First Steps to Financial Literacy ft MAE

Note: This article includes key opinions and advice from #Mbassadors (Maybank Student Ambassadors from Sunway University)


Does being financially literate mean one has to have multiple posh automobiles, luxurious penthouses and caviar in the fridge? Well, maybe one of those will do? ‘Financial planning is complex, investing in equity is highly risky, it’s just too difficult!’, if this is what you’re thinking we are here to debunk those common myths. 


Time to get the facts straight. Realistic financial goals are relative to distinct circumstances and everyone has their own pace. Income, expense, budgeting, savings, stocks, debts, assets, all these terms define finance and they have one thing in common. Money. It’s an economic unit that serves as a means of trade, but it is paper at its roots. Matt Kindt once said “If you find that you are short of funds in the field, remember that any paper can be mind augmented to perform in the place of real money.” Just as it is prominent, finance in the world today deals with the value money bears. 

The foundation in financing is to plan out short-term and long-term financial goals according to the value of money. Following that is the fluid and dynamic upkeep and management of these financial goals. Finally, it is time to reap the rewards from what was sown. 

Short-term financial planning is concerned with objectives that are attainable and flexible while providing benefits within a year. The basic short-term objectives an individual should have are setting a budget, starting an emergency fund, namely insurance and paying off debts. 

“Discussing, reviewing, and adjusting long-term goals is the real first step to a goal-oriented financial planning process,” says Mike Mills, a Certified Financial Planner and Chartered Life Underwriter. 

Meanwhile, long-term financial planning is concerned with financial forecasting and strategizing over a long period. The objectives of long-term financial planning vary among individuals in terms of  preferred sustainable manners and goals. Investment could be a start, but patience is key. 

Budgeting

Budgeting means to spend the very least and save every cent; enjoy every cashback and salvage anything free.

In other words, to live frugally.

That mindset of frugality may or may not apply to everyone’s definition of budgeting. For Maybank Ambassadors, budgeting is defined as:

BU-CKET-ING = BU-DGET-ING

What is bucketing?

As the name suggests, buckets! As students, the buckets would be:

(a) Food

(b) Transportation

(c) Wants (Shopping & Subscriptions)

(d) Savings

Buckets are specially allocated funds that have a limit to spending it. Assuming a student gets a monthly allowance of RM 600, this is how his/her bucket would look like:

(a) Food: RM 240 (40%)

(b) Transportation RM 60 (10%)

(c) Wants (Shopping & Subscriptions): RM 180 (30%)

(d) Savings: RM 120 (20%)

Notice how there are percentages? This idea was adopted by the 50-30-20 Rule by Senator Elizabeth. The number 50 represents 50% of your monthly allowance as ‘Needs’:

(a) Rental

(b) Food/ Meal Prep

(c) Transportation

The number 20 represents 20% of your monthly allowance as ‘Savings’:

(a) Fixed Deposit

(b) Investing in Robo-advisors or Crypto (which is discussed later in the article)

The number 30 represents 30% of your monthly allowance as ‘Wants’:

(a) Clothing and accessories (hoodies, sneakers, necklaces)

(b) Technological Gadgets (Airpods Pro, gaming gear)

(c) Fancy meals

Notice how fancy meals are part of ‘Wants’ and not ‘Needs’? One may argue that it is part of the category “food”; however, what drives a person to make a spending choice? So here is a Y/N Checklist that would shed light as to determine if this expense is a ‘Need’ or a ‘Want’:

Y/N Checklist

(a) Will I actually use this?
(b) Will I be miserable if I put this purchase off for another month?
(c) Do I have cheaper alternatives?
(d) Do I need this?
(e) Do I have space for this?
(f) Does this recalibrate my mental health?

1-234>4
Rethink if this item adds value to your life.Maybe, with more time, I would have greater clarity if it is a need.Do my current funds allow for it?
If yes, put the purchase off for a week.

If no, set a new % for your buckets.
When is the next sale available for this product?

With this Y/N Checklist, it is a quick and simple solution to categorise expenses as ‘Needs’ or ‘Wants’. Although it is not the ultimate and definitive answer, it certainly hints to us on how we are valuing certain purchases; instead of mindlessly purchasing and giving into our impulses.

Bottomline, does budgeting or bucketing lead to a life of unending frugality? The answer is sadly no.

Depending on a person’s financial goals, some may want to fulfil short-term gratifications by decreasing their savings for higher buckets of ‘Wants’. While others may want to strive for greater financial stability by decreasing their ‘Wants’ for higher buckets of savings.

The million-dollar question is, what do YOU want?

Investment and Robo-Advisors

Afraid of risky investments? Fret not, they are only risky if one lacks a clear understanding of investments. 

