Saving money is important because it helps protect people not only in the event of a financial emergency, but also to build resources for big expenditures like a house, education, or health, and in order to avoid the slippery slope of debt. Those who save regularly have lower levels of financial stress, and a greater sense of financial security and freedom. While people save for different reasons, savings are beneficial for the financial health of all individuals, no matter where in the world they reside. Whether it’s a matter of avoiding hardship, saving for old age or pursuing the things they want, the ability to save is integral to financial health, now and in the future.

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Since the pandemic struck, savings and income levels continue to decline across the globe, ranging from 30% to 80%, according to a recent survey by McKinsey in 30 countries covering 70% of the global population. In certain countries, however, household savings rates are declining precipitously. The COVID-19 pandemic has left many major economies in cyclically weak positions, with record job loss eroding savings and excessive borrowing placing people at great risk. In Malaysia, the majority of the country’s population has only one to two months’ worth of expenses in savings, with the self-employed being the most affected.

The United Nations Capital Development Fund (UNCDF) - Centre For Financial Health and its partners in Malaysia – GoGet, an on-demand job platform, and Pod, a fintech start-up – are addressing the issue of low savings among low- and moderate-income Malaysians, particularly youth, through a micro-savings app eponymously called Pod. Through UNCDF’s work with GoGet and Pod, several interesting insights around the savings habits of low- and middle-income Malaysians have been uncovered.

The importance of regular savings

A survey with GoGetters revealed that nearly half of those who saved often were able to manage a financial emergency of RM1,000 (approx. US$250) comfortably, whereas less than a tenth of those that save occasionally or never save were comfortable dealing with a financial emergency. Similarly, almost half of Pod users on GoGet’s platform felt comfortable with a financial emergency compared to 13% of non-Pod users. This indicates that a regular savings habit is a significant predictor of one’s ability to manage financial emergencies – in fact, a regular savings habit is as important, if not more important than the level of savings in helping people cope with financial emergencies.

Why and when to save matters

According to Common Cents Lab (CCL) Duke University, pre-commitment to a goal could help trigger positive financial behaviours like maintaining a regular savings habit. This is echoed by a survey by Pod and Perbadanan Insurans Deposit Malaysia (a Malaysian government agency) in which more than half of the respondents indicated that pre-committing to a fixed amount would help them save more consistently. Pod also found that of those who saved right after receiving their paycheck, a higher number met their savings goals always or most of the time compared to those who saved after paying off essential expenses. In short, a savings habit can be cultivated by having a clear savings goal, and then prioritizing it.

Different folks, different (savings) strokes

Savings habits and goals are influenced by age or stage of life; younger Pod users and GoGetters, for example, save to buy future assets or for their wedding instead of for emergency and essential expenses. As they grow older, new spending commitments such as child and elderly care and debt payments make regular savings habits difficult to maintain. Insufficient funds, owing to lower income or higher expenses – or even both – is one of the biggest barriers to saving, with gig workers and those with a lower income struggling to have a stable income and thus feeling like they are not in control of their finances. Emergencies or unexpected expenses also get in the way of saving more consistently.

These insights have shaped UNCDF’s interventions with Pod and GoGet and could be used to inform financial interventions that encourage savings and its use in dealing with financial emergencies such as health expenses or the loss of income in light of the COVID-19 pandemic. With financial health, one cannot take a cookie-cutter approach–financial interventions must be tailored to specific needs and aspirations of LMI individuals and help them develop a savings habit and smooth their consumption flows.

UNCDF’s work in Malaysia is realized under the i3 Program, funded by MetLife Foundation.