Financial literacy is defined as the ability to make informed judgments and decisions regarding the use and management of money (Noctor, Stoney & Stradling, 1992; Basu, 2005). The Organisation for Economic Cooperation and Development (OECD, 2005) defines financial literacy as the combination of consumers’ or investors’ understanding of financial products and concepts and their ability and confidence to appreciate financial risks and opportunities, to make informed choices, to know where to go for help and to take other effective actions to improve their financial well-being. These definitions state that financial literacy is to enhance knowledge and skills about financial management, to make a financial decision or changes in financial behavior. The ability to manage finances is very important so that individuals are not burdened with a lot of debt. In addition, most consumers lack the financial literacy necessary to make important financial decisions in their own best interests (Braunstein and Welch, 2002; Perry, 2008). Inadequate knowledge and skills in financial literacy will lead to insolvency problems. According to the Malaysian Department of Insolvency, the total number of bankruptcy cases from 2017 until December 2021 is 61665 (see Table 1).
Table 1: Number of bankruptcy cases by age from 2017 until December 2021
Notes: for the age group "no information" the petition document does not contain details of the age of the bankrupt (police and military identification)
Source: Malaysian Department of Insolvency (2022)
Table 1 depicts that the highest age group facing bankruptcy problems is 35 to 44 years old group, which accounts for 36.42%. This may be due to the aggressive attitude to have a variety of luxury goods that exceed the individual's income. As reported by the Malaysian Department of Insolvency (2022), personal loans are the highest contributors in the statistics of total bankruptcy cases which is 38.21 percent. Therefore, knowledge and skills in managing finances are important so that everyone can make good financial decisions and control unnecessary expenses.
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By Dr. Fatin Syazwani Safiyuddin