Household savings growth ‘not promising’

This article first appeared in The Edge Financial Daily, on November 21, 2017.
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PUTRAJAYA: The growth of Malaysia’s household savings — the difference between disposable income and consumption — is “not that promising”, said the statistics department.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin said household savings accounted for a meagre 0.9% or RM6 billion of the overall household income, which stood at RM638.8 billion in 2014.

This was based on data from the newly constructed Social Accounting Matrix (SAM), the public release of which was launched by Mohd Uzir yesterday.

The UK-trained statistician noted that the younger generation in Malaysia tend to spend money even before the income is earned, like buying cars and smartphones through credit.

“This is opposed to how the older generations managed their financials where they delay their consumption to make way for savings,” he said.

Mohd Uzir said the consumption of domestic commodities was the biggest contributor to the expenditure and spending pattern, accounting for 83.3% or RM532.2 billion in 2014. “There is no comparable figure now for all the data [is] shown in the SAM, as this is the first time we are releasing this info to the public,” he said.

Mohd Uzir’s observation is in line with earlier findings by Khazanah Research Institute (KRI) in its State of Households II report released in 2016. KRI noted that Malaysia has one of the lowest savings rates in the world, at 1.4% of adjusted disposable income in 2013. Malaysia’s household savings rate was averaging at 1.6% between 2006 and 2013, it said.

Mohd Uzir said total household income distribution stood at RM638.8 billion in 2014, with 72.3% or RM461.6 billion coming from compensation of employees (remuneration) and unincorporated business profits.

Of RM365.3 billion compensation, 81% or RM295.9 billion was channelled to households in urban areas, and 19% or RM69.4 billion to households in rural areas. Overall, 96.4% or RM365.3 billion was paid to Malaysian citizens, and only 3.6% to foreign workers.

Mohd Uzir said the compensation for the country’s top income group was RM92.5 billion, followed by the middle-income group at RM155 billion and the bottom-income group at RM117.8 billion.

Segregating the income distribution by gender, Mohd Uzir said the “males remained as the dominant employees in most of the economic activities with higher involvement particularly in the agriculture, construction, mining and quarrying, and manufacturing sectors.

“However, the ratio of female workers continued to stay elevated and higher than their male counterparts, particularly in sectors such as education and health,” he said.

According to the SAM, 65.1% of the total compensation of employees in 2014 went to male workers and 34.9% to female workers.

Mohd Uzir said the Malaysian workforce comprised 7.09 million males and 4.66 million females in 2014. He said male employees earned an average monthly salary of RM2,232, while for female employees it was RM2,125.

Pioneered by the World Bank since the early 1960s, the SAM is a comprehensive economic snapshot attempting to model the income distribution flow for households, and spending pattern for institutions.

Mohd Uzir said the government has produced eight SAM since 1970, but the circulation of the previous seven publications was limited. “It takes at least one year to develop the SAM, as the data needs to be collated from various sources, chief of which is the household income survey and household expenditure survey,” he said.

Mohd Uzir said the statistics department is expected to release the next SAM in 2019, which will depict the country’s economic flow and would paint a better household picture.