FEM 3204 : 3 (2+1)FEM 3204 : 3 (2+1)Perancangan Kewangan Dalam Perancangan Kewangan Dalam

Pasaran GlobalPasaran GlobalFinancial Planning in a Global Financial Planning in a Global

MarketMarketHUSNIYAH BT. ABD. RAHIMHUSNIYAH BT. ABD. RAHIM

BILIK A2-14BILIK A2-14Jabatan Pengurusan Sumber & Pengajian Jabatan Pengurusan Sumber & Pengajian

PenggunaPenggunaFakulti Ekologi ManusiaFakulti Ekologi Manusia

Chapter 10 Chapter 10 Issues & Challenges of Issues & Challenges of Financial Planning in Financial Planning in

the Global Market the Global Market ContextContext

Poverty & Consumption GapPoverty & Consumption Gap

Poverty : Poverty : Absolute approach - a certain minimal living Absolute approach - a certain minimal living

standard (in terms of nutrition levels, clothing, standard (in terms of nutrition levels, clothing, etc.) is specified, & the income required to etc.) is specified, & the income required to support it is calculated. support it is calculated.

Relative approach - poverty is interpreted in Relative approach - poverty is interpreted in relation to the prevailing living standards of relation to the prevailing living standards of the society, with the interdependence between the society, with the interdependence between the poverty the poverty line & distribution of income.

The integration of both approach would result in better understanding of poverty

Poverty & Consumption GapPoverty & Consumption Gap

Consumption gapConsumption gap Depending on the background of the family, Depending on the background of the family,

such as style of living, number of dependents, such as style of living, number of dependents, life-cycle of family members, etc., a certain life-cycle of family members, etc., a certain amount of income would be sufficient for a amount of income would be sufficient for a family to meet their needs but not for othersfamily to meet their needs but not for others

There arise consumption gap whereby some There arise consumption gap whereby some families consume less than other families due families consume less than other families due to financial constraints & high demand among to financial constraints & high demand among family members, even with the same family members, even with the same household incomehousehold income

Incidence of Poverty & No. Incidence of Poverty & No. of Poor Household (1977 of Poor Household (1977

Methodology)Methodology)Malaysian CitizenMalaysian Citizen 19971997 19991999

TotalTotal UrbanUrban RuralRural TotalTotal UrbaUrbann

RuraRurall

Incidence of Poverty Incidence of Poverty (%)(%)

6.16.1 2.12.1 10.910.9 7.57.5 3.43.4 12.412.4

No. of Poor No. of Poor Household Household (thousand)(thousand)

274.2274.2 52.452.4 221.8221.8 351.351.11

86.886.8 264.264.33

Incidence of Incidence of hardcore poverty hardcore poverty (%)(%)

1.41.4 0.40.4 2.52.5 1.41.4 0.50.5 2.42.4

No. of Hardcore-No. of Hardcore-Poor Household Poor Household (thousand)(thousand)

62.462.4 10.610.6 51.851.8 64.164.1 13.513.5 50.650.6

Total (thousand)Total (thousand) 4,488.14,488.1 2,449.82,449.8 2,038.32,038.3 4,681.4,681.55

2,548.02,548.0 2,133.2,133.55

POVERTY LINE INCOMEPOVERTY LINE INCOME(PLI or (PLI or PGKPGK))

0

100

200

300

400

500

600

700

1995 1997 1998 1999

SEM. M'SIASABAHSARAWAK

POVERTY LINE INCOME (PLI or POVERTY LINE INCOME (PLI or PGKPGK))

based on the minimum requirement of household for based on the minimum requirement of household for 3 major components 3 major components

- - food, clothing & footwear, non-food itemsfood, clothing & footwear, non-food items i.e i.e rent, fuel, power; furniture & h/hold equipment; rent, fuel, power; furniture & h/hold equipment; medical care & health expenses; transport & medical care & health expenses; transport & communication, & recreation, education & cultural communication, & recreation, education & cultural services.services.

