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A STUDY OF PERSONAL FINANCIAL PLANNING PRACTISED BY ACCOUNTANTS IN KUCHING
BUREAU OF RESEARCH AND CONSULTANCY UNIVERSITI TEKNOLOGI MARA 40450 SHAH ALAM, SELANGOR
MALAYSIA
PREPARED BY: DR. FATIMAH BUJANG
KUEH CHIOK CHOO CHONG FEN NEE
SEPTEMBER 2003
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Date: 30th September, 2003 Project File No: 600 - UiTMKS(UPP.5/2/26/SKK)
The Head Bureau of Research and Consultancy (BRC) Universiti Teknologi MARA 40450 Shah Alam
Dear Professor
FINAL RESEARCH REPORT "A STUDY OF PERSONAL FINANCIAL
PLANNING PRACTISED BY ACCOUNTANTS IN KUCHING"
With reference to the above, enclosed are three copies of the Final Research Report
entitled "A STUDY OF PERSONAL FINANCIAL PLANNING PRACTISED BY
ACCOUNTANTS IN KUCHING" by three researchers from UiTM Cawangan Sarawak,
Kota Samarahan.
Thank you.
Yours faithfully
Prof. Madya Dr. Fatimah Bujang Leader Research Project
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RESEARCH GROUP
DR FATIMAH BUJANG Project Leader
KUEH CHIOK CHOO Team Member
CHONG FEN NEE Team Member
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ACKNOWLEDGEMENT
We would like to convey our sincere appreciation and thanks to those who had assisted directly and indirectly in the successful completion of this research project. Among them
are: Associate Prof. Dr. Abdul Rahman Deen
Pengarah UiTM Cawangan Sarawak,
Puan Amrizah Hj. Kamaluddin, Coordinator of Unit Research and Consultancy,
UiTM Cawangan Sarawak,
Malaysian Institute of Accountant, Kuching,
All the registered accountants who had kindly participated and provided the information
required for the completion of this study
And last but not least,
Our colleagues, friends and families who had contributed in one way or another to this study.
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TABLE OF CONTENTS CONTENTS PAGE
Title Page Letter of Submission ii Research Group Hi Acknowledgement iv Table of Contents v - viii List of Tables ix List of Charts x-xii Abstract xiii
CHAPTER 1 - INTRODUCTION
1.0 Background of the Study 1
1.1 Problem Statement 2
Objectives 3
Significance of the Study 4
1.2 Methodology
1.4.1 Scope of the study and sampling 5
1.4.2 Data Collection 6
1.4.3 Processing of Data 7
1.5 Limitation of Study 7
1.6 Report Organisation 8
1.7 Definition of Terms and Concepts Used 9
CHAPTER 2 - REVIEW OF LITERATURE
2.0 Financial Planning Process 11
2.1 Importance of Financial Planning 20
2.2 Studies and Surveys done on Financial Planning
2.2.1 Financial Planning and the Rich 22
2.2.2 Common Mistakes Made in Financial Planning 22
2.2.3 Financial Planning and Age 23
2.2.4 Awareness and Attitudes towards Financial Planning. 24
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2.2.5 Retirement Age 25
2.2.6 Children's Education and Provision of Funds 25
2.2.7 Savings Habits 25
2.2.8 Financial Planning Literacy 26
CHAPTER 3 - PROFILES OF RESPONDENTS
3.1 Age 27
3.2 Race 27
3.3 Gender 28
3.4 Marital Status 29
3.5 Number of Children Below 18 years old 29
3.6 Current Employment 30
3.7 Highest Education Attained 30
3.8 Educational Institution 31
3.9 Membership 32
3.10 Working Experience 32
3.11 Average Monthly Income 33
CHAPTER 4 - PERSONAL FINANCIAL GOALS
4.1 Short-Term Financial Goals 34
4.2 Medium-Term Financial Goals 37
4.3 Long-Term Financial Goals 39
4.4 Summary and Discussions of Major Findings
4.4.1 Ranking of Short, Medium and Long-Term Financial Goals 41
Importance of Short, Medium and Long-Term Financial Goals by
Age Groups 44
CHAPTER 5 - RISK ANALYSIS
5.1 Risk Appetite 49
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CHAPTER 6 - PRACTICE OF PERSONAL FINANCIAL PLANNING
6.1 Self Evaluation - Cash Flow Statements and Net Worth statements 58
6.2 Debt Management 60
6.2.1 Credit Cards 61
6.2.2 Priority Expenditures 64
6.3 Insurance Planning 64
CHAPTER 7 - PERSONAL FINANCIAL PLANNING PRACTICE ON EDUCATION, RETIREMENT PLANNING AND REAL ESTATE DISTRIBUTION
7.1 Education Planning 69
7.1.1 Respondents Educational Plan 70
7.1.2 Educational Funds Options 71
7.1.3 Best time to start an Education Plan 72
7.2 Retirement Planning 73
