Layering household financial security

KUCHING: Six in 10 Malaysians struggle to raise RM1,000 for an emergency, while only 37 per cent could sustain their living expenses for more than three months if they suddenly lost their income.

Universiti Putra Malaysia Professor of Personal Financial Planning Prof Dr Mohamad Fazli Sabri and Universiti Malaya Faculty of Business and Economics Senior Lecturer Dr Amirah Shazana Magli said the figures from Bank Negara Malaysia’s 2024 survey highlighted the gap between household wealth and the ability to withstand immediate financial shocks.

Mohamad Fazli, who is also Malaysian Consumer and Family Economics Association (MACFEA) president, and Amirah, a MACFEA executive committee member, described the ability to raise RM1,000 in an emergency as the “RM1,000 Test of Financial Resilience”.

They contrasted this with Malaysia’s RM650,000 benchmark for adequate retirement savings at age 60.

“The distance between RM1,000 and RM650,000 tells us something important about the state of household finance in Malaysia.

“We are asking people to prepare for financial security 20 or 30 years from now when many are still struggling to build a financial buffer for the next unexpected expense,” they said.

They said Malaysia’s household balance sheet remained relatively sound, with household financial assets expanding at an annualised pace of 6.2 per cent as at end-December 2025.

EPF savings and deposits accounted for 68 per cent of household financial assets, while total household financial assets stood at 2.1 times household debt.

However, they said national financial stability did not necessarily translate into resilience at household level.

A family could own a house, accumulate EPF savings and hold investments, but still have limited access to cash when an unexpected expense arose.

“When a car broke down, a parent required urgent medical care, working hours were reduced or employment was suddenly lost, what mattered was whether money could be accessed quickly,” they said.

They described this as the critical distinction between wealth and liquidity.

While retirement savings protected future needs and investments built long-term wealth, emergency savings served a different purpose.

“Emergency savings perform a different function. They buy households time when life does not go according to plan,” they said.

Longer-term savings also remained a challenge.

At the end of 2025, only 28.2 per cent of active Malaysian formal-sector EPF members had achieved the Adequate Savings benchmark applicable to their age.

Among members aged 56 to 60, the proportion was only 13.3 per cent, while median savings among active Malaysian EPF members stood at RM35,000.

They said households therefore faced challenges at both ends of the financial journey, needing liquidity for immediate emergencies while accumulating sufficient wealth for retirement.

However, they cautioned against attributing inadequate savings simply to poor financial discipline.

Citing the Department of Statistics Malaysia, they said households spent an average of 74.5 per cent of disposable income on consumption in 2024.

Between 2022 and 2024, household disposable income grew by 3.2 per cent, while consumption expenditure rose faster at 3.9 per cent.

Housing, food, transport, utilities, childcare and debt commitments could absorb much of monthly household income, they said.

“Under those circumstances, simply telling families to save more is unlikely to be enough,” they said.

They said financial behaviour still mattered, with research linking financial knowledge, behaviour, debt, income vulnerability and financial stress to financial well-being.

“However, knowing what to do did not necessarily mean having the financial capacity to do it,” they said.

They proposed shifting Malaysia’s financial education agenda from financial literacy towards financial resilience.

“Financial literacy asks whether people know how to manage their money. Financial resilience asks a harder question: Can they withstand a financial shock when it actually happens?” they said.

One approach was a Three-Layer Savings Architecture comprising Emergency, Protection and Future.

The Emergency layer would consist of accessible, liquid savings to absorb unexpected expenses and temporary income disruptions.

Protection would involve appropriate insurance or takaful coverage and manageable debt so that a major illness, accident or other financial shock did not wipe out household savings.

Future would cover retirement savings and investments for longer-term needs.

“These layers are complementary. A household should not have to sacrifice tomorrow to survive today,” they said.

They noted that Malaysia’s National Strategy for Financial Literacy 2026-2030 already recognised precautionary savings and protection against financial shocks as important components of financial resilience.

The strategy aims to reduce the proportion of Malaysians struggling to raise RM1,000 for an emergency from 61 per cent to no more than 45 per cent by 2030.

They proposed going further by making the RM1,000 Test a national indicator of household financial resilience.

Malaysia could regularly measure how many households could meet an unexpected RM1,000 expense without borrowing, selling long-term investments or tapping retirement savings, they said.

Employers and financial institutions could also introduce voluntary automatic emergency-saving arrangements, with small amounts transferred into separate liquid accounts immediately after payday.

Digital financial tools could similarly make saving before spending easier.

They said financial education programmes should be assessed not only by what participants knew, but by whether their behaviour, financial buffers and resilience improved.

“RM650,000 is an important benchmark for the Malaysia we hope to live in when we retire. But RM1,000 tells us something equally important about the Malaysia households are living in today,” they said.

A financially resilient nation, they said, was not merely one where people accumulated assets, but one where an unexpected bill or temporary loss of income did not immediately push families towards debt.

“Passing the RM1,000 Test should become one of the clearest measures of whether Malaysia is progressing from financial literacy towards financial resilience,” they said.