Food component –minimum expenditure based on Food component –minimum expenditure based on daily requirement 9.91 kcal for a family with 5 daily requirement 9.91 kcal for a family with 5 persons persons

Clothing & footwear – standard sets by Dep. Of Clothing & footwear – standard sets by Dep. Of Social Welfare for welfare homesSocial Welfare for welfare homes

Other non-food items – based on the level of Other non-food items – based on the level of expenditure of the lower income h/hold, as reported expenditure of the lower income h/hold, as reported to the H/hold Expenditure Surveyto the H/hold Expenditure Survey

Adjusted based on h/hold size of 4.6 in Pen. M’sia, Adjusted based on h/hold size of 4.6 in Pen. M’sia, 4.9 in Sabah & 4.8 in Sarawak 4.9 in Sabah & 4.8 in Sarawak

MALAYSIA’S POVERTY LINE INCOME The Poverty Line Income (PLI) was revised in 2005. The PLI is made up of two components, - food PLI and

the non-food PLI. The PLI is defined separately for each household in

the household income survey (HIS) based on its size, demographic composition and its location (state and stratum).

A household is considered poor if its income is less than its own PLI, that is, it lacks the resources to meet the basic needs of its individual members.

A household is considered hardcore poor if its monthly household income is less than the food PLI.

As food requirement is based on a nutritionally adequate diet, the hardcore poverty threshold income is much higher than the old definition of half the PLI.

The Food PLI The food component of the revised PLI is based on

the advice of nutritionists, dieticians and medical professionals

Individual daily kilocalorie requirements are met through a balanced diet, which include: cereals and cereal products (uncooked rice, wheat flour); chicken, eggs and fish; milk; oil and fats; sugar; vegetables and fruits; and pulses (dhal, green peas).

The Non-Food PLI The expenditure pattern of non-food components of

the PLI are based on the actual expenditure of the bottom 20 per cent expenditure group derived from the household expenditure survey (HES).

Non-food components comprise clothing, housing, transport and other items.

FOOD PLI BASED ON 1977 AND 2005 METHODOLOGIES (RM)

Region 1977 Methodology

2005 Methodology

Peninsular Peninsular MalaysiaMalaysia

272272 398398

SabahSabah 352352 503503

SarawakSarawak 304304 482482

MalaysiaMalaysia 294294 415415

COMPARISON OF PLI FOR 2004(RM per month)

1977 Methodology - Overall M’sia 1977 Methodology - Overall M’sia RMRM588588

2005 Methodology – urban RM687, 2005 Methodology – urban RM687, rural RM698, overall M’sia RMrural RM698, overall M’sia RM691691

INCIDENCE OF POVERTY AND HARDCOREINCIDENCE OF POVERTY AND HARDCOREPOVERTY, 1999 AND 2004 (2005 POVERTY, 1999 AND 2004 (2005

Methodology)Methodology)

Malaysian CitizenMalaysian Citizen 19991999 20042004

TotalTotal UrbanUrban RuralRural TotalTotal UrbaUrbann

RuralRural

Incidence of Incidence of hardcore poverty hardcore poverty (%)(%)

1.91.9 0.50.5 3.63.6 1.21.2 0.40.4 2.92.9

No. of Hardcore-No. of Hardcore-Poor Household Poor Household (thousand)(thousand)

91.791.7 11.911.9 79.879.8 67.367.3 14.114.1 53.253.2

Incidence of poverty Incidence of poverty (%)(%)

8.58.5 3.33.3 14.814.8 5.75.7 2.52.5 11.911.9

No. of Poor No. of Poor Household Household (thousand)(thousand)

409.3409.3 86.186.1 323.2323.2 311.3311.3 91.691.6 219.7219.7

Total (thousand)Total (thousand) 4,800.4,800.00

2,612.2,612.55

2,187.2,187.55

5,459.5,459.44

3,605.3,605.99

1,853.51,853.5

Various Sources of IncomeVarious Sources of Income IncomeIncome

Defined as money that is received as a Defined as money that is received as a result of normal business activities of an result of normal business activities of an individual or a businessindividual or a business

IncomeIncome Is subjected to income taxIs subjected to income tax Deduction made to Internal Revenue Deduction made to Internal Revenue

Board (IRB) of Malaysia, Income Tax Board (IRB) of Malaysia, Income Tax Act 1967; mandatory deductionAct 1967; mandatory deduction

