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ImportanceofFinancialLiteracyAmongYouthsinKlangValley1.docxRunning head: FINANCIAL LITERACY AMONG YOUTHS IN KLANG VALLEY 1
FINANCIAL LITERACY AMONG YOUTHS IN KLANG VALLEY 17
Importance of Financial Literacy Among Youths in Klang Valley
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Introduction
Money is an essential element in everyday life. Learning how to earn, manage and grow finances is thus crucial for achieving success, freedom and independence in life. Yet, a big percentage of the youths do not have financial education by the time they leave school and start working. According to the MonsterTrak, 57% of the college students are planning to move back in with their parents due to financial difficulties. Similarly, The Student Monitor has indicated 62% of the graduates leave school with an average $27,236 in student debt due to lack of financial literacy. Another study by the National Foundation for Credit Counseling has indicated 39% of the adults living in America have zero non-retirement savings. The shocking statistics indicate the lack of financial literacy among youths.
Globally, financial literacy has remained a huge problem. A S&P Global FinLit Survey only 71% of the people living in Norway, Denmark and Sweden. At the bottom of the rank is Yemen, which has only 13% of its citizens as financially literate. In Malaysia, the World Bank survey found only 36% of its citizens are financially literate. Therefore, the statistics indicate a big gap in the society since a huge number of people have little knowledge on financial literacy. A huge percent of the youths, lack formal or informal guidance on financial matters. According to a global study, less than 18% of the youths at the age of 15 receive financial skills. The fundamental financial skills the youths do not receive include making a budget, comparing prices when shopping and understanding or making an invoice.
A report on the performance of the youths who were subjected to financial literacy exam indicate 48% were correct. Another study was carried in 2008 by the National Longitudinal Survey of Youth shows less than 27% of the youths understand concepts such as inflation. Another set of less than 27% can calculate interest rate. The statistics indicate the youths are in dire need of financial knowledge. When they are in school, they rarely receive the fundamental skills on money. Moreover, back at home, the parents care less on teaching their children how to understand finances. The children tend to grow up thinking an age will come when they will understand all the financial concepts. Since they continue handling money or start earning at a young age, youths express lack of financial skills due to the mismanagement of money.
In Malaysia, financial illiteracy is severe among the low-income individuals. The people who earn less money rarely invest in getting the right financial information. The youths in Malaysia who have little income thus end up as victims of increasing debt, high-interest loans and scams. If the people who are low-income earners are given the right training, they would improve their knowledge and perform better in terms of managing their skills. The different areas youths would require to be trained on include savings and investment strategies, credit use and interest rates and banking practices. Other areas they would require training on include predatory lending practices and loan repayment strategies.
Young people in Malaysia earn their money through informal and formal employment opportunities. The employment opportunities are not sufficient to make them financially stable since they receive no information on how to handle finances. If they receive any information on financial skills, the information is distorted or insufficient. Most of the youths in Malaysia receive information on financial skills from their influential adults, caregivers and peers. The informal methods of receiving financial skills are not sufficient to ensure the young people become financially literate. Youths are not consistently given skills on how to handle finances in classroom curriculum or formal training. The skills they require on finances include saving money, buying assets, long-term and short-term financial goals and balancing between income and expenditure.
Most of the programs on financial literacy among the youths have not been sufficient since they do not address the specific issues youths are troubled about. Youths have diverse needs on the skills they would like to learn about money. When the financial literacy programs are carried out in Malaysia, there is little impact on the youths. A survey in Malaysia indicated what the adults believe the youths should learn about financial skills is different from what the youths want to learn. The problem has not only been with the adults since the youths expect specific ways on how they should earn financial freedom and independence. The wake of technological revolution, the youths want to learn how to make money in an easy and fast way using technology.
A S&P Global FinLit Survey, shows only 71% of the citizens in America are financially literate. In Malaysia, only 36% of the people are financially literate. The huge difference indicates the world requires more financial skills. Most of the people are affected by the lack of skills since they fail to understand about loans, interest rate, debts and wise borrowing. Most of the people around the globe who are financially crippled indicate they once had a chance to be financially successfully. A global survey shows 56% of the youths who had a good income and a promising future end up financially crippled when they make mistakes concerning their money. Most of them start spending more than they earn and finally end up in debt.
