This article first appeared in Wealth, The Edge Malaysia Weekly on June 27, 2022 - July 3, 2022
Ever since the pandemic hit us, the importance of keeping healthy has become the top priority for most people. Yet, the focus of health for many has always been on attaining or preserving physical and mental health. What about financial health? How does it fit into our daily life?
Financial health, while not neglected, in many instances may end up being misunderstood as only attainable if you have the time, knowledge and capital to invest. However, just as physical and mental health are important to our general well-being, so too is financial health. And unlike common misconceptions, there are readily available and extremely simple ways to start incorporating it as an essential part of our lifestyle.
Do you know that we have a simple, safe and sustainable avenue that is readily available, yet is perhaps the most underutilised as part of financial planning? One that has been providing yields double the rate of conventional annual fixed deposits for at least the last five years.
As the country’s human resources, all of us know about the Employees Provident Fund (EPF). But do we know everything there is to know about it to leverage it as part of our financial health management?
One of the things I recently learnt on the EPF website is that there is no minimum age requirement to register as a member. However, Act 350 — the Child and Young Persons (Employment) Act 1996 (Revised 1998) — has set 14 as the minimum age for employment. That may be the more plausible age to register one’s child or children as a member.
I did just that upon learning this by going to one of the EPF branches with my son. It took us barely 30 minutes to complete the whole application process. Now, as part of financial literacy education at an early age, he has the choice of making voluntary contributions of any amount from wages earned on a part-time basis via online banking to his EPF account, and benefit from the investment experts that he would otherwise not have access to!
This would mean that by the time he enters the permanent workforce — assumed at age 21 — even with the current minimum salary of RM1,500 a month and without any increment, he would have accumulated savings of about RM250,000 should the EPF continue to pay a 5% dividend each year and he make no withdrawals.
Yet, the minimum retirement amount of RM250,000 set by the EPF today may not be sufficient for one to retire comfortably three decades from now due to inflation. Hence, the earlier we start contributing, the better. I would strongly recommend parents to help their children begin this important lifelong journey of financial health with small, consistent monthly contributions to the EPF when the latter is able to grasp the concept and value of money, which is about when they attain minimum legal employment age.
Meanwhile, as part of my son’s journey on understanding the value of money and how it is not easy to earn each ringgit we spend, I have been making him work part-time during the school holidays to benefit from i-Saraan.
If you are not aware of it, i-Saraan allows registered EPF members who are self-employed and do not earn a regular income to make voluntary contributions towards their retirement and, at the same time, receive additional contributions from the government. Members of this incentive will receive a 15% government contribution — up to a maximum of RM250 per year — on top of their own contributions.
The i-Saraan incentive was made available in 2018 but, unfortunately, it is supposed to be discontinued soon. There are still a few months until the end of 2022, so it is still possible for those eligible to benefit from this.
However, the most unfortunate part regarding personal finances for most people is performing premature withdrawals just because it is permissible before age 50 or 55. This happens sometimes, mainly for the money to be used as a lifesaver or means of survival.
If we withdraw frequently from our intended retirement savings prematurely, not entirely out of need but purely because we are allowed to do so, what would be the impact? If a person’s salary is RM4,000 a month, based on current statutory contributions, it will take another 10 months for the person to replenish a withdrawal of RM10,000. How long is 10 months? It equates to about the time that a child is conceived and born.
Granted that the window to make special withdrawals has closed, but we are unsure if there will be another. If there is, careful considerations balancing need and desire must be taken.
Retirement savings are meant to be untouched until we are unable to generate income on a steady basis. As we do our best to preserve our physical and mental health, the same must also be done for our financial health.
Kristine Ng is the co-founder and ex-CEO of licensed peer-to-peer financing platform Fundaztic and a former banker
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