Amount of deduction through Scheduled Amount of deduction through Scheduled Tax Deduction (Potongan Cukai Tax Deduction (Potongan Cukai Berjadual (PCB)) depends on the salary Berjadual (PCB)) depends on the salary

Various Sources of IncomeVarious Sources of Income Fulltime & part-time employmentFulltime & part-time employment Interests or dividend, bonusInterests or dividend, bonus Asset/rents/royaltiesAsset/rents/royalties Business profit/gainsBusiness profit/gains Child support or alimonyChild support or alimony ScholarshipScholarship Earning from employed family membersEarning from employed family members Unemployment compensation (VSS scheme)Unemployment compensation (VSS scheme) Tips or commissionTips or commission Employee provident fund (EPF or other similar Employee provident fund (EPF or other similar

fund)fund) Pension scheme/annuities, gratuities, golden Pension scheme/annuities, gratuities, golden

hand-shakehand-shake Public assistance –welfare, zakatPublic assistance –welfare, zakat

Various Sources of IncomeVarious Sources of Income EmploymentEmployment

Earned income from employerEarned income from employer Fixed income & regular income, reliable incomeFixed income & regular income, reliable income May have certain scheme of salary scale, increment May have certain scheme of salary scale, increment

in salary, money allowances for certain jobin salary, money allowances for certain job Bonus for good job performanceBonus for good job performance

Self-employmentSelf-employment Earned income from his/her effortEarned income from his/her effort Irregular income, maybe unreliable income Irregular income, maybe unreliable income

depending on their own effortdepending on their own effort No scheme of salary scale, no guaranteed increment No scheme of salary scale, no guaranteed increment

in salary, no money allowances for certain jobin salary, no money allowances for certain job No bonus for good job performance but may result in No bonus for good job performance but may result in

larger incomelarger income

Various Sources of IncomeVarious Sources of Income Own BusinessOwn Business

Have business that generate profit/incomeHave business that generate profit/income Profit depends on the business performance, own Profit depends on the business performance, own

effort to penetrate market & to sustain in the effort to penetrate market & to sustain in the marketmarket

InvestorInvestor Earn return from investment – short-sell (contra) Earn return from investment – short-sell (contra)

or long-term holdingor long-term holding May earn dividend from long-term holdings of May earn dividend from long-term holdings of

investment in big companiesinvestment in big companies Risky assets gives high return, more profit Risky assets gives high return, more profit

however risky investmenthowever risky investment

Various Sources of IncomeVarious Sources of Income

Various ways to generate income Various ways to generate income needs good mind-set, knowledge, needs good mind-set, knowledge, skills, academic achievement and skills, academic achievement and individual interest & natural giftindividual interest & natural gift

Different people have different Different people have different expectations, desire, and ambitionexpectations, desire, and ambition

Government Programme Government Programme

Hardcore householdHardcore household Development Programme for the Development Programme for the

Hardcore Poor (Hardcore Poor (PPRTPPRT)) Amanah Ikhtiar Malaysia (AIM) – Amanah Ikhtiar Malaysia (AIM) –

microcredits financing for the poor microcredits financing for the poor families; interest-free loanfamilies; interest-free loan

Household IncomeHousehold Income

Monthly Gross Household IncomeMonthly Gross Household Income

Income Class Income Class (RM)(RM)

1995 (%)1995 (%) 1999 (%)1999 (%)

Less than 499Less than 499 10.610.6 66

500 – 1499500 – 1499 43.843.8 37.837.8

1500-24991500-2499 2222 2424

2500-34992500-3499 10.310.3 1313

3500-49993500-4999 6.66.6 9.49.4

More than 5000More than 5000 6.76.7 9.89.8

Average IncomeAverage Income 2,0202,020 2,4722,472

Median IncomeMedian Income 1,3771,377 1,7041,704

Average Monthly Gross Average Monthly Gross Household IncomeHousehold Income

Ethnic GroupEthnic Group 19951995 19991999 Average Average Annual Annual

Growth Rate Growth Rate (%)(%)