Investment is a test drive process of purchasing assets such as stocks, bonds, commodities or real estate that appreciate in value over time and provide returns as income payments or capital gains. Simply put, investment works when an item is purchased at a cheap price and then sold at a higher price. 

Different investments carry varying degrees of risk. Taking on more risk leads to rising returns but at a cost of losing money. Whereas, taking on less risk implies that earnings will be generated slowly, but investment plans will be safer. In general, financial experts advise taking on more risk when investing with a long-term aim, such as when young individuals save for retirement. When there’re years to spare to earn money, it is usually better to have such a position to recover from drops in investment value.

One of the primary issues is that most people narrow down investments into speculations. Typically, investments are made only after thorough due diligence and research to understand the risks and advantages that may arise. Speculation, on the other hand, is a pure directional wager on the price of an object.

So to speak, in the case of doubts, comes in Robo-Advisors. In 2020, Robo-Advisors have established themselves as an essential component of the investment and financial technology ecosystems, and are growing increasingly popular. Many now provide socially responsible investment portfolios, human-financial adviser access, and complete digital financial planning tools. Hence bringing assurance in the habit of trusting computers. 

Once an individual opens an account, the Robo-Advisor will create a diverse portfolio that reflects one’s financial objectives. Those objectives are aligned with assets that have historically been known to fit one’s risk profile, based on one’s risk profile or risk appetite. The respective adviser will then watch the market for opportunities to purchase and sell assets to assist in meeting those objectives. Some Robo-Advisors do not have account minimums, so anybody may start investing with as low as $1 while purchasing assets all around the world, depending on the financial institution.

For example, the stock market is known to have an interest or risk of 10% over a time span of 10 years. Assuming that one’s risk profile that has been selected is 10-12%, the Robo-Advisor may increase the percentage of stocks bought. This intends to generate a return based on historical data. 

Do Robo-Advisors outperform the market? “Most Robo-Advisor’s portfolios aren’t really designed to outperform the market intentionally. The perspective of many investors is that you really want to optimize for long-term growth. In fact, there’s a lot of evidence of the fact that it’s extremely difficult to outperform the market, in a long-term approach.” says Goldstone

Free Tip:

Some popular Robo-Advisors that are commissioned by the Securities Commissions Malaysia (SCM) are Wahed Invest and Stash-away. A standard of any investing platform is to be licensed by the SCM, if not risking losing money by shady means!

Insurance

Today, with the expansion and prevalence of the free market economy, the importance of financial awareness is rapidly increasing. Fluctuations and crises in the economy and financial markets are promoting the use of new financial products each day. These products developed, in order to meet new needs in the financial markets, increase the importance of financial awareness. 

The fact that finance is at almost every step of individual lives makes it a  necessity  for everyone to  manage  their  own financial  situations.  Even individuals  with  information  about  the financial  system,  when faced with the  complex  nature  of  the  financial  market, are  experiencing difficulties in decision making. Thus, finance has become vital to society’s everyday lives. 

Besides, individuals must make financial decisions both in everyday life as well as for the long-term. Retirement plans, the  preparation of  family  budgets, and many decisions  such as  investment  of children‟s  education planning  and savings  require  financial  decision  making.  This  is  expected  to  have  a  high  level  of  financial information in order to  get access to and awareness of financial decisions. The financial markets affect the decision-making process in this complex financial structure. Financial literacy in order to obtain accurate and effective financial decisions is therefore a need for individual financial education programs. It is important for the effective functioning of a market presence to have knowledge on a basic level of individuals about the financial concept, tools and issues. 

Financial education can play an important role in helping consumers make appropriate choices with respect to insurance. A discussion of insurance terms and descriptions of the features of different types of insurance can enable the consumer to determine which insurance products are appropriate for his or her individual situation. Information on “tips and traps” can help the consumer to evaluate the various insurance products offered and to select the best provider of these insurance products. Such knowledge is especially important in light of the entry of new providers into the market and the development of new and increasingly complex insurance products, as discussed above.

SOCSO & EPF

Consumers are shouldering more financial decisions today. Retirement planning is an example of an increasing responsibility Malaysians must take for their own financial security. Past generations depended on company pension plans to fund the bulk of their retirement. These pension funds, managed by professionals, place the financial burden on the companies or governments that sponsored them. Consumers were not involved with the decision-making, rarely even contributed to their own funds, and were rarely aware of the funding status or investments held by the pension.

Now, employees do not have control over investment decisions with a pension plan, and they do not assume the investment risk. Instead, contributions are made—either by the employer or the employee, often both—to an investment portfolio that is managed by an investment professional. The sponsor, in turn, promises to provide a certain monthly income to retired employees for life, based on the amount contributed and, often, on the number of years spent working for the company.

