Chances are, if you are relatively fluent in English, you have consumed personal finance content from US. Maybe you read books written by US-based writer. Maybe you follow Youtube channels of US-based personal finance personalities.
This in itself is not a problem – one can learn from anyone, including Americans. As long as you ALSO learn from other people, especially people from your own region/country.
In addition, you do have to be careful a bit, because personal finance content meant for US readers may include context that does not apply (or not as much) to you. So you get confused, or worse, make the wrong decisions.
Well, I wasted time trying to understand US vs Malaysia personal finance content, no sense for you to waste yours, too. Here are 5 ways our personal finance is different.
1. US retirement-earmarked fund is called IRA. Ours is called EPF.
Sometimes Malaysians need to be reminded how lucky we are to have EPF – the retirement-earmarked fund which both employees AND employers contribute to on a monthly basis.
In the US, they call it IRA – individual retirement account. There are a few types of IRA like Roth IRA and 401(k) and whatnot – you don’t have to know this, it’s not useful info for us Malaysians.
However, as I understand it EPF is better than IRA, as employer contribution is optional for the latter. Companies may or may not offer employer contribution for their employees. Even if they do, they may only match it up to a certain %.
In contrast, EPF is very clear and most importantly, mandatory. You contribute 11% of salary, and your employer contributes an additional 12 or 13%. This helps an employee to build up a sizable nest egg in for their retirement years.
(Still not enough though. But maybe people who own homes can supplement retirement income with reverse mortgage?)
2. US student loan is more predatory than Malaysia student loans
The first US vs Malaysia difference in personal finance content is retirement-earmarked funds. The second is on our student loans. Ours is way, way, WAY better.
According to bankrate.com, ‘about 90 percent of student loan debt (in the US) is comprised of federal loans, with interest rates ranging from 4.99 percent to 7.54 percent’.
Yup, up to 7.54%!
How much is the student loan interest rate in Malaysia? Well if you get it from PTPTN, the rate is just 1% per annum flat rate.
This is a BIG difference. PTPTN borrowers literally save thousands, if not tens of thousands in interest charges.
This is also why I never understood the Malaysians who jumped on the Cancel Student Debt protest. Cancel for what? PTPTN is literally there to help you get an education, not to make profit.
I mean, 1% interest rate for PTPTN student loan is not even enough to cover inflation, so what profit are you even talking about? Plus, the 1% is FLAT interest rate, not compounded.
Futhermore, PTPTN borrowers who get First Class Honours Degree can apply for 100% exemption in PTPTN repayment, effectively turning the PTPTN loan into a scholarship. No such thing that I can think of for US.
So it is your responsibility to pay your PTPTN loan, if any. There are negative consequences for not paying PTPTN – If you don’t pay back, less money will be available for future students to pursue their tertiary education.
Less money for students = less educated nation. Don’t be that person who does this. Pay back your PTPTN.
3. US have high overdraft fees. We don’t
In Malaysia, if you don’t have enough money to conduct a transaction, then the transaction simply… won’t go through. Not in the US – no, they make you pay for it. They call it ‘overdraft fee’.
According to Investopedia.com, ‘an overdraft occurs when there isn’t enough money in an account to cover a transaction or withdrawal, but the bank allows the transaction anyway’.
So basically, an overdraft fee is a fee charged to you when you swipe your debit card and DIDN’T have enough money in your account. The average cost is $25, and upwards to $35, depending on the bank.
That’s a lot of money. Honestly, the way the US penalises poor people for being poor is just… sad.
Btw – overdraft facility does exist in Malaysia, but you have to be offered, or apply for it. This means only financially secure people get the privilege, and banks have the right to reject your application if they think you aren’t going to pay them back.
Note: overdraft is not the same as credit facilities like credit card etc. Speaking of credit cards…
4. US credit cards have higher interest rates (for people with bad credit score)
Aside from that, Malaysians have less predatory credit card interest rates too, compared to the US.
Typically, your credit card’s interest rate will depend on your credit score, in particular your repayment history. Ie, are you good at paying back the money you borrowed? If no, you are considered more ‘high risk’ and given a higher penalty, ie higher interest rate.
In Malaysia, if your payment history in the last 12 months is good, your interest rate will be 15%. If not, it’ll be 17% or 18% – the credit card interest rate in Malaysia is capped at 18%.
However in the US, people with good credit score also enjoy interest rates as low as 15%. However, if you are someone with bad credit score, creditcards.com says your credit card interest rate can be as high at 27%. 27%!!!
5. However, their low-fee diversified fund is quite dependable as long-term investment
For the average American, the low-stress way to invest is to simply consistently DCA (explained dollar-cost averaging in here) in S&P 500. As you can see, S&P 500 generally trends upwards over the long term.
What is S&P 500 you ask? According to Investopedia.com,
(S&P 500 is) a stock market index to track the value of 500 corporations that have their stocks listed on the New York Stock Exchange (NYSE) and the NASDAQ Composite… (which) represent most of the composition of the U.S. economy.
As a result, the value of the S&P and various stocks within the index is closely watched by market participants since their performance represents a gauge of the health of the U.S. economy.
It’s not quite the same thing, but the closest equivalent to S&P 500 in Malaysia is probably FTSE Bursa Malaysia KLCI – usually just referred as KLCI. According to Bursa Malaysia, KLCI ‘comprises the largest 30 companies listed on the Main Board’.
Unfortunately, KLCI has not shown the same long-term upwards trend as S&P 500. In fact, it has been stuck in the 15xx to 18xx range since 2012. (This is not making fun of Malaysia, just stating a fact. I wish our economy do better, I really do).
This is why it’s common for Malaysians to diversify their investments geographically, and popularly in US market. For most years (but not all! Remember historical data =/= future performance!) you should see your investment do better than Malaysian stock market.
US vs Malaysia: What other differences in personal finance do you know?
I have laid out 5 big differences in how the US and Malaysia is different in our personal finance. There are probably more.
Please share your thoughts in the comments section – what confused you, when you first started learning about personal finance?