BumiputeraBumiputera 1,6041,604 1,9841,984 5.55.5

ChineseChinese 2,8902,890 3,4563,456 4.64.6

IndianIndian 2,1402,140 2,7022,702 6.06.0

OthersOthers 1,2841,284 1,3711,371 1.71.7

MalaysiaMalaysia 2,0202,020 2,4722,472 5.25.2

UrbanUrban 2,5892,589 3,1033,103 4.64.6

RuralRural 1,3261,326 1,7181,718 6.76.7

Mean Household Income By Job Mean Household Income By Job CategoryCategory

SektorSektor Mean Mean House-House-

Hold Income Hold Income ByBy

Job Category (RM)Job Category (RM)

19961996 Julai 1997-Julai 1997-Dec 1999Dec 1999

Jan. 2000-Jan. 2000-

AgricultureAgriculture 1,020.61,020.6 983 (-3.7%)983 (-3.7%) 1,102 (+12.1%)1,102 (+12.1%)

IndustryIndustry 1,284.11,284.1 1,276 (-1,276 (-

0.6%)0.6%)

1,463 (+14.7%)1,463 (+14.7%)

ConstructioConstructio

nn1,501.41,501.4 1,424 (-1,424 (-

5.1%)5.1%)

1,655 (+16.2%)1,655 (+16.2%)

WholesaleWholesale 1,420.91,420.9 1,348 (-1,348 (-

5.1%)5.1%)

1,6223 1,6223

(+20.4%)(+20.4%)

FinancialFinancial 1,751.11,751.1 1,634 (-1,634 (-

6.7%)6.7%)

1,775 (+8.6%)1,775 (+8.6%)

PersonalPersonal 1,384.41,384.4 1,389 1,389

(+0.3%)(+0.3%)

1,638.2 1,638.2

(+17.9%)(+17.9%)

InformalInformal 1,750.71,750.7 1,598 (-1,598 (-

8.7%)8.7%)

1,962 (+2.7%)1,962 (+2.7%)

GovernmenGovernmen

tt1,426.31,426.3 1,457 1,457

(+2.2%)(+2.2%)

1,723 (+18.3%)1,723 (+18.3%)

OthersOthers 1,229.71,229.7 1,321 1,321

(+7.4%)(+7.4%)

1,308 (-1.0%)1,308 (-1.0%)

Fulfilling NeedsFulfilling Needs Money are needed forMoney are needed for TransportationTransportation FoodFood ClothingClothing EducationEducation HealthHealth InsuranceInsurance InvestmentInvestment RetirementRetirement TaxTax Personal loanPersonal loan Credit cardCredit card Life-styleLife-style

Unmet NeedsUnmet Needs

Sources :Sources : Income protectionIncome protection Children’s education fundChildren’s education fund Critical sickness protectionCritical sickness protection Emergency fundEmergency fund

Unmet NeedsUnmet Needs Income protectionIncome protection

Through insurance – annuity schemeThrough insurance – annuity scheme Employer – private annuity schemeEmployer – private annuity scheme Pension for government servantPension for government servant

Children’s education fundChildren’s education fund Through education plan by insurance Through education plan by insurance

companycompany Through education plan by commercial Through education plan by commercial

bankbank

Unmet NeedsUnmet Needs

Critical sickness protectionCritical sickness protection through health insurance, life-insurance through health insurance, life-insurance

Emergency fundEmergency fund Through savings in high liquidity Through savings in high liquidity

accounts, eg savings account, current accounts, eg savings account, current accounts, unit-trust , cooperation accounts, unit-trust , cooperation account (savings) account (savings)

Cost of LivingCost of Living

Defined asDefined as Monetary cost of maintaining a particular Monetary cost of maintaining a particular

standard of living, usually measured by standard of living, usually measured by calculating the average cost of a number of calculating the average cost of a number of specific goods and services required by a specific goods and services required by a particular group. particular group.

