Many young adults seeking advice on debt management

By SHARIDAN M. ALI
sharidan@thestar.com.my

Financial knowledge crucial for youngsters

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PETALING JAYA: Young adults need to be equipped with the essential financial knowledge to avoid them from falling into “financial trap” that usually snares them at a later stage in life.

Statistics from Credit Counselling and Debt Management Agency (AKPK) showed that 44% of its debt management programme (DMP) customers were 30 to 40 years old, mainly males (67.9%) and earning below RM36,000 nett a year. Only 16% of the DMP customers were below 30 years old.

Chief executive officer Akwal Sultan said many young adults aged 30 and above came to AKPK when they had lost control of their finances, which might have started at an earlier age.

Mohamed Akwal Sultan says young adults should take control of their finances.
 

“They could have taken control of things earlier if they were aware of the steps needed to lead a prudent lifestyle,” he told StarBiz.

Akwal said although there was a general consensus that young adults had issues in managing their money, especially when it involved credit card, the overall non-performing loan statistics of credit cards was only 1.9%.

“It is only pockets of young adults that have problems with credit cards, contributed mostly by a lifestyle issue,” he said.

Akwal added that only 9.4% of those under the DMP faced credit card problems while 73.5% faced difficulties in managing a combination of debt, which include car loans, credit cards, personal loans and housing loans.

Thus, Akwal said there was a need for a more effective financial education programme for the young generation.

“Although it is currently being taught in schools, it is still not a subject by itself and thus does not have the desired results. At the tertiary level, the need for an effective financial education programme becomes more critical as having graduates savvy in this area will better equip them to handle their finances.

“In short, financial education is a baseline education that all individuals, especially today's young adults, should have,” he said.

National deposit insurer Malaysia Deposit Insurance Corp (PIDM) chief operating officer Md Khairuddin Arshad said sound financial knowledge, particularly about savings and prudent spending, must be inculcated among the young generation.

“Knowledge about deposit insurance should also be part of this foundation, especially as our youths prepare themselves for working life.

Sound financial know ledge, particularly about savings and prudent spending, must be inculcated among the young generation.
 

“By the time they take up their first job and start a family, they should already be capable of making smart and informed financial decisions and continue to do so throughout their lives,” he said.

OCBC Bank (M) Bhd head of wealth management Ong Shi Jie said the younger generation needed to obtain basic money management skills which included budgeting, the use of credit cards and accounts checking, and the importance of savings.

“In the course of our lives, we will eventually need a credit card, mortgage or a savings account to manage our finances.

“In this regard, it remains strange that the basic skills of managing finances have not been institutionalised into our education system,” she said.

Ong said most young adults fell into the “financial trap” the minute they landed a job because the first thing they normally did was to apply for a credit card.

“This gets them into the vicious cycle of succumbing to all their wants, not needs. So, before they make their first investment or saving, they're saddled with credit card debts and a loan for a depreciating car value.

“It's no wonder why people worry about retirement plans 10 years too late. They're paying for the sins' of their early years,” she said, adding that such financial traps needed to be pre-empted by instilling sensible money management habits in children.

Although Malaysia has one of the highest personal savings rates in the world, Ong said this had been largely driven by Government policies as opposed to a higher level of financial knowledge like in other countries.

“There is definitely room for improvement as far as the current level of financial knowledge among our young adults is concerned,” she said.

In terms of programmes, AKPK's ongoing focus is to provide financial education to post-secondary and tertiary level audiences where numerous financial education programmes are already in place since its inception four years ago.

These include National Service interactive workshops and module infusion in 31 institutions of higher learning. Bank Negara has also recently announced that a new financial capability programme will be launched next year, to be offered by AKPK.

As for PIDM, it has implemented an education programme for secondary school and tertiary students throughout Malaysia as part of its ongoing initiatives to further enhance public understanding of deposit insurance.

PIDM MoneySmart project seeks to instil the habit of savings and prudent financial management among students in schools and higher-learning institutions.

