Financial literacy is an essential skill, and it is even more critical during economic crises. The COVID-19 pandemic affected the global and domestic economies. While some of its aspects are beyond individual control, financial knowledge can help mitigate the economic crisis, manage income, and help people manage their respective finances. In the past decade, Malaysia experienced a volatile financial environment domestically, but the reverberations were also felt regionally and globally. Variations such as inflation, currency and interest rates fluctuation, and increased living costs affected a significant change, not only to the Malaysian economic landscape but also to individuals. These shortcomings were exacerbated during the COVID-19 pandemic due to its resulting cash-flow problems, where some companies reported “zero income” and reversed the economic growth to -6% in 2020. Youth unemployment tripled (11.7%). Cash-flow imbalances occurred due to payroll, business loans, utilities, and other fixed costs that business owners were obligated to meet.
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The COVID-19 pandemic was a severe test on individual financial resilience and a challenge for small businesses. Businesses' temporary closure had a strong negative impact on their well-being (OECD, 2020), which is felt in many countries, some more substantial than others. The impact was more severe in countries that reported vulnerabilities in their financial management. Australia is a good example, as it is among the top 10 financially literate countries within the OECD. Statistics show that before the COVID-19 economic crisis, they faced domestic vulnerabilities concerning financial literacy, customer credit and mortgage borrowing, household debt, and household income (Preston, 2020). During the COVID-19 economic crisis, the most vulnerable group in Australia were the youth, women, and those with primary education and low financial literacy, lacking an understanding of basic financial concepts such as inflation, compound interest, and risk diversification. To mitigate economic vulnerabilities during COVID-19, Australia banned predatory payday lending, which requires alternative arrangements such as extra funding via the No Interest Loan Schemes. However, improving the community's financial literacy as a whole could be a long-term plan that government organizations should carry out to protect those who are less financially literate (Preston, 2020).
A similar condition is evident in the U.S. For many years, the lack of financial understanding is one reason many Americans have problems saving and investing. Many consumers have minimal understanding of how credit works and its potential impacts on their financial well-being. During the COVID-19 economic crisis, workers felt the financial squeeze, translating into a long-term personal financial crisis. A survey conducted among 1,000 Americans shows that 25% have no one to turn to for financial advice, which shows the importance of financial education, particularly during the COVID -19 economic crisis. This is supported by a study conducted by OECD (2020), which reported that the pressure of the COVID-19 crisis put a severe strain on individuals’ financial resilience. Part of the OECD COVID-19 recovery package doubled the efforts to promote financial literacy, focusing on women and young migrants (Jenkins, 2020).
A report from the Malaysian Insolvency Department shows that 25.2% of bankruptcy cases from 2017-2019 consist of young people aged 35 and below. Evidence shows that during the COVID -19 pandemic, household debt reached 87.5% of the gross domestic product (GDP). Most Malaysians did not fare well in managing finances. One of the reasons could be the education system. In Malaysia, education from Primary One through Secondary Six focus on academic achievement in various subjects, but personal financial management is left to adults. With the upcoming Vision 2020, Malaysia is also heading towards an aged nation by 2030. A few years ago, in 2015, the Deputy Finance Minister highlighted his concern that financial literacy in Malaysia is low, with only 20 - 25% of Malaysian knowing financial planning and retirement (Halim, 2014), while the recent COVID-19 pandemic and economic crisis in the country shows that financial literacy remains low. It seems sensible that low financial literacy in Malaysia is perceived as the key that will weaken the participation and reasonable action by society, leading to a negative outcome that would affect the path towards achieving personal financial goals, Vision 2020, and the aged nation 2030. The Malaysian deputy finance minister announced that it is the government’s responsibility to increase financial literacy among the community and empower people with financial knowledge and skills (Shahar, 2020). The government initiated various financial education programs, including webinars, talks, quizzes, competitions, discussions, and exhibitions online to educate the community to make sound financial decisions (Shahar, 2020).