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Showing posts with label Bottom 40% (B40). Show all posts
Showing posts with label Bottom 40% (B40). Show all posts

Saturday 18 May 2019

How to make living more affordable?


IN my previous article I asked the question, Do you earn enough to sustain your lifestyle?

The feedback received was consistent. People told me that they worry about the situation, some even wrote in to share their concern.

A reader by the name of Yap wrote me an email about his observation after reading my article.

“I always doubt how a family with a median household income can survive in KL. Based on my calculation, there is no way a family with two children can survive in KL with RM6,275 without accumulating bad debt or spending 4.5 hours to travel on the road. Housing is one of the factors, but not the only one,” he wrote in his email.

Belanjawanku, an expenditure guide launched by the Employees Provident Fund (EPF) in early March states that a married couple with two children spend about RM6,620 per month on food, transport, housing, childcare, utilities, healthcare, etc.

However, the median household income for Malaysians in 2016 was RM5,228. While the median income of M40 group (Middle 40%) was RM6,275, which means five out of 10 households in this category received RM6,275 per month or less. This is far below the RM6,620 required for a family with two children to stay in the Klang Valley.

Another alarming fact is... Belanjawanku compiles only core living expenses without including long-term financial planning tools such as education funds or investments. The actual budget constraint can be more severe if we take them into account.

The living cost in major cities is inevitably higher than in small towns or suburb areas.

As such, when we discuss housing affordability in the cities such as Kuala Lumpur and the Klang Valley, we shouldn’t impose the same benchmark of RM300,000 as everything else is more expensive in the city. Affordable housing should benchmark against the cost of living of the area.

Based on the research for Belanjawanku, even if housing was provided for free, a household of four would still need RM5,750 to sustain their lifestyle.

The transportation cost alone is RM1,040 for a family, higher than the RM870 allocated for housing.

Therefore, if a family is looking to lower their cost of living, moving to suburb areas would allow them to have a more affordable budget.

According to a news report which quoted information from brickz.my, the housing prices in KL are five times higher than in Seremban, with median housing price of RM1mil (RM940 psf) in the KL city centre, versus RM200,000 (RM210 psf) in Seremban.

Suburbs which are nearer to KL such as Klang and Shah Alam also offer attractive housing prices with a median price of RM340,000.

For families who stay in the city centre and plan to reduce their cost of living, they can consider moving to suburbs to enjoy a better quality of life, and leverage on the improved public transportation which offer hassle-free travelling from suburbs to city centre.

Although high living cost is a concern for many Malaysians, KL is ironically found to be the cheapest city to live out of the 11 major cities in Asia, according to the 2018 Wealth Report Asia.

We are “cheaper” or ranked lower than our neighbouring cities, including Bangkok, Manila and Jakarta. KL, Manila, and Jakarta are also the most price competitive cities when it comes to the residential properties segment.

Why are we still facing the challenge of high living costs despite being the “cheapest” city in the region? The underlying factor is because of the low household income earned by most Malaysians, as the previous government failed to transit us to a higher income nation.

In his email, Yap mentioned that “I always imagine what Malaysia can be if there were no leakages. Hundreds of billions could be spent to stimulate various industries. Our GDP per capita could be close to if not similar to Singapore’s”.

That is the vision and sentiment shared by a majority of Malaysians. With the new government that promises to be more transparent and efficient, we hope that one day, we can afford to live comfortably in any city we wish to, with a higher household income.

Datuk Alan Tong has over 50 years of experience in property development. He was the World President of FIABCI International for 2005/2006 and awarded the Property Man of the Year 2010 at FIABCI Malaysia Property Award. He is also the group chairman of Bukit Kiara Properties. For feedback, please email bkp@bukitkiara.com

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Saturday 20 April 2019

Do you earn enough to sustain your lifestyle?


DO you know how much you need to sustain your lifestyle every month? Are you living within your budget or stretching to make ends meet?

We can now gain insights with the unveiling of Belanjawanku, an Expenditure Guide for Malaysian Individuals and Families, launched by the Employees Provident Fund (EPF) in early March.

The guide offers an idea of the living costs for respective household categories. It encompasses the expenditure on basic needs and involvement in society for a reasonable standard of living in the Klang Valley.

According to Belanjawanku, a married couple with two children spend about RM6,620 per month on food, transport, housing, childcare, utilities, healthcare, personal care, annual expenses, savings, social participation and discretionary expenses.

When I read this guide together with the income statistics published by the Statistics Department, it reveals that a vast majority of Malaysians can’t afford to live in the Klang Valley.

Based on the statistics, the median household income for Malaysian households in 2016 is RM5,228, far below the RM6,620 required for a family with two children to stay in the Klang Valley.

If we take a closer look, the median income of M40 group (Middle 40%) is RM6,275, which means five out of 10 households in this category received RM6,275 per month or less. This indicates that over 60% (40% from B40 households and half of the M40 households) of Malaysian households (if they have two children) can’t afford to stay in the Klang Valley.

What went wrong in the process? Why are many households having challenges to meet the required budget?

According to Belanjawanku, a married couple with two children spent the majority of their income on food (RM1,550), followed by childcare (RM1,150) and transport (RM1,040), then only on housing (RM870) and other items.

