Generation Gap: Moving Money in a Crisis
Updated: Sep 21, 2020
It’s FluffyBBunny here again bringing you on a journey of how Baby Boomers and Generation Y, also known as Millennials, are managing their money in the midst of an economic and healthcare crisis.
If there’s one financial takeaway from the COVID-19 pandemic, it will be the need to save money for the rainy days.
While this isn’t the first roadshow for Boomers who have gone through the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis, it is however for many Millennials.
With pay cuts and layoffs being the apparent theme of companies this year, a bag of gold coins – or realistically speaking, a money stuffed under the matterss – would come in really handy for times such as this.
Walk down the streets of Kuala Lumpur during the early days of the Recovery Movement Control Order and you will take notice the halving of the usual crowd. Businesses clearly became the second casualty as the masses stayed clear from retails and eateries.
One would assume that the lockdown was in a way preparing us for what’s to come by forcing us to save money from shopping and dining out. Interestingly though, it was also that same moment when we realised food delivery services and online shopping would play the biggest part of our lives in a pandemic ridden world.
Fast forward to July, as the situation appears to be getting better, the crowd is slowly re-emerging as brick and mortar stores reopen for business. It then begs the question, how the two generations are managing their money in the midst of the pandemic.
Well the no-brainer thing to do in a pre-recession setting is to restrict unnecessary spending which is being done by both generations. The shift can be noticed in how many Millenials have stopped drinking designer coffee and rediscovering the joys of local kopi peng, from shopping on Lazada to the more proletariat Taobao and even not driving but instead taking public transport to work (thanks to the heavily incentivised MY30 pass).
While Boomers, mainly the financially literate ones, are using the situation to their advantage. As you may have already read, Bank Negara Malaysia recently reduced its Overnight Policy Rate (OPR) by 0.25% early July. What you may have not realised that it was the fourth revision since January 2020.
The reduced OPR is one of the moves to help the economy recover from the impact of the pandemic. The 0.25% reduction in borrowing rates would give Malaysians more cash in hand thus allowing the money to circulate and spur the domestic economy as opposed to it being stagnant.
What this means is that Malaysians are now able to take loans from the bank at a lower rate, translating to a lower repayment amount over the same loan period or the same repayment over a shorter period.
Albeit the monthly instalment is not fixed as it is parallel to BNM’s OPR revision, loan receivers could stand to benefit in a long term.
(Do note that current borrowers who have already taken up a fixed deposit rate home loan will not see any changes in their monthly instalment payments.)
So how are the Boomers taking advantage of this? By taking on housing loans.
What better time to buy a house than now, spurred on by a combo of rebates by property developers aggressively wanting to sell their units and the lowered interest housing loan.
Although the OPR does not affect hire purchase loans, it would still be another apt time to buy a car if you missed out on the tax holiday in 2018.
Why? In line with resuscitating the economy following the pandemic, the government announced a temporary sales tax exemption on locally-assembled cars (CKD) and fully-imported cars (CBU) that would definitely benefit Malaysians wallets. Buyers could save about 5% (CBU) and 10% (CKD) of the initial on-the-road price if they were to buy between June 15 and December 31, 2020.
However, like all good things, there is a catch. While the lowered OPR has certainly opened the possibility of owning a dream house or car, the door has narrowed. Banks are now more stringent with the loan approval as they take into a consideration the industry risk you’re in. It takes about twice as long now to get an approval.
If you’ve played Monopoly then you’ll know that – the bank always wins.
Besides potential borrowers waiting a little longer for an approval, those who have accumulated wealth through their savings or are planning on investing in fixed deposits are going to be disappointed. The lowered OPR also lowers returns.
However, a point to note is that fixed deposits that were placed before the revised rate would not be affected.
Fixed deposits, the go-to investment mode for Boomers, may probably not be the best with the current atmosphere.
Millennials wanting to invest but without the large capital like Boomers have, are now turning to roboadvisors. Needing only a small amount to get started up, roboadvisors are paving the way as the next mode of investment.
The customisable portfolios and usability features are what is turning heads to it. Portfolios that provide exposure to the global market ensures the risk is spread.
While Boomers with their stronger credit score and established career bank on banks for loans for properties, Millennials, especially those younger ones will have to be extra prudent and discerning if they are to make the most out of this crisis.