7.2.1 Best Age To Start Retirement Plan 74
7.2.2 Retirement Plan By Age Groups 76
7.3 Will Or Real Estate Distribution 77
7.3.1 Real Estate Plan 77
7.3.2 Reasons for not having a will 79
Preferred Age to have a will written 80
CHAPTER 8 - PERSONAL FINANCIAL PLANNING DECISIONS
8.1 Sources of Advice on Personal Financial Planning 81
8.2 Major Decision Maker on Household Financial Matters 82
8.3 The Effect of Personal Financial Planning on Wealth Accumulation 83
8.4 Sources of Information regarding Personal Financial Planning 84
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8.5 Main Focus in Personal Financial Planning 86
8.6 Definition of Personal Financial Planning 87
CHAPTER 9 - CONCLUSION AND RECOMMENDATIONS
9.0 Concluding Remarks 89
9.1 Recommendation
9.1.1 Risk Attitude 90
9.1.2 Self Assessment 90
9.1.3 Protection 90
9.1.4 Education, Retirement and Real Estate Distribution Planning 91
9.1.5 Personal Financial Planning Decision 91
REFERENCES 92
APPENDIX A
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LIST OF TABLES PAGE
Table 4.4.1.1: Major Findings on the importance of Short-term Financial Goals... 41
Table 4.4.1.2: Major Findings on the importance of Medium-term Financial
Goals 42
Table 4.4.1.3: Major Findings on the importance of Long-term Financial Goals... 43
Table 4.4.2.1: Most Important Short-term Financial Goals by Age Groups 45
Table 4.4.2.2: Most Important Medium-term Financial Goals by Age Groups 46
Table 4.4.2.3: Most Important Long-term Financial Goals by Age Groups 47
Table 5.1.1: Respondents' investment preferences 55
Table 6.3.1: Gender and types of Policies Held 66
Table 6.3.2: Marital Status and Insurance Held 68
Table 7.1.1.1: Percentage of Respondents With or Without Education Fund 70
Table 7.1.3.1: Best Time to Start an Education Plan 72
Table 7.2.1.1: Types of Retirement Plans Chosen 75
Table 7.2.2.1: Most Popular Retirement Plan Other Than EPF/Pension Against
Age Groups 76
Table 7.3.1: Will/Real Estate Plan 78
Table 7.3.2.1: Reasons for Not Having a Will 79
Table 7.3.3.1: Age Preferred to Have a Will Written 80
Table 8.4.1: Sources of Information Regarding Personal Financial Planning 84
Table 8.4.2: Sources Of Information Regarding Personal Financial Planning Against Age Groups 85
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LIST OF CHARTS PAGE
Chart 3.1: Respondents' Age 27
Chart 3.2: Race 28
Chart 3.3: Gender 28
Chart 3.4: Marital Status 29
Chart 3.5: Number of Kids Below 18 years 29
Chart 3.6: Current Employment 30
Chart 3.7: Education Attained 31
Chart 3.9: Membership 31
Chart 3.10: Working Experience 32
Chart 3.11: Average Monthly Income 33
Chart 4.1.1: Short-term Financial Goals - Minimize Tax Burden 35
Chart 4.1.2: Short-term Financial Goals - Reduce Debt 35
Chart 4.1.3: Short-term Financial Goals - Start Emergency Buffer 36
Chart 4.1.4: Short-term Financial Goals - Invest in Stock Market 36
Chart 4.2.1: Medium-term Financial Goals - Buy Cars, House and Other Items.... 37
Chart 4.2.2: Medium-term Financial Goals - Protect Against Risk of Life, Property And Personal Liability 37
Chart 4.2.3: Medium-term Financial Goals - Increase Insurance Coverage 38
Chart 4.2.4: Medium-term Financial Goals - Expand own business 38
Chart 4.3.1: Long-term Financial Goals - Education Fund for Children 39
Chart 4.3.2: Long-term Financial Goals - Retirement Fund 39
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Chart 4.3.3: Long-term Financial Goals - Distribution of Estate to Heirs 40
Chart 5.1.1: The Importance of Luck In Investing 50
Chart 5.1.2: Respondents' Reaction if Share Price Rise 40% 51
Chart 5.1.3: Respondents' Risk Attitude 52
Chart 5.1.4: Respondents' Reaction of Losing Investment 52
Chart 5.1.5: Respondents' Response on Margin Trading 53
Chart 5.1.6: Risk Attitude and Age 54
Chart 5.1.8: Levels of Risk Tolerance 56
Chart 6.1.1: The Availability of Net Worth Statement 59
Chart 6.1.2: The Availability of Cash flow Statement 59
Chart 6.1.3: Frequency on Review of Cash flow Statement 60
Chart 6.2.1: Number of Credit Card held by Respondents 61
Chart 6.2.2: Number of Credit Cards held according to Gender 62