Planning and managing finances for personal and professional purposes is a lifelong process. Learning and acquiring the necessary skills to do so is invaluable. Unfortunately, the level of financial capability and financial literacy of Malaysians is alarmingly low. According to the Federation of Malaysian Consumers Association’s 2011 Report, many Malaysians under 40 years old declared bankruptcy due to credit card debt and 72 percent of them had no retirement plans. The report also stated that 47 percent of young employees were in serious debt with monthly debt payment of 30 percent or more of their gross income and had, on average, savings to last only four months if they had to stop working. 

Similarly, the Central Bank of Malaysia found that 72 percent of Employees Provident Fund (EPF) members who are at the pre-retirement age of 54 have savings of just RM 50,000 and below, which means that 50 percent of retirees will have spent their entire EPF savings within 5 years. If left unchecked, this situation will have a serious impact on the individuals, their families and dependents, as well as on Malaysia’s social and economic development.

Starter Tools: MAE

There is growing recognition that financial literacy has an important role to play in financial inclusion. Financial literacy is defined in different ways, but usually taken to mean the knowledge and understanding of personal finance concepts and the skills, motivation and confidence to make informed financial choices, and participate in economic life. 

A financially literate person will understand how to use financial products to meet their own financial goals, which may be very simple, like ‘a safe way to pay my bills’, or more complicated: ‘protecting my family if I get sick’, or ‘borrowing money to start a business’. They will use the products with confidence; be aware of scams and other risks, and know where to go for help and advice.

Although financial literacy may seem daunting at first, do not fret, life’s about to get even easier. Sort out your spending, savings, cravings and more with MAE!
Introducing: MAE app by Maybank

MAE is an e-Wallet issued by Maybank and its authorized manager, Maybank Islamic based on the Shariah contract of Wakalah (agency), which allows customers to open a Maybank e-Wallet account instantly. It also comes with your favourite Maybank2u banking features.

  • It automatically tracks and categorises all your expenses.
  • Provides convenience as customers can apply through Maybank’s Mobile Application any time and from anywhere.
  • New lifestyle features that are currently only offered via MAE i.e. Flight Ticket purchase, Request Money, Split Bill and Send Money 

The new Expenses feature is a tool in the MAE app to help track one’s spending, showing all cash outflows. It includes all the expenses from one’s Maybank account, card, and QR transactions. Cash expenses can even be manually included with a few taps. The Expenses tool will then sort all spendings into comprehensive categories, such as Food, Utilities, and Shopping to give insight into one’s spending habits.

Moreover, Maybank introduced the Tabung feature to help its customers reach their saving goals by saving more consistently and regularly. To begin, there are two types of Tabung available – individual Tabung and group Tabung – providing customers with the flexibility to save towards a goal individually, or jointly with family and friends for occasions such as an annual vacation. In short, this feature will automatically deduct a set amount from one’s account for these goals on a weekly or monthly basis, depending on one’s preference.

Alongside the Tabung feature, there is also a complementary Booster function, which helps to accelerate one’s saving process by piggybacking on one’s expenses and spending habits. At present, there are three types of Boosters:

  • Spare Change: Rounds up the expenses to the nearest amount of RM1, RM5 or RM10, and transfers the excess into the Tabung
  • Scan & Save: Transfers the credit savings earned from promotions used in QR transactions into the Tabung
  • Guilty Pleasure: A sort of “penalty” system that lets one set a daily spending limit for a spending category. If the limit is exceeded, an amount will be credited into the Tabung.

The new MAE app is available for use to both Maybank and non-Maybank customers. Existing Maybank customers can get started with a simple security set-up, after which they can start using the app immediately and seamlessly. The data from all their Maybank accounts will also automatically be made available in the new app.

Meanwhile, non-Maybank customers can register for a MAE wallet via the app and complete the application through a fully online process. This is possible as Maybank became the first Malaysian bank to use e-KYC for new account registrations. That said, there is an exception; those between ages 12 and 18 will still need to obtain parental consent to register for the app.

Maybank has also clarified that while the MAE by Maybank2u app will coexist alongside the Maybank2u app for now, the new app will eventually take over from the latter, although no set deadline has been announced yet. For now, go download the new MAE app from Google Play or the App Store to give it a try!

What are you waiting for? Download the MAE app and sign up now with our invite code ‘taikas’ to get RM8 cash reward!!! Only for NTB (New to bank) users and terms and conditions apply.

Written by: Jamie(#Mbassador), Edward(#Mbassador), Sarah(#Mbassador)

Edited by: Maki

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