For OCBC, one of its recent initiatives is the OCBC Mighty Savers. For example, its OCBC Mighty Savers Weekend offers basic banking products and services to children at selected branches on every first weekend of the month.

Heartbreak in Facebook world

By RASHVINJEET S.BEDI
sunday@thestar.com.my

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A 45-minute suicide countdown on Facebook continues to touch members’ hearts. 

“Goodbye, my friend, goodbye My love, you are in my heart.” 

RUSSIAN poet Sergei Esenin wrote this suicide note in his own blood and passed it to his friend the day before he hanged himself.

That was in 1925; imagine what he would have done if he had killed himself today.

When Alviss Kong, 22, decided to take his life after his girlfriend of four months left him last week, he posted a farewell status on his Facebook page together with a teary photo of himself.

The status at 11.15pm read “Count Down For 45 Mins…What should I do in this 45 mins?”

In the ensuing minutes, up to 204 Facebook members “liked” his suicidal status post on his Facebook wall, but no one stopped him or alerted his family on his suicidal intentions.

Alviss: Met a tragic end after countdown.
 

Only his sister Chelvin Kong, 28, reportedly tried to talk him out of the suicide, but Alviss assured her that he was joking.

A few hours later, his body was found sprawled on a car, fallen from the 14th floor of his apartment building in Cheras, Kuala Lumpur.

This tragic tale has been getting a lot of media coverage especially in the Chinese press, begging the question – what do you do when someone tells you that he or she wants to commit suicide?

Student Ariel Yong*, 17, believes that many thought that Alviss’ message was a prank and simply played along.

“Sometimes when my friend and I wait for the LRT train, we make stupid jokes about throwing ourselves in front of the train. But we know it’s just a joke. I suppose on Facebook, it is difficult to know what somebody really means unless you are also friends outside.”

She feels this shows the significance of “friend” or “community” on Facebook: “Most are not real friends. My real friends would really know if I am joking or serious or if I am depressed or happy.”

International survey firm TNS last month reported that Malaysians had the most “friends” on Facebook and spent nine hours a day on average surfing the site of more than 500 million members.

Real friends or not, Kim Chua*, 19, hopes Alviss got some comfort from those who responded to his wall posting.

“They may not be his real friends or close friends, but no one wants to die alone,” she says.

The psychology student says studies show that an estimated 12–20% of suicides are accompanied by a note and people write it to ease their pain, not as a cry for help.

Paul Jambunathan, consultant clinical psychologist at Monash University Malaysia and Sunway Medical Centre describes those who “liked” Alviss’ Facebook status as “emotional voyeurs”.

“People love to hear about what is happening to others and how they are suffering,” he says, linking it to the trends in today’s popular culture.

“This culture includes suicide as an option to past history within the family or significant others, movies, lyrics and media sensationalism. They all have an effect that makes suicide an option when really it should never be,” he says.

But ultimately, no one can be blamed for Alviss’ death except himself. It was irresponsible of Alviss to put up the posting on Facebook, says Jambunathan.

“He expected society to be responsible for him. He killed himself because he was depress­ed, and became helpless and hopeless. It is unfair to pin this on the girl when the only person responsible is himself, his choices in life and the kind of friends he kept.”

Jambunathan believes that Alviss might not have jumped if there was any inkling of help or hope.

Consultant psychologist Valerie Jacques agrees that Alviss was deeply depressed and put his hopes in the relationship to make him happier.

“Nothing external will make a person happier when they are depressed from deep inside,” she says.

What is clear – and somewhat comforting – is the notion that love and the way people deal with its ups and downs have not changed over time.

Jambunathan concurs, saying that les affaires du coeur (affairs of the heart) have been known to drive men to “madness.”

He explains that very deep-level emotions are involved from even the early stages of love such as infatuation right to the latter stages of mantaining a functional relationship.

“How angry are you when you are hitting on a girl you have just met, and someone else is doing the same? (Love) evokes and stimulates the very basic and deep-rooted issues in people.

