Based on the OECD/INFE 2020 International Survey of Adult Financial Literacy that included 26 countries, Malaysia was ranked third highest behaviour score after Slovenia and Indonesia. This ranking was achieved thanks to three common, prudent financial planning behaviours that emerged in the survey answers, including saving and long-term planning, making considered purchases and keeping track of cash flow.
However, Malaysia was also placed in the bottom tier in the section of financial knowledge. The report also highlighted that globally, youths (defined as those aged 18-29) have a lower financial literacy score compared to middle-aged individuals (30-59 years old), of which a similar trend was seen in Malaysia as well.
Thus, I would like to take some time to share about costly mistakes that you should avoid in your financial planning journey, especially for the younger generation to take note of!
1. Ignorance
Ignoring the basic knowledge about invest and power of compounding is like ignoring the blinking fuel light on your dashboard while driving! In the worst scenario, ignoring this indicator may result in your car inadvertently stopping in the middle of nowhere after running out of fuel. Not a pleasant situation to be in!
In financial planning, you may end up paying a huge price in the future because you will not be able to get back time which is essential to growing your personal financial assets through your active income period, either via employment, business or investments.
The first step you must take is to accept your current financial situation, no matter what level you are currently at. This is just like the example above, where you can drive your car to the nearest petrol station to refuel before continuing your journey. Just do not run out of fuel!
Once your financial situation is assessed either by doing it yourself or getting professional assistance, identify several steps you can take towards your goal such as starting to put aside savings regularly, monitoring your cashflows, and identifying investment assets that are suitable for your risk appetite in order to build and grow your wealth.
2. Procrastination
Procrastination tends to occur when we would rather do other things instead of what we actually need to do. Thinking that reviewing and planning your finances is something that can be delayed or put off to a later date is actually a very common problem.
In investing, this will translate to you needing to save a higher amount each month due to the shorter investment horizon, compared to another individual who started earlier than you. The cost of procrastination may not bite you early on, but its effects can be far reaching in the future!
This can also apply to insurance planning – some individuals may have certain conditions excluded or charged more on their premiums should they want to apply for and purchase health insurance at a later stage. As their health is not in as good a condition as it was when they were much younger, naturally the price will increase.
Therefore, it is advisable to get insurance early on with appropriate coverage when you are young. Review your insurance needs annually or whenever there are changes to your lifestyle. After all, any medical emergency can wipe out your savings in an instant so always be prepared!
3. Fear
Some individuals may have adopted the wrong beliefs or have misconceptions about investing, creating their own meaning out of their own experiences or that of others. That may also be the reason why some of them tend to keep most of their wealth in their bank accounts, or at best, fixed deposits. Although they would rather opt for certainty in life, the only thing that is certain is change.
What is more important for you is to implement proper diversification in your portfolio, being disciplined and focused on consistent savings, and growing your wealth in order to reach your long-term financial goals.
Do you worry that you might not have enough financial resources to fund your retirement in 320 years’ time? Or would you rather worry about the short-term fluctuations in your investment portfolio during periods of market volatility?
You cannot turn back the clock if you do not have enough savings in your retirement age, so it is wise to maintain a long-term perspective when looking at investing.
Give yourself a head start. Learn how to gain the right knowledge through reading, attending seminars or seeking out financial professionals such as licensed financial planner to guide you. These avenues will greatly help you with overcoming fear of volatility and taking advantage of it to grow your retirement nest egg or reaching other financial goals you may have.
In conclusion, the three mistakes to avoid in your financial planning journey (especially among the younger generation) is to get rid of your ignorance, overcome procrastination and conquer your fears.
It is important to start taking smaller steps as early as possible to improve your financial literacy, and start to save and invest regularly to enjoy your financial planning journey with more confidence. Your future self will be very grateful!
About the Author
Goh Chee Yong is a licensed financial planner under Capital Markets Services Representative License (CMSRL) and Bank Negara approved Financial Advisor Representative (FAR). Prior to becoming a financial advisor, he spent eight years working in Big 4 audit firms and multinational corporations. He can be contacted at cygoh@imaxfinancial.com.my
