Why is the savings rate in Malaysia on the decline?

The last generation was more disciplined about savings – no matter how little or how much they earned. And they made it a point to instil the savings habit in their children.

However, it seems that these days, Malaysians in general tend to save less.

An article in the theedgemarkets.com touched on this very issue, reporting that the pace of growth of individual savings had weakened in 2017 compared to previous years.

Sunway University Business School professor of economics Dr Yeah Kim Leng said the rising household debt-to-gross domestic product ratio was a contributing factor to declining savings.

He said, “When household debt goes up, you can expect savings and fixed deposit balances to decline as there would be less income available for savings, and [monthly income] would instead go towards financing assets that include property investments.”

Socioeconomic Research Centre executive director Lee Heng Guie said the weaker growth rate of savings could be the result of many having to repay debts using their savings.

Lee said a pick-up in savings was seen from 2011-2012, likely due to the normalisation of the overnight policy rate.

He said, “After the 2008 global financial crisis, the central bank slashed the interest rate, and this started to normalise from 2010 onwards. So the role of interest rates is an important factor here especially for pensioners when deciding where to put their money.”

UOB Malaysia senior economist Julia Goh also said the growth rate of household savings was on the decline.

“The compound annual growth rate (CAGR) of household savings declined from a growth rate of 7% in the periods of 2000 to 2005 and 2006 to 2010, to 6% in 2011 to 2016,” she said in an article in theedgemarkets.com.

It’s true that it’s hard to save more, these days. Let’s talk about those who actually could save IF ONLY they did not buy that new handbag, that new handphone or take those weekly trips to the cafe for a RM15 latte.

Actually, what the stats continue to tell us is that the disparity in income will likely become wider everywhere in the world. Earlier article here.

Those who can somehow save and use their savings to invest to earn higher returns will likely be better off many years in the future compared to those who do not save at all.

Whether it’s an investment into equity for good returns at low management fee (click here) or buying a property and letting it increase in price slowly, all these will help even as the savings rate continues to decline.

Better understand it and start early. Starting LATER will come sooner than we think.

This article first appeared in kopiandproperty.com

Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.