“These emotions lead to aggressive behaviour that can lead people to harming others or themselves,” he says.
This is probably why people act uncharacteristically when love is the core issue at stake. As they say, “love makes the world go round” or on the opposite end “love hurts.”

Jambunathan points out that while suicide seems to be an extreme option, others regularly indulge in self-destructive behaviour because of failures in their relationships. The “broken-hearted” might turn to alcohol to try and forget their relationship or sleep around to make themselves feel better, he adds.

Julia*, 30, remembers when she drove to see her then boyfriend after they had a fight over the phone. She was at a party and had been drinking a lot.

In any other circumstance, she wouldn’t have driven but at that moment she really had to see her boyfriend.

“I had many near misses on the road. I almost drove off a bridge but in the end I arrived at my destination. It was a very stupid thing to do,” she recalls.

She says that while career and financial issues are important, they are not as important as her romantic relationships.

Nazmi Johan*, 35, says that even tough-looking males can be “over-sensitive” when their relationships fail.

“It’s quite funny to see a grown man cry because of a girl but it happens,” he says.

“Love is the biggest seller. In almost every movie, there is always some sort of love element. People always believe that there is someone out there made for them and they will live happily ever after,” he muses.

Gregory Tan* who has been “dumped” a couple of times admits that he felt lost and turned to alcohol when his heart was broken.

“When that “one” person rejects you, it’s as if the whole world is rejecting you,” says Tan.

These days, he tries to be more philosophical about things. “I try to take an ‘everything happens for a reason’ attitude. When I fail at a relationship, I would say to myself that I would find someone more compatible,” he says.

Jacques believes love, not relationships, is a big reason why people consider suicide. In Alviss’s case, she believes that the root problem was that he did not feel loved.

“Even though his family love him dearly, he had a deep belief that no one loved him and so he was not lovable. So, any external sign of rejection or break up can trigger bad feelings,” she says.

Reviving the West

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Comment by GORDON BROWN

In 2008, at a time of financial peril, the world united to restructure the global banking system.

In 2009, as trade collapsed and unemployment rose dramatically, the world came together for the first time in the G-20 to prevent a great recession from spiralling into a great depression.

Now, facing a low-growth austerity decade with no national exits from long-term unemployment and diminished living standards, the world needs to come together in the first half of 2011 to agree on a financial and economic strategy for prosperity far bolder than the Marshall Plan of the 1940s.

Time is running out on the West, because both Europe and America have yet to digest the fact that all the individual crises of the last few years from the sub-prime crisis and the collapse of Lehman Brothers to Greek austerity and Irelands near-bankruptcy are symptoms of a deeper problem: a world undergoing a far-reaching, irreversible, and, indeed, unprecedented restructuring of economic power.

Of course, we all know of Asias rise, and that China exports more than America and will soon manufacture and invest more as well. But we have not fully come to terms with the sweep of history. Western economic dominance 10% of the worlds population producing a majority of the worlds exports and investment is finished, never to return. After two centuries in which Europe and America monopolised global economic activity, the West is now being out-produced, out-manufactured, out-traded, and out-invested by the rest of the world.

Otto von Bismarck once described the patterns of world history. Transformations do not happen with the even speed of a railway train, he said. Once in motion they occur with irresistible force. If the West fails to understand that the real issue today is responding to the rise of Asian economic power by renewing its own, then it faces the grim prospect of steady decline, punctuated by brief moments of recovery until the next financial crisis. Throughout it all, millions will be without jobs.

So why, despite this new reality, am I convinced that the 21st century can be one in which the United States, by reinventing the American dream for a new generation, remains a magnet for the greatest companies, and in which Europe can be home to a high-employment economy'

Because, fortunately for all of us, soon one billion and more new Asian producers will first in their tens of millions, then in their hundreds of millions become new middle-class consumers, too.

The growth of an Asian consumer revolution offers America a road to new greatness. Today Chinese consumer spending is just 3% of world economic activity, in contrast to Europe and Americas 36% share. Those two figures illustrate why the world economy is currently so unbalanced.

