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Tuesday, May 9, 2017

How civil servants get into financial difficulties

Another round of salary increases will give rise to another round of lending and borrowing, if the basic mentality stays the same. The bubble is only going to get bigger.

By T K Chua
I read two news reports recently. The first was: “BN may lose civil servant votes at GE 14 over rising cost of living”. The second was: “Low pay, poor financial literacy drive civil servants into debt”.
Putting the two together we may come to this conclusion: Low pay and poor financial literacy are causing government servants to be in debt and this may erode their support for the BN due to the rising cost of living.
If we take all this at face value, it would appear that it is time to increase the pay of civil servants again. If not, the BN’s position in government may be in jeopardy. The high debt burden of civil servants is not entirely their fault. It is low pay and poor financial literacy.
A wrong diagnosis to a problem will result in wrong solutions, if we are not careful.
Are civil servants lowly paid in this country, if their other benefits and perks are included? I don’t think so. I think their pay is comparable with those in the private sector. In fact, civil servants have the additional benefits of job security and certainty of salary payment each month. Those in the private sector, especially in small and medium industries, are not so lucky. Some employers delay salary payments and some cheat on EPF contributions for their employees.
It is, therefore, incorrect to assume that government servants are in debt because their salary is low.
How about poor financial literacy for causing them to be in debt? How valid is this observation? As far as I know, most government servants are in fact more educated than many in the private sector when it comes to paper qualifications. So how did the poor financial literacy come about?
For a long time, banks and cooperatives have been the main culprits causing government servants to be in debt. They are the “loan pushers”, causing government servants to become “loan addicts”.
Loans are easily dished out because the financial institutions are assured of repayments through monthly deduction from Biro Angkasa. Civil servants then become complacent, taking unproductive personal loans for instant gratification rather than for long term benefits.
Whatever loans they take are squandered away. But the payback period is over the next 20 to 30 years. These government servants not only work for the government, they now also “work” for the banks. We can loosely term it as poor financial literacy for causing them to be in debt. But I would prefer to blame it on instant gratification and living beyond their means.
No matter how inadequate our income is, we don’t borrow to go for holiday or to buy fanciful carpets or furniture. That is more than poor financial literacy.
Another round of salary increases will give rise to another round of lending and borrowing, if the basic mentality stays the same. The bubble is only going to get bigger, trust me.
In this country, we are preoccupied with economic growth. Loan growth and consumer demands must be kept buoyant, never mind that this is achieved at the expense of people incurring more debts. We want people to keep borrowing and spending so that businesses and banks can make more money. Can’t we see we have been taking their future incomes for a long time? Sadly, the future is now and they have nothing left, if you know what I mean.
For those who are already in debt, it is time to find a long-term solution which may include limited interest forgiveness or rescheduled payments. We can’t give more loans to people who are already heavily in debt. It is akin to giving more drugs to drug addicts. For new government servants who are not in debt yet, it is time to rein-in their penchant for personal loans, as if borrowed monies are earned incomes.
T K Chua is an FMT reader.

1 comment:

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