1.2 Defining Financial Knowledge Financial knowledge enable individuals to navigate the financial world make informed decisions about their money and minimize their chances of being misled on financial matters (Beal and Delpachitra, 2003). The need for financial literacy has become significant with the deregulation of financial markets and the easier access to credit as financial institutions compete strongly with each other for market share, the rapid growth in development and marketing of financial products, and the Government’s encouragement for people to take more responsibility for their retirement incomes. According to Vitt et al. (2000), financial knowledge is defined as the ability to read, analyze, manage, and communicate about the personal financial conditions that affect material well-being.
It includes the ability to discern financial choices, discuss money and financial issues without or despite discomfort, plan for the future, and respond competently to life events that affect everyday financial decisions, including events in the general economy. Hogarth (2002), described the consistencies in behavioral terms, stating that individuals who are financially literate are: 1) knowledgeable, educated, and informed on the issues of managing money and assets, banking, investments, credit, insurance, and taxes; 2) understand the basic concepts underlying the management of money and assets; and 3) use that knowledge and understanding to plan and implement financial decisions.
In recent years, financial literacy has gained the attention of a wide range of major banking companies, government agencies, grass-roots consumer and community interest groups, and other organizations. Interested groups, including policymakers, are concerned that consumers lack a working knowledge of financial concepts and do not have the tools they need to make decisions most advantageous to their economic well-being. Such financial literacy deficiencies can affect an individual’s or family’s day-to-day money management and ability to save for long-term goals such as buying a home, seeking higher education, or financing retirement.
Ineffective money management can also result in behaviors that make consumers vulnerable to severe financial crises. From a broader perspective, market operations and competitive forces are compromised when consumers do not have the skills to manage their finances effectively. Informed participants help create a more competitive, more efficient market. As knowledgeable consumers demand products that meet their short and long-term financial needs, providers compete to create products having the characteristics that best respond to those demands (Braunstein and Welch 2002).
1.2.1 The Importance of financial literacy Financial literacy is important at many levels. Certainly, it is most important for the individual who must make complex and expensive financial decisions on behalf of him/herself and of dependents (Mandell, 2006).
The need for financial literacy has become increasingly significant with the deregulation of financial markets and the easier access to credit; the ready issue of credit cards; the rapid growth in marketing financial products and the Government’s encouragement for its citizens to take more self-responsibility for their retirement incomes (Marcolin and Abraham, 2006).
Students who lack financial knowledge have increased financial difficulties that continue into later years. It found that students with less financial knowledge had more negative opinions about finances and made more incorrect financial decisions. They pointed out that having a low level of financial knowledge limits student’s ability to make informed decisions (Ibrahim et al, 2009).
The need for financial skills has grown rapidly over the last decade because financial markets have been deregulated and credit has become easier to obtain as financial institutions compete strongly with each other for market share. The ready availability of credit cards together with easier access to personal loans, interest free and other payment options, has led to an increase in spending on consumption and a rapid rise in both personal and household debt levels. Moreover, the development and marketing of financial products and services has grown rapidly (Beal and Delpachitra, 2003).
The credit card indebtedness issues and bankruptcies have got serious attention from media. It is alarming that it was reported the majority of the individuals who went bankrupts were from the age between 20s and 30s (Arif, 2004). This might lead to stress and also might affect the productivity of future potential workers. Increasingly, most of the individuals are in charge of securing their own financial well-being after retirement. This can be shown by the shifting from defined contribution pensions, which makes today’s workers have to decide on how much to save and also how to allocate their retirement wealth.
Source: Malaysia Department of Insolvency (2010)
The complexity of financial market had increasing and become more complex, and individuals are facing with proliferation of different kind of investment products. The opportunities of investment have been expanded beyond natural borders, which permit individuals to invest in different range of assets. However, the difficulties to navigate the new financial system and the consequences of mistake that probably can be devastating, it is seem that individual to be questioned of how well equipped do they have to make financial decision. The most important thing before financial decision to be made is that the individuals also to be questioned on how much do they know about economics and finance.
Numerous factors have led to a complex, specialized financial services marketplace that requires consumers to be actively engaged if they are to manage their finances effectively. The forces of technology and market innovation, driven by increased competition, have resulted in a sophisticated industry in which consumers are offered a broad spectrum of services by a wide array of providers. Compelling consumer issues, such as the very visible issue of predatory lending, high levels of consumer debt, and low saving rates, have also added to the sense of urgency surrounding financial literacy.
