by Medecci Lineil
“The State of Households” by Khazanah Research Institute recently reported that many Malaysian households have limited savings.
While another study “Malaysia Human Development Report 2013”, citing figures from the Household Income Survey noted that nearly 90% and 86% of the rural and urban households respectively had no savings, while a majority of households at 86% had zero earnings from their savings
Limited savings mean these families spend most of their income and have little savings, thus making them most vulnerable to economic crises. Those with little and zero savings apparently are more dependent on government as the final solution
Unfortunately, mainstream economists are not seriously looking into the role of artificial prices because that is the root cause of the lack of saving which has misguided consumer time preferences for so long.
I see a trend by government designed to see people purchase furniture, cars and electrical items via easy payment schemes everywhere. They cannot afford to buy the items with cash, so they can buy on credit. Not much saved money.
How about insurance? How many of us are currently without any insurance coverage? After paying car, utilities, education and basic daily items, not much money left.
My personal experience talking to patients, relatives and visitors at the Sarawak General Hospital, for example, I find most of them are uninsured.
This is the painful state of saving in Malaysia.
Saving is beyond the act of putting paper money into ‘forced’ financial instruments like Employment Provident Fund (EPF). Forced savings such as the EPF is the idea that government should mandate every one of us to set aside some percentage of monthly income for savings.
Why forced? Just let us to decide to save money on our terms.
By force, government discourages private savings!
Saving is a day to day arrangement for future acts of consumption though the specifics of the future consumption are not necessarily predetermined.
As the savings grow, we can begin to plan beyond the next meal, next salary and find ways to raise our living standards, perhaps buy insurance, buy a TV, send kids to school or buy new shoes for the office.
In other words, saving is abstaining from spending. It is a natural requirement and will not frustrate economic growth. An act of saving is necessary to improve the value (utility) of money, thus living standards.
As Austrian economist Murray Rothbard pointed out: “The decision to hold larger cash balances will decrease the amount of money in circulation and drive down the real prices of goods and services. In other words, a greater demand for cash holdings simply increases the purchasing power of money left in circulation”
When families have depleted their savings, it becomes a struggle to try to put it back because of the fixed price policy of the government which creates inflation in the first place.
Inflation destroys and discourages savings. Very bad to savers, especially to the retirees.
Savings consist of resources that are not eaten up with no future benefit, but are channeled into uses that will add to the future flow of output and increase satisfaction direct and indirectly.
In other words, saving is the difference between physical production and physical consumption.
How much resources can be saved, valued and used then in production is irrelevant to economic measurements.
Let saved resources being produce freely. The more saved resources the better condition we are in.
If production were left to entrepreneurs to plan, to save, to serve consumers on free market prices, supply and demand would always tend to balance.
So no serious shortages of cooking oil, sugar, clean water, petrol, diesel or affordable housing.
Resources consist of land, labour, capital goods, consumers’ goods, tangible and intangible goods and services, while production consists of producing consumer’s services, tangible consumers’ goods, capital services or tangible capitals’ goods.
To regain the ability to save money and resources, we need to restore market prices which will guide supply and demand for money and credit; real resources available for investment purposes. Do not blame us for not saving money or resources.
First published by The Malaysian Insider on the 1 January 2015.