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Thursday, January 2, 2014

Malaysians can still survive bumpy ride with financial discipline

Published: Thursday January 2, 2014 MYT 12:00:00 AM 
Updated: Thursday January 2, 2014 MYT 8:19:06 AM
Sign of the times: This coffee shop in Puchong, Selangor,
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PETALING JAYA: It’s going to be a tough three years or so, say economists but Malaysians can still tide over the coming rough days by budgeting wisely and spending prudently.

Maybank Investment Bank chief economist Suhaimi Illias said consumers would need to adjust their spending patterns by buying only essential items and eliminating impulse buys.

He said the next three years will see increased price pressures due to the impending Goods and Services Tax (GST) in April next year and the ongoing subsidy rationalisation.

“It’s quite clear that some change in consumer spending patterns has to happen. Monthly budgeting is very important and must take into account debt servicing, fixed expenses as well as savings for a rainy day,” he said.

He estimated that for a family of four living in Kuala Lumpur, a “survivable” household income range would be from RM7,000 to RM10,000, including a portion set aside for savings.

Suhaimi said this estimate was assuming that both parents worked, had two vehicles, a home mortgage and child care expenses on top of the usual expenses.

“Around 10 years ago, a household income of RM3,000 was enough to keep your head above water,” he said.

He also stressed the need to save money despite rising costs, as merely relying on the Employees Provident Fund (EPF) was insufficient for the average Joe.

Suhaimi said the cost of living would inevitably increase as the cost of doing business would also go up, forcing businesses to push their costs to consumers.

“Consumers must be smart and prudent to adapt to this new environment, while hoping for a steady increase in income over the next few years,” he said.

Suhaimi said it was important for the Statistics Department to update its Household Income and Expenditure Survey, so only truly qualified households would benefit from government aid.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said a household of four living in Kuala Lumpur could scrape by on a shoestring budget with a RM5,000 monthly household income.

However, they would find it extremely difficult to save, especially if they had dependants such as parents or additional children.

“A monthly household income of at least RM8,000 would allow them to set aside a reasonable savings buffer. Those in lower income groups will be more vulnerable to price shocks as well as unplanned spending such as medical or family emergencies,” he said.

Dr Yeah added that he expected to see household incomes continue to rise in tandem with the increase in per capita income since 2010.

However, he said income inequality had increased in this period, so lower-income groups had not kept up in terms of the national growth rate.

“Narrowing the income gap should be one of the major goals the Government has to work towards,” he said.

Besides the recent subsidy rationalisations, Dr Yeah said the upcoming implementation of the GST could see certain businesses using it as an excuse to hike up prices.

Dr Yeah said that based on the experience of other countries, prices should stabilise within two to three years of the GST’s implementation.

He said this was why effective implementation, consumer education and strict enforcement against profiteering were vital from now until 2017.

“If this is not curbed, it will result in unjustifiable and widespread price increases,” he said.

He advised consumers to practise comparative shopping, reduce or postpone discretionary spending and budget well in advance.

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