Other important demographic and market trends contributing to concerns include increased diversity of the population, resulting in households that may face language, cultural, or other barriers to establishing a banking relationship, expanded access to credit for younger populations, and increased employee responsibility for directing their own investments in employer-sponsored retirement and pension plans.
1.3 Background of research 1.3.1 Youth’s Financial Education in Malaysia The National Youth Development Policy of Malaysia defines youth as people aged between 15 and 40 years. Malaysia’s national education policy has been formulated in the context of the country’s aim to attain developed nation status by 2020. The education system has been reformed to ensure the development of a highly educated, highly skilled and strongly motivated professional workforce. Consumers can effectively participate in the economy if they are properly informed and have the requisite knowledge and skills.
Enhancing the levels of financial literacy is being accorded high priority in many countries, including Malaysia due to the current environment of rapid change in technology, product innovation, deregulation and greater competition that have dramatically transformed the financial system. This new environment has created a greater need for consumers to be equipped with financial knowledge and skills to make sound financial decision and to promote consumer activism to drive competition, improve efficiency and performance of financial institution as well as enhance the potential for the economy to prosper (Lian, 2008).
Bank Negara Malaysia has embarked some approach to enhance the financial capability of consumers, e.g. developing and disseminating educational materials financial products and services through booklets and websites. To raise the financial capability of consumers to enable them to make informed and confident decisions on financial matters, Bank Negara Malaysia initiated consumer education programmes for adults, including young adults, known as bankinginfo and insuranceinfo in 2003. These programmes are intents to:
Promote greater understanding of, and more informed decision on financial products and services
Enable consumers to have greater access to reliable information, thus able to take greater responsibility and management on their financial matters.
Under the programme, youngsters are educated on a wide range of issues to equip them with the necessary knowledge ad skills to manage their financial matter effectively. The components of the programme are tailored to the level of understanding of each target group. These include knowledge and skills on:
Planning – Saving and budgeting
Spending – Buying tips and comparative shopping
Financial products – Features of financial products and services (banking, Islamic banking, insurance and takaful), risks and liabilities involved, salient terms and conditions as well as rights and responsibilities as a financial consumer
Credit and debt – Borrowing and debt management, and rights and responsibilities as borrowers and guarantors
Risk management – Basic insurance and insurance planning
Market awareness – Avenues for redress, illegal schemes, currency related matters, role and functions of financial players and credit bureau
In the beginning of 2007, students aged 17 attending the compulsory National Service Programme are taught various aspects of financial management such as budgeting, managing spending by making smart financial choices and banking information to enable them to have a better appreciation of money management. Annually, a total of 120,000 students are involved in this programme (Lian, 2008).
For institution of higher learning, the Credit Counseling and Debt Management Agency, which is a subsdiary of Bank Negara Malaysia, is collaborating with the public universities to incorporate the subject of ‘Personal Finance’ into the curriculum. Once introduced, financial education with emphasis in personal finance will be provided as a mandatory subject to undergraduates from the age of 20 to 24 years old, with the aim of preparing graduates to face the challenges of managing their finance wisely at the start of their careers (Lian, 2008).
While the Government is trying to put things in order to help us get out of the middle income trap to reach a high level income society, there is still a missing link. We need to start looking into a national strategy to help Malaysians improve their personal financial literacy and develop the necessary skills to keep their personal financial matters in the proper perspective. Financial literacy is important to everyone. Financial stress is not biased based on race, age, gender, marital status or different income groups. Just because a person might be below the middle-income group doesn’t mean he or she may need financial education more than others. Just as likely, the children of wealthy parents need to be educated to maintain family wealth. Similar to reading and writing literacy, financial literacy is necessary to all. When a nation has a high level of financial literacy, it is easy to promote healthy financial ethics and values across different generations, from young to the old (Yip, 2010).
