the financial ecosystem

4 Things You Should Know About The Financial Ecosystem We Live In

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First off, I want to say that most players in the financial ecosystem are important*. Not even going to deny it. Like banks for example – they provide tons of job opportunities, safekeeping of funds, access to financial services and overall contribution to the country’s financial health.

*most are important except the Ponzi people and other scammers. I pray they will miss all the connection flights in their lifetime

But let’s go beyond the friendly, approachable image the financial industry like to portray to the world.  Here are 4 things you should know about the financial ecosystem we live in.

#1 – Banks use the money you deposit to make more money

Did you know that for every RM1 you keep in the bank, they can loan 10 times that amount to others and charge interest on it?

Ie – if someone deposited RM10,000, they can loan out RM100,000 to others. This is called fractional-reserve banking.

That’s why banks (1) always want to attract you to deposit money with them and (2) market personal loans and credit cards at the same time. The more money people deposit with them, the more they earn when they lend it out to people and businesses (at double-digit interest, too – super lucrative!)

Of course, they also take risks in the process. What if the people who borrowed defaulted on their loan, or can’t pay it back? So they’re selective with WHO they loan money to. This is where DSR scores come in – how they check whether the person has the ability to pay back or not.

Here’s how you can know if you have a healthy DSR score without even checking – an increase in marketing calls/emails/sms inviting you to take up more personal loans and credit cards. They know you are ‘low-risk’, therefore they know you’re more likely to pay back the amount plus their profit the interest.

I’m neither angry or felt betrayed by this fact. I used to be. Now I accept it’s just the way it is.

#2 – The poorer you are, the more you pay relative to your income

This. This is my whole gripe with the financial ecosystem. It basically promotes the culture where the rich gets richer and the poor gets poorer.

The banks rewards ‘good’ customers by offering them the best products which have more perks, benefits, better prices and lower interest rates. For example, you’ve seen the difference in return rates between RM1000 vs RM10,000 fixed deposits? Yeah go have a look.

The banks penalise ‘bad’ customers by imposing fees and penalties, limiting financial options, and sometimes closing it altogether. Why do you think some people are pushed to get money from ahlongs? Because they are deemed high-risk and can’t borrow money from banks!

I UNDERSTAND why banks do this. They’re trying to limit their risks. Why lend money to people who have history of not paying back? At the end of the day, they are a business. Their aim is to make a profit and keep shareholders happy.

Perhaps I’m idealistic to a fault, but I feel like banks should serve a higher purpose than that. I mean, it is so expensive to be poor. They pay fees for late payments because food and rent come first. They pay higher cost-per-unit for their groceries because they can’t afford to buy in bulk. If banks really do want to help (like they say in their marketing campaigns), they would have.

But again, I UNDERSTAND why banks do this. Business.


#3 – It’s not possible to play the game fairly

We are part of the financial system. Like it or not, we are in this game. Except for complete withdrawal from society (or using crypto exclusively), we are in this game.

You’d expect the rules would be the same for everyone. Yes, but some people get an extra page of instructions.

I’m referring to legal loopholes within the financial system – something that only the rich have access too. They get advice from accountants and fund managers and lawyers and together device ways to pay as little as they can get away with, like keeping their money tax-free in some other country. Instead of, you know, paying the full share of their taxes so it can fund development of the country and contribute to welfare programmes run by the government.

I don’t think banks and the financial services industry are immoral or unethical for providing this service. Rather, I think they are amoral, neutral. Everything is game as long as it’s technically legal and brings revenue to the company. And I guess it’s just business-savvy to cater to the rich because just one of them can bring thousands and even potentially millions in revenue.

Selfishly, I know that if I’m super duper rich, I’d do it too. Who doesn’t want to keep as much of their money to themselves? Plus as much I like the new government as compared to the previous one, there are so many leaks in the system still.

But you know, instead of being salty towards the rich, why not think of it the other way around – why not make tax-optimisation advice and services and other legal loopholes easily accessible for everyone instead?