The goods and services used as indexes may be The goods and services used as indexes may be the minimum necessary to preserve health or may the minimum necessary to preserve health or may be what is considered average for a given income be what is considered average for a given income group, depending on the purposes of the indexgroup, depending on the purposes of the index

Cost of LivingCost of LivingThe costs are used for getting available the The costs are used for getting available the

basic needs for livingbasic needs for living Food – cook/buyFood – cook/buy Clothing – readymade, made it yourselfClothing – readymade, made it yourself Utility bills & taxes related to housing Utility bills & taxes related to housing

(land tax, tax for homes) – Telekom, (land tax, tax for homes) – Telekom, Syabas, Municipal CouncilSyabas, Municipal Council

Housing – rent, own a houseHousing – rent, own a house School expenses – public, private schoolSchool expenses – public, private school Transportation – own a car, use public Transportation – own a car, use public

transporttransport Medical – paid by employer, pay yourself Medical – paid by employer, pay yourself

Cost of LivingCost of LivingTo cover cost of living To cover cost of living High portion of income for low income group High portion of income for low income group

– basic needs just satisfy, minimum quality – basic needs just satisfy, minimum quality of items, not much excess of incomeof items, not much excess of income

Moderate portion of income for average Moderate portion of income for average income group – basic needs satisfy with income group – basic needs satisfy with moderate quality of items, excess of income, moderate quality of items, excess of income, able to save & invest in small amountsable to save & invest in small amounts

Low portion of income for high income Low portion of income for high income group - quality items, luxury items, excess of group - quality items, luxury items, excess of income for savings & investments, able to income for savings & investments, able to save & invest in large amountssave & invest in large amounts

Cost of LivingCost of Living

Living expenses increased due to increases in oil prices, utilities and toll rates

Affected the costs of business, but the impact is moderate, based on consumer prices

There is incomplete info on the cost of living at the national level

Rough indications on living costs from the Department of Statistics’ Household Expenditure Survey, last conducted around mid-2004 to mid-2005

Cost of LivingCost of Living For urban family with average family of four in

2004/05 spent RM2,503 per month on various expenses

A similar-size family living in rural area spent RM1,290, almost half that of an urban family

These may vary depending on their lifestyles and priorities

For a household in the income range of RM2,000-RM2,999, the monthly spending bill was RM2,407 in 2004/05, which means that not much is left for savings

Cost of LivingCost of Living In 1998/99, monthly spending for an urban

family was RM2,057, and RM1,287 per month for the rural family

So, monthly spending in urban households rose by an average 3.3 per cent per year between 1999 and 2005

The increase is small, but the rise would be steeper in 2006 following the price increase in a number of essential items

Urban family had to cope with a larger rise in expenses, while the rural equal (same family condition) saw a smaller increase

Cost of LivingCost of Living Cost of living in Malaysia fallsCost of living in Malaysia falls Malaysia's consumer price index (CPI) recorded Malaysia's consumer price index (CPI) recorded

a decrease of 0.4 per cent in October compared a decrease of 0.4 per cent in October compared to the previous month (Department of Statistics to the previous month (Department of Statistics Malaysia, 2008) (2005 = 100; Nov 2007=106.8; Malaysia, 2008) (2005 = 100; Nov 2007=106.8; Oct 2008=114.2; Nov 2008=105.6; Jan-Nov Oct 2008=114.2; Nov 2008=105.6; Jan-Nov 2008=111.4)2008=111.4)

Contributing factors to the decline due to Contributing factors to the decline due to decrease indecrease in price of alcohol and tobacco (down 0.1 per price of alcohol and tobacco (down 0.1 per

cent)cent) cost of transport (down 3.6 per cent)cost of transport (down 3.6 per cent) non-durable goods (down 1.4 per cent)non-durable goods (down 1.4 per cent)

Cost of LivingCost of Living Inflation could fall to 7 per cent or lower, down from Inflation could fall to 7 per cent or lower, down from

7.6 percent in October 2008 based on CPI (Inflation 7.6 percent in October 2008 based on CPI (Inflation index 2000=100; 2005 =109)index 2000=100; 2005 =109)

Based on the downward trend of the prices of raw Based on the downward trend of the prices of raw materials and basic commodities, the expected materials and basic commodities, the expected downtrend is based on the fall in the prices of items downtrend is based on the fall in the prices of items such as flour and rice (Minister of Domestic Trade and such as flour and rice (Minister of Domestic Trade and Consumer Affairs, Datuk Shahrir Samad)Consumer Affairs, Datuk Shahrir Samad)

In January 2009, cost of fuel reduced to RM1.82 per In January 2009, cost of fuel reduced to RM1.82 per liter from the highest RM2.70 per liter in 2008 (In liter from the highest RM2.70 per liter in 2008 (In 2008, from RM 1.92 to RM2.70)2008, from RM 1.92 to RM2.70)

What’s the expected direction of inflation and cost of What’s the expected direction of inflation and cost of living?living?

