahfuzur Rahman
Table of Contents
Part 1 : Financial health analysis ................................................................................................ 2
1.1 Income analysis ................................................................................................................ 2
1.2 Expenditure analysis ........................................................................................................ 3
1.3 Savings analysis ............................................................................................................... 4
1.4 Investment analysis .......................................................................................................... 4
1.5 Insurance analysis ............................................................................................................ 5
1.6 Loan analysis ................................................................................................................... 6
Part 2 : Relationship between demographic characteristics and household financial health ....... 7
2.1 Age ................................................................................................................................... 7
2.2 Gender ............................................................................................................................. 8
2.3 Race ................................................................................................................................. 8
2.4 Religion ............................................................................................................................ 9
2.5 Education ......................................................................................................................... 9
2.6 Marital Status ..................................................................................................................11
2.7 Number of dependents ....................................................................................................11
2.8 Employment Status .........................................................................................................12
Part 3: Relationship between Financial Health and Level of Financial Literacy .........................13
Part 4: Recommendation of a healthy financial portfolio through financial planning ...................14
Conclusion ................................................................................................................................16
Appendix ...................................................................................................................................17

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Part 1: Financial health analysis
In this project, there are 5 respondents taking part in this financial health analysis survey. This

project is to investigate the financial awareness and financial planning among the Malaysian

society in order to avoid massive financial crash and bankruptcy. The data collected from the

respondents will be evaluated on several aspects, such as income, expenditure, savings,

investment, insurance and loan analysis.

1.1 Income analysis

Figure 1.1: Monthly income of the respondents

According to Figure 1.1, households are being categorized to 5 groups with different income

level. Most of the respondents (40%) belongs to category of having monthly income at RM 5001

and above. Meanwhile, 20% of respondents have monthly income between RM2001-RM3000,

RM3001-RM4000 and RM4001-RM5000 respectively.

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1.2 Expenditure analysis

Figure 1.2: Monthly expenditure of the respondents

Figure 1.2 shows the expenditure level of Malaysian households. Although 40% of the

respondents have their monthly income level at RM 5001 and above, they generally control their

expenses below RM5001 monthly. Most of the respondents (40%) have their monthly

expenditure at RM3001-RM4000. Meanwhile, 20% of the respondents (who have the monthly

income at more than RM5001) have their monthly expenditure at RM4001-RM5000. In addition,

20% of the respondents control their expenses at RM2001-RM3000 and RM1000-RM2000

respectively.

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1.3 Savings analysis

Figure 1.3: Monthly Savings

The concern on savings arises when the spending amount occupied a big portion of the income.

Fortunately, Malaysian households based on our sample do have a regular savings habit every

month. 40% of the respondents have responded that they have no savings monthly. Another 40%

of the respondents are having their monthly savings at RM2001-RM3000. Meanwhile, 20% of

the respondents have only savings at RM1000-RM2000. It shows that local households are not

aware of the importance of savings.

1.4 Investment analysis

Figure 1.4: Investment types

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According to figure 1.4, 80% of the respondents are not having any type of investments. Only 20%

of the respondents have invested in property area. It shows that the Malaysian households do

not realize the importance of the investment as a passive income to grow their wealth.

1.5 Insurance analysis

Figure 1.5: Insurance Spending

Insurance provides protection to the insured once they made the purchase. Based on figure 1.5,

medical insurance seems popular because 80% of the respondents have bought medical

insurance. Meanwhile, only 20% of the respondents have purchased a life insurance. All in all,

this sample demonstrates that local households do sense the needs of insurance protection in

their daily lives especially for medical insurance which protects someone from unexpected, high

medical costs.

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1.6 Loan analysis

Figure 1.6: Loan

40% of the respondents are free of debt. Meanwhile, 40% of the respondents takes house loan,

while 20% of the respondents takes car loan. Neither of them takes any personal and education

loans. This is highly related to the financial life cycle of the households as all the respondents

are above the age of 38 which is the age of family formation. Therefore, they tend to take up the

car and housing loans.