By 2020 or so, Asia and the emerging-market countries will bring double Americas consumer power to the world economy. Already, companies like GE, Intel, Proctor & Gamble, and Dow Jones have announced that the majority of their growth will come from Asia. Already, many Korean, Indian, and Asian multinationals have majority foreign (including US) shareholdings. This new driver of world economic growth opens up an opportunity for America to exploit its great innovative and entrepreneurial energy to create new, high-skilled jobs for US workers.

Asian consumer growth and a rebalancing of the global economy can be the exit strategy from our economic crisis. But the West will benefit only if it takes the right long-term decisions on the biggest economic questions what to do about deficits, financial institutions, trade wars, and global cooperation'



First, deficit reduction must occur in a way that expands investment in science, technology, innovation, and education. Both public and private investment will be needed in order to deliver the best science and education in the world.

Second, new markets cannot be tapped if the West succumbs to protectionism. Banning cross-border takeovers, restricting trade, and living with currency wars will hurt the United States more than any other country. In the last century, Americas own domestic market was so big and dominant that it need not worry much about trade rules. But, with Asia poised to be the biggest consumer market in history, US exporters the greatest potential beneficiaries will need open trade more than ever. America must become the champion of a new global trade deal.

A commitment to public investment and open trade are, however, necessary but insufficient conditions for sustained prosperity. All the global opportunities of the new decade could fade if countries withdraw into their own national shells.

In another age, Winston Churchill warned a world facing the gravest of challenges not to be resolved to be irresolute, adamant for drift, solid for fluidity, and all powerful for impotence. I believe that the world today does have leaders of Churchills stature. If they work together, drift need not happen.

America must now lead and ask the world to agree on a modern Marshall Plan that coordinates trade and macroeconomic policies to boost global growth. America should work with the new chair of the G-20, French President Nicolas Sarkozy, to revive private lending by creating global certainty about the standards and rules expected of banks.

Agreement is also needed that each countrys multi-year deficit-reduction plan will be accompanied by acceleration of consumer spending in the East and of targeted investment in education and innovation in the West. Such a plan must encourage China and Asia to do what is in their and the worlds interest: reducing poverty and expanding the middle class. And the West must speed up structural reforms to become more competitive while ensuring that fiscal consolidation does not destroy growth.

Through joint action, the G-20 economies can see not just a marginal change, but growth above 5% by 2014. Instead of a world deadlocked over currencies and trade and retreating into the illusory shelter of protectionism, we could see US$3 trillion of growth converted into 25 million to 30 million new jobs, and 40 million or more people freed from poverty.

Project Syndicate
> Gordon Brown is a former British prime minister.

Is Islamic finance the new challenge to Wall Street?

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THINK ASIAN BY ANDREW SHENG

I WAS in Kuala Lumpur in October attending the Global Islamic Finance Forum, organised by Bank Negara and the Malaysian International Islamic Finance Centre. The whole glitterati of the Islamic world was here, and coincidentally, the HSBC Asia Board also held its meeting, so it was also good time to catch up with all the Hong Kong good and great, including the incoming taipans at the bank.

In the 1990s, Islamic finance was a fledgling fringe industry. But today, its size has grown from roughly US$150bil to about US$1 trillion in size. This is, of course, still small relative to some of the largest global fund managers and universal banks, who manage more than US$1 trillion each. But the double-digit growth and potential size of the market cannot be ignored. Some pundits think that the market size will reach US$2 trillion within the next five years.

There are roughly 1.3 billion Muslims in the world, with 138 million in India and roughly 30 million in China. These are growing markets in terms of income and wealth. As the Muslim community seeks to invest in interest-free banking, Islamic funds have been growing in leaps and bounds. Today, there are roughly US$800bil in Islamic banking funds, US$100bil in the sukuk (or Islamic bond) market and another US$100bil in takaful (Islamic insurance) and fund management business. Hong Kong, of course, introduced the Hang Seng Syariah Compliant China Index Fund in 2008 to attract Muslim investors.