Youths, who are considered Millennials are different from other generations. They have been born in the age of technological revolution and the internet has influenced them to think life should be easy, fast and simple. However, earlier generations have learned how to patient and thus end up saving a lot of money in the bank while sacrificing many luxurious items. The current generations want to buy expensive cars, live in luxurious homes and spend their money in expensive hotels. When the expenditure does not match with the income, the financial problems starts crippling in. The financial problems start small and when they are not managed properly they become huge problems, which are hard to overcome.
According to a report by Malaysia Department of Insolvency people who went bankrupt were between the age of 20 and 30. The report shows most of the people who are in a financial crisis are young people. The financial problems are because of the lack of financial skills. When the young people leave high school or college, they have big dreams of being successful, but they fail to understand how to handle money to achieve their dreams. Moreover, the education system has not prioritized need for financial skills. It is rare for students to be taught on how to become financially stable in class. The concepts taught in class are on the common subjects relating to biology, history and mathematics.
Youth's Financial Literacy in Malaysia
The National Youth Development Policy of Malaysia considers youths to be the people between 15 and 40 years. The education system in Malaysia has been reformed to ensure the people living in Malaysia acquire better financial skills by 2020. The national education policy is formulated to achieve highly motivated professional workforce. The youths in Malaysia and other parts of the world would contribute to the development and growth of the economy if they are given the right skills. There are different changes in the market in Malaysia include changes in technology, product innovation, deregulation and increased competition. This kind of environment in the market has prompted the dire need for financial knowledge. The youths require financial literacy to make sound financial decisions, enhance efficiency and financial performance.
Bank Negara Malaysia has already noted a gap in the financial capability of the clients. The bank has invested massively to promote better financial decisions and easy access to financial information. The youths are part of the program and the focus is to equip them with skills on financial management. The focus of the youths who form a large percentage of the customers. The youths will be the future customers who will propel the bank into the future. The bank has tailored the training program to include financial planning on how to save and budget and spending regarding buying and comparative shopping. Another item in the financial training program include financial products such as banking, risks, liabilities and the rights and responsibilities of a financial consumer.
The youths in Malaysia require skills on credit and debt skills regarding debt management, rights and responsibilities of borrowers. Other skills include risk management since most of the young people fail to become financially successful since they do not manage risks appropriately. The young people do not have market information on the trends in the market. Failure to be up to date with what is happening in the financial world possess a huge risk. The youths who do not know what will happen if they default loan find they are black listed by the credit bureau. Other types of financial information is how they can start business and repay their loan comfortably. The big problem with most of the youths is the desire to get rich quickly without struggling much.
According to a 2007 report by the Bank Negara Malaysia on the National Service Program, students aged 17 were engaged in a compulsory financial training program. The focus of the bank is to raise people who can manage finances. The various skills include budgeting, smart financial choices and market information. The purpose of the program is to help the young people to start saving and grow their financial muscle at a young age. According to a report by the bank in 2008, already 120,000 students had been involved. The program will enhance better financial information among the students. It is only of late the banks have realized the importance of running such programs. The emergence of such programs is a clear indicator the current curriculum has some gaps.
The Bank Negara Malaysia in collaboration with the Debt Management Agency and the Credit Counseling agency have partnered with public universities to enhance the financial skills of the students. The three stakeholders have focused on the subject of ‘Personal Finance’. The end goal is to make the subject a mandatory as part of their learning. The program targets young people between 20 and 24 years. Many graduates have shown lack of financial skills when they graduate since they start making mistakes from the first time they are paid. Offering financial skills to the students before they can start building their career will give them a good start. When they graduate and start earning, they will learn how to save, budget and spend their money wisely.
The government of Malaysia is working to upgrade from a middle-income society to a high-level income society. One of the strategies of getting to the high-level income society is by improving the financial literacy of the citizens. All the citizens require the financial education including the young people who form part of the highly productive percentage of the working class. If the young people can learn different skills, they will be in a better position since they have high potential. When financial literacy of the young people is improved, the financial health of the nation will improve and impact the future generations. Youths require to learn the financial skills to take up the emerging job opportunities and build their career. With the emerging innovations, youths can tap into the many business opportunities is they prepare by learning the financial skills.