Chart 6.2.3: Priority on Application of Credit Cards 63
Chart 6.2.2.1: The Priority of Expenditure 64
Chart 6.3.1: Life Insurance Policy held by Respondents 65
Chart 7.1.1.1: Respondents' Educational Plan 70
Chart 7.1.2.1: Educational Funds Options 71
Chart 7.2.1.1: Best age to start Retirement Plan 75
Chart 7.3.2.1: Reasons for not having a Will 79
Chart 8.1.1: Sources of Advice on Financial Planning 82
Chart 8.2.1: Major Decision Maker on Household Financial Matters 82
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Chart 8.3.1: Effect of Personal Financial Planning on Wealth Accumulation 83
Chart 8.5.1: Main Focus in Personal Financial Planning 86
Chart 8.6.1: Definition of Personal Financial Planning 87
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ABSTRACT
The purpose of this study was to gauge the practice of personal financial planning
amongst accountants in Kuching. A big majority of the accountants set their financial
goals based on short, medium and long-term goals and prioritized them accordingly.
43% of the accountants' households indicated that the husbands were the primary
financial advisors. For each aspect of personal financial planning, the ranking of
importance were as follows: retirement planning, debt management, education
planning, purchase or renovation of house, emergency buffer, insurance and lastly
vacation. It was also found that accountants in Kuching were generally very cautious
and extremely risk adverse in their personal financial planning practices.
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CHAPTER 1: INTRODUCTION
1.0 BACKGROUND OF THE STUDY
It is surprising how many of us actually take pains to plan for our holidays,
wedding, but in terms of our long-term financial well being, we rarely give a
thought about planning for it. Why? Is it due to laziness, ignorance or other
factors that we do not plan for such an important decision of our life that has an
impact on our finances, health, wealth and anything that requires money?
In the financial industry today, we could have in one way or another being
approached by people selling financial products calling themselves financial
planners. They are actually sales personnel selling insurance, unit trusts or
banking products. With the rapid development of financial market under the
Financial Master plan, and also development of Financial Planning in Malaysia,
there will be more certified financial planners in the market. At present, there are
no guidelines and regulations on Independent Financial Advisors (IFA). There is
no regulation from Bank Negara Malaysia or Securities Commission to regulate
those people providing holistic financial planning advice. Professional or trade
associations like the Financial Planning Association of Malaysia (FPAM) and
International Association of Registered Financial Consultants (IARFC) close the
gap by ensuring that the so- called financial planners are adequately trained and
certified.
In Malaysia, financial planning is 30 years behind the United States but it is
clearly taking root from being a buzzword to a full-fledged profession. There are
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currently some 900 individuals with the various financial planning qualifications
in Malaysia. Demand for the industry is yet to really take off. According to
Malaysia's Securities Commission, it took the financial planners in the United
States 10 years to change the perception of the general public towards financial
planning.
Working individuals would do some form of financial planning. Some disciplined
working individuals would work hard, spend less than they earn and invest some
money. Others would live by the day and month characterized by hand-to-mouth
living, where a week's delay in the monthly paycheck would be catastrophic!
Whether you fall into the first or second category, there is a need for financial
planning in order to optimize and align your cash flows and future goals. Even for
those who have already achieved their goals, some financial planning as a result of
a dynamic and fast changing environment still require in order to adjust and close
the gaps.
