HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna

1. FEM 3204 : 3 (2+1)Perancangan Kewangan Dalam Pasaran GlobalFinancial Planning in a Global Market HUSNIYAH BT. ABD. RAHIM BILIK A2-14 Jabatan Pengurusan Sumber & Pengajian Pengguna Fakulti Ekologi Manusia

2. Chapter 10 Issues & Challenges of Financial Planning in the Global Market Context

3. Poverty & Consumption Gap Poverty : • Absolute approach - a certain minimal living standard (in terms of nutrition levels, clothing, etc.) is specified, & the income required to support it is calculated. • Relative approach - poverty is interpreted in relation to the prevailing living standards of the society, with the interdependence between the poverty line & distribution of income. • The integration of both approach would result in better understanding of poverty

4. Poverty & Consumption Gap Consumption gap • Depending on the background of the family, such as style of living, number of dependents, life-cycle of family members, etc., a certain amount of income would be sufficient for a family to meet their needs but not for others • There arise consumption gap whereby some families consume less than other families due to financial constraints & high demand among family members, even with the same household income

5. Incidence of Poverty & No. of Poor Household (1977 Methodology)

6. POVERTY LINE INCOME(PLI or PGK)

7. POVERTY LINE INCOME (PLI or PGK) • based on the minimum requirement of household for 3 major components - food, clothing & footwear, non-food itemsi.e rent, fuel, power; furniture & h/hold equipment; medical care & health expenses; transport & communication, & recreation, education & cultural services. • Food component –minimum expenditure based on daily requirement 9.91 kcal for a family with 5 persons • Clothing & footwear – standard sets by Dep. Of Social Welfare for welfare homes • Other non-food items – based on the level of expenditure of the lower income h/hold, as reported to the H/hold Expenditure Survey • Adjusted based on h/hold size of 4.6 in Pen. M’sia, 4.9 in Sabah & 4.8 in Sarawak

8. 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.

9. 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.

10. FOOD PLI BASED ON 1977 AND 2005 METHODOLOGIES (RM)

11. COMPARISON OF PLI FOR 2004(RM per month) • 1977 Methodology - Overall M’sia RM588 • 2005 Methodology – urban RM687, rural RM698, overall M’sia RM691

12. INCIDENCE OF POVERTY AND HARDCOREPOVERTY, 1999 AND 2004 (2005 Methodology)

13. Various Sources of Income • Income • Defined as money that is received as a result of normal business activities of an individual or a business • Income • Is subjected to income tax • Deduction made to Internal Revenue Board (IRB) of Malaysia, Income Tax Act 1967; mandatory deduction • Amount of deduction through Scheduled Tax Deduction (Potongan Cukai Berjadual (PCB)) depends on the salary

14. Various Sources of Income • Fulltime & part-time employment • Interests or dividend, bonus • Asset/rents/royalties • Business profit/gains • Child support or alimony • Scholarship • Earning from employed family members • Unemployment compensation (VSS scheme) • Tips or commission • Employee provident fund (EPF or other similar fund) • Pension scheme/annuities, gratuities, golden hand-shake • Public assistance –welfare, zakat

15. Various Sources of Income • Employment • Earned income from employer • Fixed income & regular income, reliable income • May have certain scheme of salary scale, increment in salary, money allowances for certain job • Bonus for good job performance • Self-employment • Earned income from his/her effort • Irregular income, maybe unreliable income depending on their own effort • No scheme of salary scale, no guaranteed increment in salary, no money allowances for certain job • No bonus for good job performance but may result in larger income

16. Various Sources of Income • Own Business • Have business that generate profit/income • Profit depends on the business performance, own effort to penetrate market & to sustain in the market • Investor • Earn return from investment – short-sell (contra) or long-term holding • May earn dividend from long-term holdings of investment in big companies • Risky assets gives high return, more profit however risky investment

17. Various Sources of Income • Various ways to generate income needs good mind-set, knowledge, skills, academic achievement and individual interest & natural gift • Different people have different expectations, desire, and ambition

18. Government Programme • Hardcore household • Development Programme for the Hardcore Poor (PPRT) • Amanah Ikhtiar Malaysia (AIM) – microcredits financing for the poor families; interest-free loan