Based on the research, even if housing was provided for free, a household of four would still need RM5,750 to sustain their lifestyle. Therefore, the common perception that only housing is expensive is not right. It is not that housing is expensive, but that everything is expensive because of inflation over the years! The value of our currency has fallen due to global money printing measures over the past decade.

Belanjawanku compiles only core living expenses without luxury items or excessive spending. It also doesn’t include long-term financial planning tools such as funds for education or investments. If the majority of Malaysian households have challenges in meeting the existing expenses listed in the guide, it poses a serious concern on their future financial prospects.

The underlying factor of this challenge is the low household income earned by Malaysians. The previous government failed to move us to a high income nation as they had promised, and more families are stretching to make ends meet now. It may lead to serious financial problems in the future.

If median household incomes don’t increase, the B40 (Bottom 40%) and half of the M40 will always struggle even if housing is free, assuming that they aspire to have two children and to live in the Klang Valley.

According to Transparency International Malaysia, corruption had cost our country about 4% of its gross domestic product (GDP) value each year since 2013. Added together, this amounts to a high figure of some RM212.3bil since 2013. For 2017 alone, that figure was a whopping RM46.9bil!

Imagine what we can do with these monies if there was no leakage in the system? The previous government should have channeled the money to stimulate economic growth and increase the income of the rakyat.

Going forward, I am optimistic that the new government, with its promise of a clean and transparent government, can finally fix the leakage and focus on generating a higher income level for all Malaysian households.

Financial independence is a key factor in the overall well being of the rakyat. We need to increase household incomes to a level where families can meet their basic needs and embark on long-term financial planning, to elevate their quality of life.

Then, and only then, will housing and other living expenses finally become affordable.

By Food for thought By Alan Tong

Datuk Alan Tong has over 50 years of experience in property development. He is the group chairman of Bukit Kiara Properties. For feedback, email bkp@bukitkiara.com


 
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Sunday 7 April 2019

Middle class malady

Struggling and frustrated: Most aid goes to the B40, leaving the M40 feeling adrift and on their own.
 The economic future of the country looks scary, and if the young bankrupts and imminent retires are not atteended to soon, we could be in truly tough times.

THE economy is the most talked about topic among Malaysians, with issues including the increasing cost of living, shrinking ringgit, continuing weak economy and sadly, the endless politicking.

While attention has been cast on the Bottom 40, or the group known as B40, as they make up the lowest earners, the middle class, the Middle 40, or M40, shouldn’t be forgotten either.

Malaysians are categorised into three different income groups: Top 20% (T20), Middle 40% (M40), and Bottom 40% (B40).

To be in T20, a household’s monthly income should at least be RM13,148, while the M40 and B40 groups have raised their bars to RM6,275 and RM3,000 respectively.

We don’t need a survey to know that the people in the bottom half of M40 and B40 are barely making ends meet and struggling to maintain a decent lifestyle.

At the lowest end, 70% of these poorest are the bumiputeras, while the rest are Chinese and Indians, which proves the poor comprises all races.

The M40 – which forms 40% of Malaysia’s population – includes mostly wage earners, in both public and private sectors.

The bulk of their income goes to paying the car and housing loans, rent, and groceries. After deductions from the essential bills, such as phone, Astro, petrol, and children’s education, there’s barely anything left to save.

It’s harder for those who need to take care of their ageing parents, a noble endeavour which naturally includes settling healthcare bills, and even expenses for care takers.

And since the majority of the M40 lives in the cities, the household income of RM6,275 is almost negligible, and they can hardly be faulted for feeling that their standard of income has dipped drastically while the cost of living has increased.

The M40 essentially comprises the most frustrated lot since most aid goes to the B40, leaving the former feeling adrift and on their own.

Most of them don’t have alternative revenue streams besides their monthly wages, and they are dependent on corporate performances, so the overall economy is key.

They are unlikely to care that the Department of Statistics’ Household Income and Basic Amenities survey indicated that the mean income of households in 2016 reached RM6,958, a 6.2% annual appreciation from RM6,141 in 2014.

The survey also revealed the incidences of poverty decreased from 0.6% of the population in 2014 to 0.4% in 2016. Compared with the population of 30.7 million in 2014 and 31.7 million in 2016 (from the same portal), the numbers also decreased from 184,200 to 126,800 from 2014 to 2016.

The 11th Malaysia Plan (2016 – 2020) Mid-Term Review stated that the mean household income is predicted to reach RM8,960 by 2020.

The term “middle class” has different meaning and measurement to economists and academics from those classified in the M40 category.

As one analyst rightly pointed out, a household of four living in the Klang Valley with an income of RM4,000 per month, would be classified as urban poor due to the higher cost of living. However, that income would be comfortable to live in Pasir Mas or even Taiping.

It won’t be wrong to suggest that at RM4,000, that’s only enough for a single person to live in the Klang Valley.

We need to understand that the key people driving the country’s economy are the middle-income and top earners, many of whom feel they have fallen between the cracks of progress.