1.1 PROBLEM STATEMENT
In the United States, the importance of financial planning was spurred by the
September 11th incident. The message of uncertainty in life has reached a lot
of Americans. The recent outbreak of Severe Acute Respiratory Syndrome and the
Iraq War had also driven home the same message to us. Are we prepared if we
succumb to the virus? Will our family have sufficient funds? Who is going to
take care of our children's education? If we are financially prepared, have we
prepared a will to ensure that the wealth will be distributed according to our
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wishes? If the family is quarantined, do you have an emergency reserve? There
are a lot of unanswered questions.
If we are unable to answer these questions, it implies that we either do not have
any personal financial planning or have omitted certain process in the planning.
Literature has revealed that a lot of people out there are financially illiterate. In a
Consumer Survey done in the United States in 2002, it was found that only 28%
of those between ages 20 - 39 years had written a financial plan, 37% of ages 40 -
54 years had financial plans and 52% of those between ages 55 - 69 had one.
(FPAM, 2002) In Malaysia a 2002 survey by University Malaya and Citibank
Malaysia Bhd found that only about 50% out of their 600 respondents from the
Klang Valley understood financial planning.
No statistics are available to indicate whether Malaysians really practise or to
what extent they practise Personal Financial Planning. Do they use the services of
Financial Planners or do they use a Do-It-Yourself way? It appears that the
immediate issue is low literacy on the subject and therefore Financial Planning
Association Malaysia has a big task ahead of them in educating the public on the
subject.
1.2 OBJECTIVES
This study was conceptualized to achieve the following aims:
i. To find out whether accountants in Kuching set short, medium and
long-term financial goals. And if they do, how do they prioritise
them?
ii. To establish who the primary financial advisor is in the households,
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iii. To find out the level of importance placed by the respondents on every
aspect of personal financial planning — wealth creation, wealth
protection, wealth distribution, education planning and retirement
planning,
iv. To ascertain whether accountants in Kuching are generally risk averse
or risk takers.
1.3 SIGNIFICANCE OF THE STUDY
This is one of the first few studies of its kind in Malaysia. Therefore the
information and data generated could prove to be useful for future researchers.
Secondly, accountants will be more aware of the importance of financial planning
after this survey because practicing financial planning helps them to achieve their
personal goals and be financially independent.
Thirdly, the results of the study, hopefully, will be useful to financial planners.
Financial planners from the various industries such as insurance, unit trust and
financial institutions can develop specific strategies to target this particular
segment of individuals in the society.
Lastly, this study may be a source of information to undergraduates and
graduating students who have interests in pursuing a career as a financial planner.
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1.4 METHODOLOGY OF STUDY
1.4.1 Scope of the Study and Sampling
Financial Planning is fast becoming a full-fledged profession in Malaysia. Can
one choose to 'do it yourself' in financial planning or does one refer to the
professional financial planner? Do professionals like the accountants practise 'do
it yourself' personal financial planning? In the eyes of the public, accountants are
more knowledgeable in matters related to finance. However, do they put their
knowledge into practice?
Literature has indicated that professionals are the people who know the least about
their own financial position/standing and to a certain extent, the holistic picture on
personal finances. As there is no known study on the practice of financial
planning amongst professionals, this research is therefore conceptualized to use
accountants, who are professionals, as the target group.
The respondents of this study comprised of registered accountants who are serving
in both the public and private sectors. Respondents are quite widely spread
coming from the government sector, statutory bodies, private and public listed
companies.
Malaysian Institute of Accountants (MIA) Kuching Branch has about 500
registered members. We used this number as our sampling frame. Respondents
were selected on a random basis. Out of 400 sets of questionnaires handed out, a
total of 213 accountants responded to our questionnaire.
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1.4.2 Data Collection
A Questionnaire (Appendix A) was developed to elicit relevant data for analysis.
Part A of the questionnaire contains profiles of respondents that were
subsequently used to analyze together with other variables in parts B and C of the
questionnaires.
Part B of the questionnaire is on 'Personal Financial Goals'. The information
from this section helped us to find out the level of importance placed by the
respondents on each aspect of financial planning with regard to their short,
medium and long term goals to be achieved.
Part C of the questionnaire is 'Practice of Personal Financial Planning'. In this
section, we hope to establish how the accountants in Kuching practiced personal
financial planning and their risk appetite with regard to practice of financial
planning. In this section, we also establish the primary financial advisor in the
accountants' households.
