Expert Shares Tips On Post COVID-19 Family Financial Stability & Loan Moratoriums by Annie Hor

This article first appeared in motherhood.com.my, on 3rd May 2020.

With Malaysia loosening its Movement Control Order (MCO), thoughts are now turning to making a financial comeback post Covid-19. It has been weeks of work stoppage since the lockdown, and especially for families with children, commitments and responsibilities ─ the standstill to our careers and lifestyle has been worrying. With Malaysia loosening its Movement Control Order (MCO), thoughts are now turning to making a financial comeback post Covid-19. It has been weeks of work stoppage since the lockdown, and especially for families with children, commitments and responsibilities ─ the standstill to our careers and lifestyle has been worrying.

As parents, many of us are unsure of the stability of our jobs or if our businesses will recoup in the changed economic landscape of the current situation. We are told to embrace the “new normal” ─ which is social distancing and the avoidance of large gatherings but this in itself may put paid to a lot of businesses built on crowd attendance and face-to-face engagement. Consequently, the new normal could impact jobs and affect our income. Already, we are seeing businesses pull down their shutters for good while those that remain standing scramble to rethink their operational models to fit these altered times.

With this shaky scenario before us, would we still be able to keep our jobs, maintain our lifestyles, send our children to enrichment and extracurricular classes, pay for all their needs, pay our bills and put food on the table?

It has been announced that the country will reopen nearly all businesses under strict controls by May 4, 2020. However, finding our footing between economic survival and curbing the pandemic will take some doing. At the same time, there are mouths to feed. How can parents make smart money moves to maintain our family’s financial stability?

Motherhood.com.my had a chat with Annie Hor ─ a licensed financial adviser with Harveston Financial Advisory Sdn Bhd ─ to ask for advice and suggestions on how to make financial preparations and personal money work harder and smarter for you and your family.

As a mother herself with a six-month-old daughter, Annie understands and empathizes with the financial concerns of a mum very well. As a licensed financial adviser, she has appeared as the expert guest on Buletin TV3’s Ringgit Sense for as many as six times since 2017. She has also been interviewed on BFM twice and has appeared on Smart Finance.my ─ FPAM’s (the Financial Planning Association of Malaysia) website as well as many other financial magazines and journals.

Here, she shares her thoughts on being a mother during the MCO, the financial concerns surrounding the MCO, it’s after effects ─ particularly the latest Bank Negara Malaysia’s directives on loan moratoriums ─ and gives some tips about how families can avoid being a casualty of the Covid-19 economic fallout:

1. Save Money Because Money Can Save You

“Those who have set aside minimum emergency funds will probably feel less (not none) of the pinch during this period ─ even if your company has imposed a pay cut or a possible termination. The pinch they may feel will possibly be due to being stuck at home or having to manage domestic matters with their families while working from home.

“As a new mother, the lockdown has provided me with some quality time to be at home with my little one. It’s definitely not easy as my activities must now be altered to #dudukrumah. And since Astrid is only six months old, I have no immediate need to crack my brain to plan activities to keep her busy.

“Some mothers I know have really put their creativity together to entertain their kids with e-learning, baking, bird feeding, indoor swimming and many more. All of these are really good fun, interactive activities that require very little capital or money.

“As for me, my time has to be split between looking after my daughter and updating my clients and attending company online training. Although I have a full time helper who attends to household chores, the care of our daughter is fully undertaken by me and my husband.

“Astrid is also at an age where she requires additional attention as she is starting to explore her surroundings and developing her sensory skills. To engage all of her senses, I have found that she actually needs very little toys. I can use her bolster to play with her and she is so happy with that actually.

“There is no need to splurge on expensive toys. I am constantly inspired by some mothers who use recycled items like boxes or empty toilet paper rolls to turn them into toys for their children. This is money-saving. I hope to do the same for Astrid as she grows up.”

“Alternatively, to save on buying toys, parents can opt to buy second hand items from Carousell too if they do not mind. Or they can even sell their unwanted and unused baby stuff online. We are blessed to have gotten a lot of baby items from friends and families so we have managed to save quite a bit. I think I only bought five pieces of clothing for Astrid. The rest were given or were hand-me-downs. Astrid now has clothes to last her till she reaches three years old! I have stored them nicely according to age. Also, I try my best not to spend too much on my baby (first time mom syndrome) if I can help it.