As oil prices continue to remain at high levels, the Middle East oil-producers will continue to generate surpluses that must be parked somewhere. With the Western markets and economies under pressure, some of that money has moved Eastwards.

Will Islamic finance be a serious challenge to traditional Wall Street finance' That is a question that deserves a good answer.

First of all, thanks to the good work of Bank Negara and the Gulf central banks, the infrastructure for Islamic finance has been laid, with the establishment of the Accounting and Auditing Organization for Islamic Financial Institutions or Aoffi, the Islamic accounting standards authority, the Islamic Financial Services Board or IFSB, the international Islamic financial regulatory standard-setting organisation and the Institute for Education in Islamic Finance or Inceif. The International Shariah Research Academy for Islamic Finance or Isra also provides an invaluable website that is increasingly the transparent source for syariah interpretations on what is considered acceptable under Islamic law.

For people unfamiliar with Islamic finance, the basic principle of Islamic banking is the sharing of profit and loss and the prohibition of usury. Simply put, interest is prohibited, but profit sharing is not. A cynic can say that with zero-interest rate policies adopted by advanced country central banks today, they are also practicing Islamic banking.

The distinctive elements of Islamic finance are its ethical element (the prohibition of usury and exploitation of the borrower), the preference for trading in real assets (rather than synthetic products), partnership between the investor and investee and its governance structure (requiring a syariah council).

The point to remember in Islamic finance is that there is no Islamic global reserve currency. Although Islamic banks are growing rapidly, there is no assurance that they are not subject to the problems of non-performing loans and bank runs that are endemic in commercial banking.

What has been most innovative was the launching this week of an International Islamic Liquidity Management Corp (IILM) aimed to assist institutions offering Islamic financial services in addressing their liquidity management in an efficient and effective manner. This institution addresses one of the fundamental problems of Islamic financial institutions the provision of adequate liquidity in times of stress. Once there is an international lender of last resort facility (to supplement and not to replace national facilities), there would be better confidence in the liquidity of the Islamic financial services industry.

The IILM is expected to issue high quality syariah-compliant financial instruments at both the national level and across borders to enhance the soundness and stability of the Islamic financial markets.

The signatories of the IILM Articles of Agreement are the eleven central banks or monetary agencies of Indonesia, Iran, Luxembourg, Malaysia, Mauritius, Nigeria, Qatar, Saudi Arabia, Sudan, Turkey and the United Arab Emirates. The Islamic Development Bank and the Islamic Corp for the Development of the Private Sector are the multilateral organisations participating in the initiative.

Islamic finance has come a long way, but there is still a long way to go, since US$1 trillion is still small relative to US$232 trillion in conventional financial assets (excluding derivatives).

The real test with any challenger to Wall Street finance is whether Islamic finance will be more efficient, more ethical and more stable. Islamic finance fulfills the needs of the Islamic customer. Ethics aside, there are two crucial problems in finance information asymmetry and the principal-agent problem. Because markets are not completely transparent and information is unequal among market participants, we tend to rely on trusted agents, such as banks, to act on our behalf. Financial institutions are fiduciary agents on behalf of the principals, the real sector savers and borrowers.

What this Wall Street crisis has demonstrated is that complex financial engineering enabled very smart bankers to make profits at the expense of the public purse, because they have become larger (five times greater than GDP). When they fail, the public bears the losses because they are too large and too powerful to fail. This is not the level playing field that is a pre-condition of free markets.

The real question is that under information asymmetry, how do the principals know that the risks of the agents (the banks) have shifted to principals through moral hazard' Islamic finance faces exactly the same dilemma.
If Islamic finance theoreticians can solve this problem, they would be doing a great service to the rest of the world. Then we would truly have an alternative to Wall Street.

● Tan Sri Andrew Sheng is adjunct professor at Universiti Malaya, Kuala Lumpur, and Tsinghua University, Beijing. He has served in key positions at Bank Negara, the Hong Kong Monetary Authority and the Hong Kong Securities and Futures Commission, and is currently a member of Malaysias National Economic Advisory Council.