A preliminary pilot test was conducted in which 10 sets of questionnaire were
distributed to respondents in the field. The responses were used to further
improve on our questionnaire so that it could elicit the information needed for our
study.
Following the pilot test, our team kicked off the fieldwork in November 2002.
The fieldwork took 4 months to complete. A total of 213 responses were received
which accounted for 42% of our respondents.
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1.4.3 Processing of Data
SPSS software was used to process and interpret the data collected. Both
descriptive and inferential statistics were used to analyse the data collected.
Frequency and cross tabulation were used in analysing the data.
1.5 LIMITATION OF STUDY
In order to elicit frank and honest responses, respondents were assured of their
anonymity. However, it is not certain whether the responses given were unbiased
and reliable. Out of the total number of 500 accountants in our sampling frame, a
number of them are either working outstation/overseas or not residing in Kuching.
There is only one respondent in the age group of 55 years and above. As a result,
the analysis and the findings relating to this age group are not conclusive. In
addition, there is limited literature review on practice of personal financial
planning in the Malaysian setting. As a result, it is difficult to identify a
benchmark for comparison purposes.
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1.6 REPORT ORGANISATION
This report is organized into nine chapters. Following the introductory chapter is
the chapter on theoretical framework and literature review. The contents under
literature review include financial planning process, increasing importance of
Financial Planning, Financial Planning Goals, and lastly, Past studies and Surveys
Done on Financial Planning. An analysis of the profiles of the respondents is
presented in Chapter 3. Chapter 4 highlights the findings on the practice by
accountants in terms of setting personal financial goals and their prioritization of
the goals. Chapter 5 covers the findings on the risk tolerance and attitudes of
accountants in Kuching. Chapter 6 provides the analysis and findings on the
practice of financial planning, whether accountants have cash flow and net worth
statements, debt planning, insurance planning, investment planning. Chapter 7
highlights the remaining areas on the practice aspect with regard to education
planning, retirement planning and real estate planning. Chapter 8 covers the
findings on the financial planning decisions of accountants and their households.
Lastly, conclusions and recommendations are presented in Chapter 9.
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1.7 DEFINITION OF TERMS AND CONCEPTS USED
Accountants - professionals registered with the Malaysian Institute of
Accountant, Kuching branch.
Education Planning - savings to finance children's education for
college/university.
Financial Planning - is a professional service to individuals, their
families and their businesses, to provide impartial assistance in analysing
and organising personal financial affairs in order to achieve financial and
lifestyle goals. Life goals can include buying a house, savings for
children's education and savings for retirement.
Financial Planner — a person who uses the Financial Planning process
to help individuals work out a plan to meet their life goals.
Practice - action not ideas
Primary Financial Advisor — key person deciding on financial matters
for the household.
Retirement Planning - savings to ensure that the individual can live
with continued wealth despite not having an income.
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Risk Adverse - conservative in one's approach to investment, avoid
taking risks.
Risk Taker - willingness to take risks commensurate with returns,
aggressive in their investment approach.
Wealth Creation - wealth accumulation e.g. savings, investments with
the purpose of children's education and retirement purpose
Wealth Protection - buying insurance to protect assets, disability and
liability
Wealth Distribution - writing a will by appointing a guardian for one's
children in the event both parents die.
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CHAPTER 2: REVIEW OF LITERATURE
2.0 FINANCIAL PLANNING PROCESS
Financial planning is basically a process of organising one's income, expenditure,
investment, insurance, savings and other money related issues in order to achieve
one's life goals. These goals can be short, medium and long term. It focuses
planning in four major aspects — wealth creation, wealth accumulation, wealth
protection and wealth distribution. It is the process of achieving financial
independence through reviewing one's financial needs.
Basically the financial planning process is a structured approach to planning one's
financial needs. It is like a journey. Before one starts the journey, one must know
where one is now and where one wants to go. Then one will plan the route and
start the journey. The 5-step-trip of personal financial planning involves taking
stock of one's current financial resources, setting one's financial goals, developing
financial plans, implementing the financial plans, and reviewing financial progress
(Fong W.M. & Koh S. K.2001).
Five steps are involved in the process of Financial Planning:
Step 1. Taking Stock of Current Net Worth
Knowing the financial resources one has enables one to do two things:
i) to set goals that are realistic
ii) to use as a benchmark to assess one's financial progress.
Taking stock of current net worth, one needs to refer to one's personal balance
sheet and income and expenditure statement. Personal balance sheet records
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