The Bank Negara Malaysia has been at the forefront to enhance financial literacy among young people. The bank has collaborated with the ministry of education to create an enhanced financial literacy education program. The program has been enhanced using technology since it is contained in a website with the domain name as Duitsaku.com. The website contains financial games, quizzes, financial calculations, financial content and financial management information. Using the information technology platform to disseminate the information will increase financial literacy and improve financial management in the future.
Expenditure has increased more than the income among the youths in Malaysia. The expenditure has increased over the years due to rise in technology revolution. Many youths today have added income due to the need to buy data packages, technological devices and cable television which are considered non-essential goods. According to the Malaysian Communication & Multimedia Commission, the number of young people who are using internet in Malaysia has increased greatly over the last decade. Most of the people spend many hours on the internet and buy huge data to finance the lifestyle. A report in Malaysia indicates The Consumer Price Index (CPI) has increased to 102.2% in 2011. The youths in Malaysia have increased their expenditure in food and non-alcoholic beverages. The increase, however, does not show an equal increase in the income. In the future, the young people will fall into a trouble since they will have less income and more expenditure.
Credit cards loan is another issue affected by the financial literacy of the youths in Malaysia. The credit card loans were introduced in 1970. When they were first introduced, they were issued to professionals who were regarded as successful business people. According to a credit card report, there were only 20,000 cards issued by 1970. However, the eligibility has been relaxed on the years to increase the number of people who can access a credit card loan. The result of the increased issuance of the cards is compulsive buying behavior. The compulsive buying behavior has led to shopping addiction and excessive debt for people who still want to shop but they do not have the money. The credit cards have contributed to the financial crisis. Although the cards were introduced to enhance shopping, they have been used by people who have no financial skills. The bottom thus remains to assess and enhance financial literacy.
Problem Statement
Financial education in Malaysia is still below the required standards. The financial education programs carried out before did not address the specific issues since there are still high credit card debts. If the programs have been rolled out, they did not focus on the young consumers who are between the 15-40 years. According to various studies, a high percentage of the high school students are not prepared to handle finances when they finally graduate. The skills offered in high schools and colleges is to obtain a good grade or find a lucrative job. The skills do not help the students to manage their finances in the best way when they finally start earning. High school curriculum does not address how to effectively use income regarding savings in the bank account, how to manage credit cards, mortgages, mutual funds, social security, loans, insurance and taxes.
A student is exposed to topics dealing with finances and how to manage money daily is they have covered topics such as finances, accounts, consumerism and economics. Failure to address the specific skills needed daily by the students when they finally graduate creates a problem since they will start earning money without the skills on how to manage it well. The rapid technological change makes it possible to spend money through online buying. The compulsive buying behavior is rampant among the youths since they have not acquired the right skills on financial management. If the youths knew how to manage finances, thy would grow their savings, spend wisely and start acquiring assets at a young age. It will be important for the youths to learn about budgeting, savings, spending, debt management, investment and spending behavior.
Klang Valley is an area in Malaysia in the state of Selangor. The area has a population of 7,254,000 and the fast growth of the population has prompted fast business growth. The young people form a large percentage of the people living in Malaysia and they make a huge contribution to the growth of the economy. When they lack the necessary financial skills, they will make a minimal effect on the economy. Youths who have acquired the financial skills will take advantage of the opportunities in Klang Valley while those who do not will miss out on the opportunities. Business opportunities require financial skills such as handling loans, buying assets, savings and budgeting.
Therefore, the current study seeks to investigate the importance of financial literacy among youths in Klang Valley.
Research Objective
The objective of the study is to examine the importance of financial literacy among youths in Klang Valley.
Research Questions
What is the importance of financial literacy among youths in Klang Valley?
Value of the Study
The study findings will inform the policy makers on the need to train the youths on financial literacy. The policy makers will learn of the existing gaps in the education curriculum. They will make appropriate policies in line with the recommendations of the study. The government bodies including ministry of education may allocate more funds for further research in the field of financial literacy.
The findings of the study will inform the schools heads, bank managers and heads of other institutions dealing with the youths on the need to train them on financial skills. The managers will realize the need to train the young people in their workforce on the best financial skills.
Academicians will have an in-depth understanding of the topic. Students in the field of finance, accounting and economics will use the study as a resourceful material in the course of their learning. The scholars will use the study as a resource while carrying out further research.
