Low financial knowledge could lead to poor financial decisions after leaving school

Kuala Lumpur, 7 September 2023: Malaysian students are not sufficiently equipped with the necessary knowledge to make practical financial decisions, the Financial Industry Collective Outreach (FINCO) found in a recent survey in which 75% of students surveyed only had low to medium levels of financial knowledge, which could affect their ability to make financial decisions that require long term planning.

According to FINCO’s latest report, ‘Money SENse: Malaysian Students’ Grasp of Financial Matters’, students indicated that, while they were generally aware of common services such as savings accounts, debit cards and credit cards, up to 44.5% do not have the same level of awareness regarding income tax, student loans and the Employee’s Provident Fund (EPF), all of which are financial services that will likely be immediately pertinent to them upon leaving school or entering the workforce. Those who had heard of these services only had a cursory understanding of how they work, rather than a functional grasp of how they are relevant to their lives after school.

In contrast, respondents who had high levels of financial knowledge were able to identify the importance of these and many other services. In fact, the findings indicated there was a strong positive correlation between financial knowledge and awareness, behaviours and attitudes, suggesting that efforts to improve students’ financial knowledge could lead to healthier saving and spending habits.

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Financial knowledge correlates positively with students’ financial awareness and behaviour.

The survey, conducted to better understand the financial literacy levels of upper secondary school students, received responses from 1,121 students aged 16 to 19 years old across Malaysia.

While the report also noted a trend in financial literacy generally improving with age and academic grades, this was not necessarily the case for students with low financial literacy levels from young who may not gain the same ground as their peers.

“These findings show that good financial education, which goes beyond awareness raising, is important from an early age, before students are required to make consequential financial decisions. Ensuring that young people develop a good understanding of key concepts and financial services available to them is crucial in preparing them for the transition to adulthood,” said FINCO CEO, Clare Walker.

According to the Insolvency Department, 60% of Malaysians who declared bankruptcy from 2018 to 2022 were between the ages of 25 to 44. Based on the findings in FINCO’s report, it is likely that these poor financial habits which are formed in one’s younger years carry over to adulthood, resulting in young adults who are unable to make good financial decisions due to a lack of knowledge about practical matters that affect them.

When asked about saving and spending habits, only 28.3% of students surveyed showed positive behaviour across the six behavioural areas asked, while 4.2% exhibited no positive saving and spending behaviour.

a bar graph between positive and poor saving and spending behaviour

Up to 71.7% of students surveyed have poor saving and spending behaviour, with 4.2% having no positive saving or spending habits at all.

The report also revealed that there were 49 students who had shared bank account details with close friends, and 42 students who would consider sharing bank account details with strangers in exchange for money. Despite this being a small percentage of the respondents, it is still a concerning finding as young people who do not fully understand the potential consequences of protecting their personal data can become easy targets for online fraud and mule accounts.

According to Abu Hassan Alshari Yahaya, Bank Negara Malaysia Assistant Governor and FINCO Director, “The FINCO report aligns with the findings of the Financial Capability and Inclusion Demand Side Survey 2021 in that low and concerning levels of digital literacy persist amongst Malaysians. Given that school students today will be major adopters of digital financial products and services, it is imperative they learn about and follow guidelines on good cyber hygiene practices to minimise incidents of fraud and scams.”

“As part of its goal to promote financial inclusion, the financial industry has been actively supporting FINCO with the relevant expertise and information to cultivate a generation of financially literate individuals, who in turn will contribute to building an economically sustainable and socially cohesive society,” added FINCO Chairman, Tan Sri Azman Hashim.

The insights from this report will be used to better address the gaps in knowledge and needs of students through the development of practical and timely financial education content for FINCO’s secondary school Financial Literacy programme, Ringgit Rules, which is aligned with the Ministry of Education’s National Curriculum and the National Strategy for Financial Literacy. Informed by research and behavioural insights, FINCO works with school counsellors to deliver Ringgit Rules workshops which encourage students to explore the values and mindsets they hold towards personal finance management and to develop good financial habits from a young age.

FINCO will also be hosting a forum in collaboration with the Financial Education Network (FEN)’s Financial Literacy Month in October 2023 to discuss these insights and strategise collaborative efforts.

The full report is available here.