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Part 2 : Relationship between demographic characteristics and
household financial health

2.1 Age

Figure 2.1 ： Age group result from survey conducted

All the respondents are above the age of 38. Based on figure 2.1, 20% of the respondents are

from the age group of between 38 and 44 years old. 40% of the respondents are from the age

group of 45-51 and 52-60 respectively. Overall, the people in age groups 45-51 and 52-60 are

generally having higher monthly income and more financially mature because having financial

plans (e.g. having more savings and medical insurance). However, although for respondents

who are in age group between 45 and 51 years old generally have positive net worth, they do

not invest in any type of investments. Only 1 respondent at age group between 45 and 51 years

old has invested in property.

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2.2 Gender

Figure 2.2 ： Gender result from survey conducted

60% of the respondents are male while 40% of them are female. From the result, both groups

have loan outstanding and have insurance protection. The most distinctive difference between

the two groups is that males tend to do more investment than females especially in property

investment. Nevertheless, the females have more loans outstanding, some even with both the

car loan and house loan while males mainly have the only house loan to be paid off.

2.3 Race

Figure 2.3: Races result from survey conducted

Based on figures 2.3, all the respondents are Chinese. I make this race factor as a constant
variable to investigate the Malaysian Households Financial Health.

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2.4 Religion

Figure 2.4： Religion result from survey conducted

Based on figures 2.4, all the respondents are Buddhism. I make this religion factor as a constant
variable to investigate the Malaysian Households Financial Health.

2.5 Education

Figure 2.5: Education background result from survey conducted

40% of them completed university education. However, the rest of the respondents (60%) have

only completed their primary school education. Mostly, the respondents have higher education

earns higher level of income except for those who are doing their own business. In addition, it

might be expected that people with higher educational level would be more financially literate

and hence have a better financial health. However, the result from the survey conducted does

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not support this statement, as they all have a similar financial behaviour. In spite of their

educational background, they all do savings that average around RM2000 a month besides

doing investments. Here is another contradiction fact from the finding that lies with the previous

statement, where people with lower educational level actually buy more insurance than the

people with higher education. This divergence from the usual stereotyping expectation is

believed to be caused by the ease of getting access to financial information in this digital era,

and thus, people are all financially literate and have similar financial health despite of their

educational level.

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2.6 Marital Status

Figure 2.6: Marital status result from survey conducted

Based on figures 2.6, all the respondents are married. I make this marital status factor as a
constant variable to investigate the Malaysian Households Financial Health.

2.7 Number of dependents

1
0%
2
29%

42%
1
2
3

3
29%

Figure 2.7: No of dependents result from survey conducted

Number of dependents will affect a person’s monthly expenses and monthly savings. The figure

above has shown majority of the respondents has 4 number of dependents majority. The

second highest is 5 or more number of dependents with 27.3%. In general, people with higher

number of dependents would have a higher amount of expenses as they have to pay for the

living expenses for their dependents as well. When expenses is higher, their monthly savings

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would be reduced. Thus, people with lesser number of dependents might have a better financial

status than those who have more number of dependents.

2.8 Employment Status

Figure 2.8: Employment status result from survey conducted

There is a total of 54.5% of the respondents working in private sector while 36.4% of the them

own business. 9.1% of the respondents are working in government sector. As income level

differs accordingly based on types of job, this results in different financial behaviour. The

monthly income for business and private job are relatively higher, and this leads to higher

amount of money being saved.

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Part 3: Discuss the relationship between financial health and level of
financial knowledge, financial stress, financial behavior, materialism,
financial well-being, personal saving orientation

Score
Personal Financial
Financial Financial Financial
Respondent Saving Materialism Well-
Stress Behavior Knowledge
Orientation Being
(Total: 25) (Total: 30) (Total: 25) (Total: 30) (Total: 40) (Total: 50)
1 13 19 13 18 28 30
2 13 20 15 18 27 40
3 19 15 16 15 30 27
4 18 19 14 18 29 32
5 12 21 19 17 26 35

From the results above, none of the respondents managed to obtain a full score for the financial

literacy test. However, there are 2 respondents attained 85% and it is found that that two

respondents have a similarity that is; the both of them have an income of RM3001-5000,

expensed only RM1001-2000 and saves RM1001-2000 monthly. They do not possess any

investments but one of the respondent possess a car loan. Despite being in the middle income

group, the take home pay after deducting savings and expenses were only RM1000 on average.