Limitation of the study
The study will focus on youths in Malaysia between the age of 15-40 years.
Literature Review
This chapter presents a review of the related literature on the importance of financial literacy among youths as presented by various researchers, scholars, analysts and authors. The chapter also provides the theories underpinning the study.
2.2 Theoretical Foundation
This section examines the various theories that will be used to inform the study on the importance of financial literacy among youths. The study will be guided by the following theories; theory of planned behavior and resource dependence theory.
2.2.1 Resource dependence theory
2.2.2 Resource based theory
2.3 Research Gap
2.4 Conceptual Framework
The conceptual framework is a diagrammatical presentation of the variables under investigation in a study. The framework presents the relationship between the two variables; independent and dependent variables. In this study, the independent variables are making sound financial decisions, setting financial goals, making predictions about the future, measuring and reassessing progress, while the dependent variable is financial literacy.
Making sound financial decisions
H1
Resource dependence theory
Setting financial goals
Financial Literacy
Resource based theory
H2
Resource dependence theory
Making predictions about the future
H3
Resource dependence theory
Measuring and reassessing progress
H4
Independent Variables Dependent Variables
Source: Author
2.5 Importance of financial literacy
2.5 1 Making sound financial decisions
Financial decisions are critical from a young age. People who learn how to manage their money at a young age find it easy to save, budget and overcome risks. One of the major financial decisions is budgeting. It entails coming up with a list of items a person wants to buy alongside their cost. When budgeting is done, chances of impulsive buying reduces. While budgeting is a crucial element of financial literacy, only a small percentage of the people budget on how they will spend their money. According to a study by Financial Literacy Foundation (FLF, 2007), only 47% of people budget for their daily expenses. The survey shows more than half of the people who earn money do not budget. Another study shows 27% of the people find it hard to keep some money aside for purchasing assets for their houses or businesses. Another survey carried out by Financial Literacy Foundation shows 17% of the people who are employed could survive in case they had a financial emergency. The statistics indicate the need for people to realize the need to make financial decisions.
The youths are in need of financial skills since they are vulnerable to financial mistakes. A survey by Australian Securities and Investments Commission (ASIC) shows youths between the age of 16-25 have a high risk of making financial mistakes. According to the study, there is a clear indication young people are vulnerable and thus they need the financial skills. At the age between 16-25, the young people are finding their first job, moving out of their parent’s house and starting to pay bills. To some, they are moving from their first job to the second one. As such, providing critical financial skills is necessary. The young people find themselves in a trap when they start paying more bills than what they can earn.
When young people graduate, they either get employed or start their own businesses. In both cases, a person will require the right information to make appropriate decisions. A high percentage of the young people who start business, end up broke and close down their business due to lack of information on how to handle the finances. Most of the young people do not know how to cope with loan repayment and they end up with interest due to defaulting. When the business does not pick up as they would have wished, only a few know how to make find alternatives of raising money to repay the loan and keep the business going. The financial skills will be critical since most of the youths are at a critical age of starting their own business.
A survey indicates few people would retire on their own savings. The problem does not start when people age, but it starts when they are young. When youths get their first job, few remember to develop and grow their savings. However, they use all the money on luxurious living to an extent they don’t have money to survive if they fall sick or get sacked. If they had financial skills, they would start saving money to ensure they have a retirement plan from a young age.
Financial decisions entails using the money a person has to keep their life financially stable or start a small business. The rate of unemployment continues to rise since of the people have no finances to start their own initiatives. The problem of having no savings start with the poor decisions people make when they get paid their salary. The decisions people make when they get their money determines if they will be successful or not. The small percentage of the people who succeed utilize their money well. However, those who have no skills end up broke again even after they are paid high salaries.
2.5.2 Set financial goals
Financial planning is a prerequisite to financial freedom and success. A person who has a clear plan on how they will organize their income, expenditure and savings, have an opportunity to enjoy financial success. It helps create short term and long-term goals. Setting the financial goals involves planning, which attracts several benefits. Setting financial goals is not restricted to specific people since everyone needs to acquire the benefits. The process of setting the goals will be accompanied by a strategy on how to accompany the goals. A plan will stipulate what is important and what is not important. While setting the objectives, people at different stages of life will have different goals they would like to accomplish.