“For those who have not set up an emergency fund, this lockdown will make a huge impact on them. This is especially so if they are not full time wage earners or are not earning a fixed salary. Even those earning a fixed salary are worried about losing their jobs or about having to face a pay cut. When this happens, what is next? There is a Chinese saying “hand stop, mouth also stop” What is going to happen to those who are freelancers? Part timers? Grab Drivers? Hawkers? Babysitters?”

Loans & Loan Moratoriums: Should You Take It?

“For those who have loans to service, thankfully the banks have offered a six months automatic loan moratorium for mortgage and hire purchase loans. This is a big relief as the big bulk of household expenses usually comprise these two items.

“With this loan moratorium on your mortgage or housing loan, your monthly installment will stop. Some banks do not compound interest during the deferment period so do check with your respective banks. But, while interest is not compounded, Interest will still be accrued. After the six months, your monthly installment will either increase or there will be an extension to your loan tenure (depending on your bank).

Many have asked: Should they opt in or opt out? I usually throw back the question to them.

Do they foresee needing to spend more in the next six months due to this pandemic?
Are they affected by job loss or pay reduction due to COVID-19?
Do they have existing emergency funds they can rely on currently?
Do they have a stable and consistent income stream?
If the six months can give them better cash flow (especially if they have not created their emergency funds), then, why not take the moratorium?

Pros and Cons

“By opting for the loan moratorium, you need to be aware and agreeable to the accrued interest and possible higher monthly installment or longer tenure after the deferment.

“Prior to April 30, 2020, it was announced that there will be no additional interest charged for the six months deferment for hire purchase loan. With the announcement from Association of Banks in Malaysia (ABM) on April 30, 2020, all hire purchase loans will serve interest for deferred payments.

As said in their press release ‘Financing Moratorium Changes for Hire Purchase’:

pay the accumulated six months’ deferred installments together with their October 2020 installment without being charged any additional interest; or
continue the repayment of these instalments post October 2020 through an extension of six months in repayment period after the original maturity date. In this case, interest based on the contractual rate will be charged on the amount of the deferred instalments that remains outstanding until these instalments are fully repaid, which should be by the end of the extended 6-month tenure.

“So previously, many saw this as a ‘loan holiday’ for repayment and did not hesitate to opt in. But now those who opted for this moratorium will need to rethink the above and see if they truly need this moratorium as they will need to pay back the six months accumulated deferred installments plus their October payment if they do not want any interest to be charged.

“A second option would be that they continue to extend their repayment for six months from their original maturity date, but with a catch. The catch is that interest will be charged. According to ABM, the interest will be charged on the contractual rate and will be charged based on the amount of delayed installments that are outstanding until they are fully repaid by the end of the extended six-month period.

“So, do make a wise decision after considering the points I have shared. If you do opt in, and later find that you have surplus cash flow by the end of six months and your financial standing is better, you can always pay all back to the banks.”

“If you have taken the loan moratorium but you are not in dire need of the money for daily expenses, use the funds to get your cash flow in order if you have not done so. Moratoriums do not come often so use it wisely. Do not use these funds to book your next family vacation the moment the MCO is lifted. The funds should not be used to purchase new clothes for example, for the upcoming Raya. Spend wisely and more importantly, save wisely in case there is a second wave where no moratorium may be offered.

“However, if you are thinking of using the funds as a means of putting in a fixed deposit account without a purpose, you might be in for a loss. An emergency fund is the better option for monies saved as this will help you avoid having to take unnecessary personal loans or credit cards where you will have to pay a much higher interest.”

Note: **There may be upcoming changes to the moratorium after the most recent announcement on April 30. Finance Minister Tengku Zafrul Tengku Abdul Aziz has urged banks to “consider” not charging accrued interest or profit during the loan repayment moratorium period.

“Considering that there is a possibility that this could happen and after listening to the needs of the rakyat, I urge all financial institutions… to consider (not charging) accrued interest (for hire purchase loans) or profit (for fixed-rate Islamic financing loans) during the six-month (repayment) moratorium,” he had said in his Facebook post.

How to Set Aside Money for an Emergency Fund

“During the past one month-plus of lockdown, I have received feedback from friends who said that they saved more money than ever before. They saved from having to commute to work, they saved on petrol, parking fees and so on, and cooking at home is much cheaper (and healthier) than eating out in restaurants. This is actually a good time to relook at your total household expenses and look at the areas that can be trimmed especially post COVID-19.