At every Budget, they seem to be the forgotten Malaysians, and each year, they hope for lower level tax bands for themselves, so they can have extra disposable income, but that never happens.

Khazanah Research Institute’s (KRI) State of Households 2018 revealed a steady increase in the income gaps between the Top 20% (T20), M40 and B40 groups since the 1970s. In 2000, the estimated real mean household income differences between T20 and M40, M40 and B40, and T20 and B40, were RM6,000, RM2,000 and RM8,000 respectively.

By 2016, however, it increased to RM9,000, RM4,000 and RM13,000.

These figures show that T20 households are gaining wealth at a faster rate than the rest.

Despite the improvement in mean household income figures, the gap between income groups continues to rise, and the survey added that “the escalating cost of living has put financial pressure on the M40 and B40 groups.”

“With income growing at a slower pace compared with the cost of living, the M40 and B40 groups are experiencing an abridged disposable income, which could be detrimental to future consumption, activity, emergency or debt services.”

Combining data from the Department of Statistics’ Household Income survey (2016 and 2014) and KRI household reports (concerning population increase), it’s clear that the percentage of households living under the 60% median grew from 2014 to 2016 by 41.8% to 43.5%, with an estimated 2.8 million households in 2014 and three million households in 2016.

The increase also suggests that more M40 households have slipped into the B40 category – and this is where the alarm bells go off.

In the 11th Malaysia Plan (2016-2020), targeted subsidies, cash handouts, healthcare benefits, education, along with employment and entrepreneurship opportunities, include the usual strategies to ease the burden of B40 households.

One of the major concerns among the young M40 family is that they can no longer afford to buy a “middle class” home, and the difficulties have been aggravated by how they need to live relatively close to their workplace.

As much as the government expects housing developers to build affordable houses, let’s not forget that most of these developers have bought land at premium prices, and as private concerns, they still need to make profits.

But homes in Malaysia have become “seriously unaffordable” by international standards, and there’s no need to point fingers at developers when the governments have basically failed to do the job, unlike Singapore’s Housing Development Board (HDB), which builds and upkeeps flats that don’t degenerate into urban slums.

Their HDB flats are so well-designed and maintained that they can pass off as high-end apartments by Malaysian standards.

Bank Negara reported that from 2007 to 2016, house prices grew by 9.8% while household income only increased by 8.3%. While developers blamed rising construction costs – including labour outlay – and stagnant salaries for the increase in house prices, all this means nothing to the M40, because ultimately, they still can’t buy houses.

The rent-to-own scheme which the B40 has enjoyed from the low cost houses, needs to be extended to the M40, so they, too, can enjoy the same benefits, and while such help is expected to come via PRIMA Corp, a federal government-linked developer which supposedly caters for M40, it’s still falling behind schedule.

While it could be easy for the M40 to request more support, including allowances for school-going children, and even free student passes for public transport, it’s time that financial literacy be introduced at school level. A study by S&P Global Literacy Financial in 2014 showed that the financial literacy rate in Malaysia is only at 36%, compared with 59% in developed countries.

“The low financial literacy rate is among the factors that has contributed towards high levels of debt – including worrying bankruptcy problems – among the youth.

“Between 2013 and 2017, a total of 100,610 Malaysians were declared bankrupt, of which 60% were between 18 and 44 years old,” according to Finance Minister Lim Guan Eng.

Apart from the youth, Lim noted that older Malaysians are also facing serious financial challenges, particularly when it comes to their retirement.

Based on estimates by the Employees Provident Fund (EPF), he said that as of 2019, an individual requires savings of at least RM240,000 by age 55 to retire comfortably.

However, based on the EPF 2017 Report, active contributors aged 54, have average savings of only RM214,000 in their accounts.

“What is even more worrying is that two-thirds of contributors aged 54, only have RM50,000 and below in their EPF accounts in 2015,” he reportedly said, adding that this was well below the recommended amount for savings.

Lim noted tha the low amount of savings was inadequate and estimated it to run out within five years of retirement, although the average life-span of Malaysians is 75.

Basically, the B40, M40 and, our young and old Malaysians, are all either grappling with financial problems, don’t know how to handle their money, or don’t even earn enough in the first place.

This is unlike the situation for the T20, which has disposable income where their wealth encourages investment and wealth creation, the main principles of the T20 group.

But of all people, politicians should know the importance of the people wanting to have money in their pockets and feeling well heeled.

Easier loan payments, good refinancing packages and transport allowances should be considered to help the M40.

If the market continues to slide, there will be many unhappy people, and the resentment will translate to protest votes. For them, it simply means the government is doing a lousy job, and they couldn’t care less for the reasons, however valid they may be.


Wong Chun WaiWong Chun Wai

Wong Chun Wai began his career as a journalist in Penang, and has served The Star for over 27 years in various capacities and roles. He is now editorial and corporate affairs adviser to the group, after having served as group managing director/chief executive officer.

On The Beat made its debut on Feb 23 1997 and Chun Wai has penned the column weekly without a break, except for the occasional press holiday when the paper was not published. In May 2011, a compilation of selected articles of On The Beat was published as a book and launched in conjunction with his 50th birthday. Chun Wai also comments on current issues in The Star.

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