Most of the youths do not have the strategy on achieving their financial goals. They buy expensive items and spend more than their income can allow. However, the problem is due to lack of financial goals. When a person has set out a goal, they will save and finally finance the goal. Sadly, most of the youths do not have the financial goals and some don’t know how to set them. They just spend money without a clear plan on what needs to be achieved. As a result, they do not grow ability to overcome poverty and dependency on loans. A person who is setting out for a trip during the holidays should have included the trip in the savings. This is because the savings will help reach the goal. When such an expenditure is made without proper planning, a person is likely to fall into a trap of financial crisis.
2.5.3 Make predictions about the future
Financial literacy helps people to determine what they want to do in the future. people who are interested in a certain industry will organize themselves financially, make the savings and start their journey towards financial freedom. It is important for the youths to know what they need to achieve their financial goals. In most cases, the youths give up thinking they do not have what it takes, yet they all nee the knowledge on how they can achieve their goals. When people think about the successful people in various industries, they wonder how they can get there. However, it is through financial skills that they can discover how people can grow their financial strength and become successful.
When young people who have made mistakes want to become successful again, the need to consult a financial expert. The expert will train them on how to overcome the challenges they have experienced before. In most cases, youths who have failed before fear to try again since they do not have the strength or the confidence to move on. They just need to be trained on how to overcome various pitfalls and eventually become successful. This makes it easy for them to attain financial freedom and live the live they have always admired plus contribute to economic growth of the country.
2.5.4 To measure and reassess progress
2.6 Financial Literacy
2.2.7 Empirical Review
RESEARCH METHODOLOGY
The chapter presents a discussion of the research methodology to be use in the current study. The chapter focuses on research design, the target population, data collection, sample design, data analysis used in the current study.
The research design entails the roadmap of how the research will be carried out regarding data collection to be used to address the research questions of the study. The research design outlines the collection, measurement and data analysis. The focus of the research design is to address the research problem outlined. It outlines how the research will be carried out, the hypothesis and how the final analysis of the data will be carried out (Creswell, 2013).
The current study will employ a descriptive research design. The descriptive research design enables a researcher to describe the variables. The research is about the importance of financial literacy among youth in Klang Valley. Surveys will be used since they are effective tools while dealing with a large population. According to Creswell (2013), surveys involve collecting information from a group of a representative sample. The data collection can be carried out through interviews or questionnaires.
Population refers to an entire group of events, things or people a researcher is interested in for investigation. In research, population refers to a collection of units a researcher intends to collect data and draw conclusions from. The target population is a core element of research design.
The research will focus on 100 youths in Klang Valley.
A sample design is referred as the architectural strategy used to identify specific participants among the respondents (Cooper & Schindler, 2011). The sample is used to represent the larger population of the target group. The sampling is a systematic selection of a limited number of respondents. The basis of using a sample population is to draw conclusions from the specific group.
The sample size in the study will comprise of youths from Klang Valley. The sample population will be 100 youths in Klang Valley.
The current study will use primary data. The research will design and distribute structured questionnaires to be filled by the respondents. The questionnaires will be distributed to the 100 youths in Klang Valley. Research assistants will be involved in data collection, and they will help clarify any question respondents may ask about the questionnaire. If the respondents are unable to fill the questionnaires immediately, the research assistants will pick them later using a strategy called drop and pick later method.
The questions will be structured, and respondents will be required to tick appropriately. A five-point Likert scale will be used, and respondents will indicate their views on a scale of 1 to 5. The respondents will be served with a transmittal letter from the university to prove the data is being collected only for academic purposes.
The data will be analyzed using descriptive statistics, which involves the measures of central tendency and dispersion. Factor analysis will be used for effective data analysis. Mean scores will be used to find out the importance of financial literacy among youths in Klang Valley.
Multiple regressions will be used to determine the importance of financial literacy among youths in Klang Valley. The regression model to be used is illustrated below;
Y= Financial literacy
β0= Make sound financial decisions
X1= Set financial goals
X2= Make predictions about the future
X3= To measure and reassess progress
β1 -β4 are the regression co-efficient or change introduced in Y by each independent variable
ε is the random error term accounting for all other variables on importance of financial literacy but not captured in the model.
ANOVA test will be conducted to determine the level of significance of the variance by the use of a one-Way ANOVA in order to determine the existence of significant variations between the variables.
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