“I once looked at my telco bills and did an adjustment and converted to a family plan that combines internet, landline, and a handphone line with my mom and siblings. I managed to save a huge deal from there. I remember telling my family that with the money saved, I could actually buy a two-way flight ticket to Hong Kong. It was that much! Also, for Astro for example, I didn’t install Astro at home but used my mom’s access to watch on my Ipad when I want to. Netlflix can be shared amongst a few users too so you can share them with your family and split the cost.”

“Another area where you can save is online shopping. Online shopping allows you to shop and compare prices and hunt for a better bargain without having to drive out to the shops to do a physical comparison. Nevertheless, some retails also offer a fairly good price. I am very price conscious when it comes to recurrent purchases such as diapers, milk powder and supplements. I usually keep tabs on the prices of these items and whenever there is a price drop, I will try to grab them.

“During the MCO and when you are home, take the opportunity to declutter or Kon-Mari your house and sell those things that you no longer use.

“Things are already going back to normal. If you have your income and finances stabilised, start putting aside 10% to 20% of your take home pay to build an emergency account. Try to set a time frame and stick to it. Ideally, the emergency account should be in a separate bank account from your salary or daily bank account. Never use this emergency account for anything else except for EMERGENCY. A 50% discount on flight tickets is not an emergency. New curtains are not an emergency.

“Even when MCO lifted, life may not be as usual immediately. As it is, a lot of entertainment, sports and group gatherings remain closed. Many extracurricular activities for children may not resume yet. While schools remain closed and parents have to go back to work, parents would need to enlist a babysitter or families’ help to help take care of their children at home full time, especially if they are not certain whether or not to send their children to a day care centre even though these may now be open. They might need to budget for the day care centre or a caretaker or nanny at home for these additional services.

“For those who qualify for the Bantuan Prihatin Nasional, use the money wisely. Do not splurge on one time indulgences but instead plan out for necessary expenditure and make these last as long as possible.

“Aside from setting up an emergency fund, it is also important to start putting aside savings and investments for your children’s education. You may contribute to the government’s Skim Simpanan Nasional (SSPN and SSPN-i/SSPN-i plus) ─ the Tabung Pendidikan or savings scheme for higher education for your children’s educational needs. While saving for them, you will enjoy dividends, insurance coverage and tax relief from your contribution.”

2. Have Your Financial Umbrella Ready ─ Don’t Give Up Your Insurance

“The second most important thing is insurance. Insurance is essential for protection against unforeseen circumstances such as what we are experiencing right now with COVID-19. The one thing that people should not give up, during this time, is INSURANCE.

“There may be financial constraints but some make the wrong move and give up and end up ‘paying’ more later. Currently, insurance companies are offering a deferment of payment for three months for those affected by the pandemic. But this is not a loan moratorium like the loans as it needs to be paid back after the three months.

“Premium payment deferment is a programme for eligible policy holders to apply to temporarily defer paying their regular premiums for a period of three months while their insurance protection coverage continues. This will be effective from 1^st April to 31^st Dec 2020. Once your application is approved, it will take effect from your next premium due date for three months.”

Who can apply?

Policy owners who have been infected or who are under mandatory home quarantine or those who have suffered loss of income as a result of the economic impact due to COVID-19
In force life insurance with premium due dates that fall between 18 March 2020 and 31 December 2020

“Policyholders need to apply with their respective insurance company with their reason stated and supporting documents for approval. However, policyholders need to know that this is not a waiver of premium and they need to pay back the deferred premium once the deferment period ends to avoid lapsation of their policy.

“This deferment allows policy holders to buy some time to get back on their feet instead of terminating their insurance. Speak to your insurance agent to get proper advice before taking any drastic action.”

“I am a firm believer in getting insured early and in fact, my daughter’s planning had already begun even before she was born. I got my daughter insured while she was in my womb. Getting insurance now after the baby is born when the MCO is still in force will be difficult. However, it is not impossible, as certain insurance companies have begun enabling purchase of insurance without face to face contact during this period.

“When getting insurance for your little one, do remember to only cover the essentials. Do not overspend on insurance for your child but instead look at your own insurance to ensure adequate coverage in case somethings were to happen to you or your spouse.

“If your budget permits, do cover the hospitalisation and surgical benefits together with the critical illness plan for your children. This should cost the parents about RM200 per month. Before you decide to spend above this amount, do look at your own coverage because if tomorrow never comes, you want to ensure that your child and spouse have enough to get by in your absence as breadwinner. You also want to ensure that your hospital and surgery coverage is up to date and still relevant in today’s time. Poor planning will result in your wealth being moved to areas that you have overlooked.

To find out more, please contact us at 010 209 3299 or drop your message at https://harveston.com.my/contact-us