Yo fintech and legaltech industry what are you doing it’s time to disrupt this shit.

#4 – The next financial crisis is coming

It’s not a matter of IF it will happen. It’s a matter of WHEN. They’re like dormant volcanoes like that. Apparently the average number of years between financial crashes are 28 years or so, but sped up in this globalisation age.

I’m not even going to pretend I completely understand all the nuances behind a financial crisis. All I know is when the system fails in a big way like that, millions of people around the world are going to lose their savings, jobs and homes. I was 20 years old when 2008 financial crisis happened – so still blur blur during that time – but I have a feeling I’ll experience the next one head on from beginning to end.

What will cause it? Who knows. Experts make predictions, but I feel like they’re all out of my control anyway, so it’s just better for me to be prepared. None of us can prevent it, so the why and how doesn’t matter.

Personally, I’m keeping at least some of my money in gold and crypto in anticipation of this upcoming crash. As hedge (the fancy way of saying ‘to protect my money’ I guess). Note: This is not financial advice, go ask other smarter people, I’m just sharing what I’m doing.

Oh. Another thing that I’m planning of doing – saving as much money as possible now then go on a spending spree during the financial crash. I want to pick up cheap stocks and properties then. That’s what the rich will be doing anyway.

Last thoughts

When I first wrote this article, it was damn negative towards the financial services industry. I blamed and complained before I edited and re-edited.

Then I realise – we fear what we don’t know. I don’t know the financial industry. The financial ecosystem we live in is a mystery for me still. What I know about it – listed and explained above – is probably on the surface level.

I’d love to hear what YOU know about it. What bad practices are rife behind closed doors? What ethical discussions are happening, and do they have traction? What does the banking industry actively lobby for to the politicians? How does this all affect mine and your personal finances? 

What do you think? Looking forward to hear your thoughts, especially if you work or used to work in the financial industry.

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    1. Hi Natasha,

      According to the articles I’ve read, a lot of it is standard advice – save as much as possible, diversify your investments, and have skills that will allow you to get work even during financial recessions. I’ll definitely share if I see more tips!

  1. Great insights as always, Suraya 🙂

    #2 really pisses me off tbh, and I wish things were different so that those with less can get a break without having to claw their way through just surviving day-to-day.

    #4 is super scary and has been at the back of my mind of late. But I also know that the opportunities will be huge when it does happen, so like you, I’m stashing away as much as I can to take advantage of it when the time comes.

    Onwards and up!


  2. No 2 is why I believe Universal Basic Income should be a reality. I would rather pay more taxes if it means seeing an improvement in our general lives or in the lives of the B40. That extra breathing room is all you need sometimes.

    And when you don’t have to worry about groceries, you can do so, so much!

    1. Hi Naoko,

      I agree with you – a fan of UBI myself. In fact I wrote a short fictional story about how UBI looks like if implemented in Malaysia (look out for info in this website soon!)

      Btw, cool website you have there! Everyone, check out!

  3. #2 is really painful. Back when I was a poor student (more like, super-duper financially illiterate) in Australia, I frequently got slapped with a $30 penalty (or whatever its amount is nowadays) whenever my savings account dropped below zero, especially when my account gets auto-deducted for things such as utilities. True, it was partially my fault for being silly with payments at that point in time, but imagine if this happens to people who live paycheck-to-paycheck and are unable to deposit money into their account just in time.

    It’s as if the modus operandi is “Too poor to maintain a positive value in your account? Let us penalise you more!” I’m partly thankful most of our banks here in Malaysia require us to have a minimum amount in our accounts, so we don’t ‘suffer’ from whatever I mentioned in the first paragraph (of course, there are other consequences if bills are not paid on time but that’s another story altogether). How paradoxical it is that being poor is actually very expensive. 🙁

    1. Hi MMB,

      I heard a lot about those – it’s crazy how financial institutions can get away with those policies :/ You’re right, the minimum balance policies we have over here is great as preventative measure. Can you imagine how much worse it would have been for the B40 if our banks impose those kind of penalties, too? Scary to think about it!

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