They might have plans for their savings therefore, there isn’t any provision for investments to

earn passive income. The median score for our sample regarding financial literacy is 65% which

is a grade of B-. The result of our sample is in line with BNM’s financial literacy, Malaysian have

generally low level of financial literacy. Moreover, Malaysia scored 36% which is only 3% above

the global average passing rate on the World Bank Financial Literacy Test 2015. 8 respondents

think that credit card holder could spend without a limit and increase one’s purchasing power

which is untrue as most of the credit cards facility has a ceiling of RM12,000. A penalty of RM25

will be imposed on overlimit transactions as mandated by Bank Negara Malaysia therefore

increasing the liability of the individual. Besides, 9 respondents thought that overspending

occurs when we use our savings on purchases. In addition, 7 thought that life insurance

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protects policy holder from financial burden which explained the why all of our respondents were

insured.

Part 4: Recommendation of a healthy financial portfolio through

financial planning

There are many ways to have a healthy financial portfolio. Its depends on how you

manage your own money and how you plan for the future. Financial planning need to be follow

by each person to have a stable financial. Discipline is an essential basis for every good

financial plan. All of your financial activities and decisions have an effect on your financial health.

What should you do? The first thing that come in mind of recommendations for a healthy

financial portfolio is by start to spend less than you earn and try to avoid excessive debt. Based

on the survey that have been done, the household expenses continue to increase, therefore you

need to adjust your household spending plan (budget) accordingly.

As a starting point, determine how to establish your short term and long term financial

goals. It’s important to know the difference between what you own and owe. It’s necessary for

you tracking your income and expenses. You can make a personal budget or spending plan and

created on a monthly or annually basis so this can help you to manage your financial. By doing

this, you can know where your money goes and where you spend all your money clearly.

Personal budget is important for the household or even everyone as an important financial tool

to help plan our expenses whether to reduce or eliminate the expenses, prepare for the

emergencies and save for future goals by prioritize in spending and saving.

Besides that, the most important to consider in managing financial portfolio are age and

their future income. Most of the respondents have high income as most of them age above 40

years. Thus, this will lead them to spend their money more because they think they have a lot of

money that can be used. This phenomenon is called as lifestyle inflation. Even though, they

think that they have enough money to pay their bills but lifestyle inflation can be damaged in the

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long term. One of the effect it will limits your ability to develop wealth because one dollar

received today is worth more than a dollar received in the future. So, to get a healthy financial

portfolio is you must recognize and manage your lifestyle inflation. You cannot compare yourself

with your friend who drive BMWs or holiday at luxuries hotel. Buying a new car is costly

because they can lose upwards of half of their values by the time the cars are used more than 3

years. Do some research and be more future minded so you can plan for better future.

Next, recognize what you need and wants before spending your money. Needs are

something that are important and necessary for survive for examples, food, shelter,

transportation, healthcare, cloth and include savings. While, wants are something that are not

necessarily in your life yet something that make your life more easier. One of the best ways to

prevent you from overspending is by making a shopping list and eliminated the stuff that are not

necessarily needed. Try to stick to the list and bring enough money only for the stuffs on the list.

Keeping a budget and bring a minimum amount of money in your wallet to avoid buying

unnecessary items.

Lastly, many people said never too late to start saving but let’s we change our mind by

start saving early for better future! As the sooner you start to save, the more money you will be

gaining for better retirement or for children and family. Most of the respondents start their saving

below RM2000. If you start earlier it is easier to reach long term financial goals even though less

saving amounts each month but with the power of compounding, you can earn larger amount

until you hit 60 years. At least 10% from every paycheck can be used for your saving part for

your retirement. You must ensure that your retirement needs are taken care of prior to providing

for your children’s future and also make deposits to saving plans as rebalance your portfolio as

the changes in market in the percentage of the stocks and bonds.

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Conclusion
An analysis on the financial health of households in Malaysia has been successfully conducted

by our group and we have captured a few interesting points throughout our survey. We have

done a thorough analysis firstly on their financial health based on the amount they spend and

save with their respective income, the investment they do and the insurance they buy, together

with loans they are bound to pay off. Then we looked at how demographic characteristics and

also level of financial literacy could affect financial health of the households. Lastly, we give

recommendations on how financial planning could help in constructing a healthy financial

portfolio for every each of the households in Malaysia. We could infer from this analysis

conducted that in overall, the households in Malaysia are doing well with their financial health.

However, for some of the households, additional financial planning could be done to fine-tune

their financial health and further assist them in achieving their financial goals. People should be

empowered in order to manage their finance properly.

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Appendix

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