19. Household Income Monthly Gross Household Income

20. Average Monthly Gross Household Income

21. Mean Household Income By Job Category

22. Fulfilling Needs • Money are needed for • Transportation • Food • Clothing • Education • Health • Insurance • Investment • Retirement • Tax • Personal loan • Credit card • Life-style

23. Unmet Needs Sources : • Income protection • Children’s education fund • Critical sickness protection • Emergency fund

24. Unmet Needs • Income protection • Through insurance – annuity scheme • Employer – private annuity scheme • Pension for government servant • Children’s education fund • Through education plan by insurance company • Through education plan by commercial bank

25. Unmet Needs • Critical sickness protection • through health insurance, life-insurance • Emergency fund • Through savings in high liquidity accounts, eg savings account, current accounts, unit-trust , cooperation account (savings)

26. Cost of Living Defined as • Monetary cost of maintaining a particular standard of living, usually measured by calculating the average cost of a number of specific goods and services required by a particular group. • The goods and services used as indexes may be the minimum necessary to preserve health or may be what is considered average for a given income group, depending on the purposes of the index

27. Cost of Living The costs are used for getting available the basic needs for living • Food – cook/buy • Clothing – readymade, made it yourself • Utility bills & taxes related to housing (land tax, tax for homes) – Telekom, Syabas, Municipal Council • Housing – rent, own a house • School expenses – public, private school • Transportation – own a car, use public transport • Medical – paid by employer, pay yourself

28. Cost of Living To cover cost of living • High portion of income for low income group – basic needs just satisfy, minimum quality of items, not much excess of income • Moderate portion of income for average income group – basic needs satisfy with moderate quality of items, excess of income, able to save & invest in small amounts • Low portion of income for high income group - quality items, luxury items, excess of income for savings & investments, able to save & invest in large amounts

29. Cost 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

30. Cost 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

31. Cost 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

32. Cost of Living • Cost of living in Malaysia falls • Malaysia's consumer price index (CPI) recorded a decrease of 0.4 per cent in October compared to the previous month (Department of Statistics Malaysia, 2008) (2005 = 100; Nov 2007=106.8; Oct 2008=114.2; Nov 2008=105.6; Jan-Nov 2008=111.4) • Contributing factors to the decline due to decrease in • price of alcohol and tobacco (down 0.1 per cent) • cost of transport (down 3.6 per cent) • non-durable goods (down 1.4 per cent)

33. Cost of Living • Inflation could fall to 7 per cent or lower, down from 7.6 percent in October 2008 based on CPI (Inflation index 2000=100; 2005 =109) • Based on the downward trend of the prices of raw materials and basic commodities, the expected downtrend is based on the fall in the prices of items such as flour and rice (Minister of Domestic Trade and Consumer Affairs, Datuk Shahrir Samad) • In January 2009, cost of fuel reduced to RM1.82 per liter from the highest RM2.70 per liter in 2008 (In 2008, from RM 1.92 to RM2.70) • What’s the expected direction of inflation and cost of living?

34. Cost of Living • The cost of living in Malaysia is exceptionally low for an industrialized country • It was newly referred to as a newly industrialized country • Taxations are at a minimum, no inheritance tax and no capital gains on assets • Commodities and housing are cheaper

35. Cost of Living Issues : Who determine the cost of living? • Business, consumer, government • For the business part, increase price due to increase in salary; consumer might not have full control but can play their roles in the demand side • For 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)

36. Cost of Living • Government subsidizes and control prices on a lot of essential items - to keep prices low • Items such as palm oil, cooking oil, petrol, flour, bread, rice and other essentials has been kept under market prices to keep cost of living low • In 2008, the government announced that it has spent RM40.1 billion in 2007 in subsidies to keep prices leveled • Due to the subsidies, prominent problem arise - smuggling and hoarding that led to shortages

37. Cost of Living • Urban areas – higher cost of living, due to constraint of time may need partial ready/readymade items • Rural areas – lower cost of living, may be able to prepare own food/items, available raw materials for food • May need dual-income family to cover high costs especially with large family size living in urban areas – metropolitan city, city

38. Malaysia Inflation Rate

39. Cost of Living & Quality of Life • The cost of living would affect the quality of life of individuals & families, in a negative manner • High cost of living may results in less consumption, thus experiencing meeting less needs, most probably leading to lower quality of life • The Malaysia Quality of Life Index is based on 10 components of life