Cost of LivingCost of Living

The cost of living in Malaysia is The cost of living in Malaysia is exceptionally low for an industrialized exceptionally low for an industrialized countrycountry

It was newly referred to as a newly It was newly referred to as a newly industrialized countryindustrialized country

Taxations are at a minimum, no inheritance Taxations are at a minimum, no inheritance tax and no capital gains on assetstax and no capital gains on assets

Commodities and housing are cheaper Commodities and housing are cheaper

Cost of LivingCost of LivingIssues : Who determine the cost of living?Issues : Who determine the cost of living? Business, consumer, governmentBusiness, consumer, government For the business part, increase price due to increase For the business part, increase price due to increase

in salary; consumer might not have full control but can in salary; consumer might not have full control but can play their roles in the demand sideplay their roles in the demand side

For the consumer part – you can controlFor the consumer part – you can control The reality is that the cost of living varies from one

household to another, depending on the spending priorities

Few choices to deal with higher living costs Tightening the budget and cutting down on

unnecessary items Moving to rural areas just because of lower living

costs or taking up a part-time job (not relevant to all)

Cost of LivingCost of Living Government subsidizes and control prices on a Government subsidizes and control prices on a

lot of essential items - to keep prices lowlot of essential items - to keep prices low Items such as palm oil, cooking oil, petrol, flour, Items such as palm oil, cooking oil, petrol, flour,

bread, rice and other essentials has been kept bread, rice and other essentials has been kept under market prices to keep cost of living lowunder market prices to keep cost of living low

In 2008, the government announced that it has In 2008, the government announced that it has spent RM40.1 billion in 2007 in subsidies to spent RM40.1 billion in 2007 in subsidies to keep prices leveledkeep prices leveled

Due to the subsidies, prominent problem arise - Due to the subsidies, prominent problem arise - smuggling and hoarding that led to shortagessmuggling and hoarding that led to shortages

Cost of LivingCost of Living

Urban areas – higher cost of living, due to Urban areas – higher cost of living, due to constraint of time may need partial constraint of time may need partial ready/readymade items ready/readymade items

Rural areas – lower cost of living, may be Rural areas – lower cost of living, may be able to prepare own food/items, available able to prepare own food/items, available raw materials for foodraw materials for food

May need dual-income family to cover May need dual-income family to cover high costs especially with large family high costs especially with large family size living in urban areas – metropolitan size living in urban areas – metropolitan city, citycity, city

Malaysia Inflation RateMalaysia Inflation Rate

YearYear Inflation Inflation RateRate

RankRank Percent Percent ChangeChange

Date of Date of InformationInformation

20032003 1.901.90 168168 2002 est2002 est

20042004 1.101.10 189189 -42.11%-42.11% 2003 est2003 est

20052005 1.301.30 3131 18.18%18.18% 2004 est2004 est

20062006 3.003.00 9090 130.77 %130.77 % 2005 est2005 est

20072007 3.80 3.80 111111 26.67 %26.67 % 2006 est. 2006 est.

20082008 2.10 2.10 4040 -44.74 %-44.74 % 2007 est2007 est

Cost of Living & Quality of Cost of Living & Quality of LifeLife

The cost of living would affect the quality The cost of living would affect the quality of life of individuals & families, in a of life of individuals & families, in a negative mannernegative manner

High cost of living may results in less High cost of living may results in less consumption, thus experiencing meeting consumption, thus experiencing meeting less needs, most probably leading to less needs, most probably leading to lower quality of lifelower quality of life

The Malaysia Quality of Life Index is The Malaysia Quality of Life Index is based on 10 components of lifebased on 10 components of life