Breaking Common Assumptions

This paper was first published in the book “Empowering Communities For Sustainable Financial Well-Being in Malaysia“, published by UM Press.

Motivations and Drivers Behind Savings Behaviour and Their Impact on Financial Resilience: Breaking Common Assumptions, explores complex factors influencing savings behavior and financial resilience in Malaysia. Through a combination of quantitative surveys and qualitative interviews, the study challenges long-standing assumptions that savings habits are solely tied to income levels. It brings to light the role of perceived financial status, discretionary income, and psychological factors such as the scarcity mindset in shaping financial decisions. Factors such as the impact of digitalization, lifecycle changes, and social norms on saving behaviors are examined as well. Lastly, the paper highlights critical insights on diverse savings patterns across income groups, where these findings underscore the need for targeted financial education and policy interventions in order to build greater financial resilience across demographics.

This paper examines the issues of savings behaviour and financial resilience of individuals and households in Malaysia, particularly in the context of the economic rebound following the pandemic. Despite Malaysia’s strong post-pandemic economic recovery and moderating headline inflation, individuals and households still face many barriers and challenges to financial inclusion. Inflationary pressures and higher interest rates compounded by sticky and structurally low wages, as well as the changes in consumption behaviour have all contributed to lower savings rates. Bank Negara Malaysia (BNM) highlighted that the Covid-19 pandemic had caused economic disruptions, and that Malaysians could run out of savings by the age of 58 due to high debt and premature withdrawals from retirement funds during the pandemic.

Even before the pandemic, savings rates were already a concern, with a significant proportion of working adults having no savings. The issue has not improved, as evidenced by a Malaysian Financial Literacy Survey, showing that 53% of respondents lack enough rainy-day savings to survive for three months without income. The paper argues that Malaysians are unable to cope with financial emergencies, leading to low financial resilience across all income brackets.

This study aims to shed some light on savings behaviour in Malaysia and identify factors beyond objective measures such as household income and financial awareness, that could promote savings. Factors such as perception of financial status, discretionary income, scarcity mindset, digitalization, motivational factors, mental accounting, and risk appetite, which are more subjective measures, are also found to influence savings behaviour and financial resilience.

The paper calls for a change in perspective regarding savings behaviour and emphasizes the importance of applying behavioural insights to bridge policy gaps. It proposes a multi-stakeholder approach involving policymakers, industry, academia, and households to address the structural issue of low savings rates and improve financial resilience in Malaysia. Collective responsibility is crucial in achieving lasting improvements in savings behaviour and strengthening the country’s overall economic stability.

Click below to see ICMR’s full paper, or to purchase the physical book published by UM Press.