1.3.2 The Use of ICT to Disseminate Personal financial knowledge in Malaysia. The Asia Pacific Region has experienced the rapid growth rate in ICT especially in telecommunication sector in the last couple of decades. The evidences can be shown, for instance in South Asia where the compound annual growth rates for fixed lines and cellular phones are 20% and 78% during the period of 1990 to 2000. The same progress can also be seen in the Central and South East Asian countries where the cellular penetration rate has increased significantly amid the relatively lower growth in the fixed line penetration rate. In addition, Asia region in general has also been largely supported by the enlargement of the Total factor Productivity (TFP) which increases about 1.65% per annum due to the rapid investment in telecommunication sector up to 2003.
The business environment in the sector is showing the more promising environment given the independent role of the national telecommunication regulator in many countries and market liberalization which simultaneously give incentives for the new entrants to compete into the market (Rohman and Bohlin, 2010).
The extent of the effects of ICT has been shown to vary between countries. In general, the developed countries have shown more significant positive effect on productivity growth compared to the developing countries. Initial study on ICT development in Malaysia based in the development of telecommunication infrastructure development and Gross Domestic Product (GDP) growth, impacted a positive effect on the economy as a whole (Ramlan, 2001).
Malaysia is preparing to be part of the Information Age in the new millennium by transforming itself towards a knowledge-based economy. Recognizing that ICT and multimedia will be the future enabling tool to increase the efficiency, productivity and competitiveness of the eonomy, various initiatives were taken to promote the use and development of IT during the review period. The National Information Technology Agenda (NITA) was formulated in 1996 to provide the framework for a coordinated and integrated approach in developing the strategic elements comprising human resource, info structure and IT based applications. To provide the catalyst for the expansion of IT and multimedia industries, the Multimedia Super Corridor (MSC) was launched (Ahmed, 2008). The decision to achieve a developed country status by the year 2020 using ICT as the vehicle is further strengthened by the development of MSC which is the national ICT initiative.
Financial education website ‘Duitsaku.com’ In line with the development of IT and the growing usage of computer among younger population, Bank Negara Malaysia in collaboration with the Ministry of Education, has created an interactive financial education website in October 2004, to enhance financial literacy among students. Students can participate in interactive financial games, contents, quizzes, financial calculations and other activities related to personal financial management. Currently, the website has attracted more than 85,000 members (Lian, 2008).
The existence of ICT in real life is not only making human life easier, but also in the education perspective. ICT could spread out the financial knowledge to youth in an easier way. As many youth starts to use internet to browse the financial knowledge instead of playing online games, in such interactive website could provide youth a basic financial knowledge. The use of ICT to disseminate financial knowledge definitely will help in increasing the youth knowledge about financial thing. Therefore, the percentage of failure in managing such their personal finance in the future will be decrease.
1.3.3 Youth’s Debt and Spending Pattern in Malaysia There have been two clear shifts in the way Malaysians spent money over the last decade, the first being that they spent less on basic items like food and more on discretionary ones like restaurants, hotels and personal care. The second, their spending on services outpaced that on goods. These shifts in household spending reflect the fact that people grew more affluent over that period, Bank Negara Malaysia (BNM) said in its 2010 annual report. The main factor is the growing affluence of Malaysians, supported by the steady rise in disposable income and accumulation of wealth. Between 2004 and 2009, nominal per capital gross domestic product (GDP) increased by 6.8 per cent annually, with mean monthly gross household income rising by 4.4 per cent annually from RM 3,249 in 2004 to RM 4,025 in 2009. Favorable demographics were also a factor, given Malaysia’s relatively young and large working-age population. The younger set tends to spend more on non-essential goods and services.
Greater financial deepening also played a role, with BNM explaining that greater access to credit allowed individuals to fund discretionary spending. In the period between 2000 and 2009, household debt grew at an annual rate of 13.5 per cent. Meanwhile, technological innovations encouraged consumer spending in areas like Internet services, mobile communication equipment, data services, cable television services and audio visual equipment. These trends in spending are, apparently, consistent with that observed in other countries. The trends also seem to indicate that as income rises, the share of expenditure on basic necessities tend to decline while that on services tends to increase, BNM said (Malaysiandailynews, 2011).
The BNM report showed that between 2000 and 2009, Malaysian spending on discretionary items (such as restaurants and hotels, communications, recreation and culture) was particularly strong, followed by spending on miscellaneous goods and services (such as personal care, financial, insurance and other services). The share of these components of income-sensitive spending rose to 34.7 per cent of total household expenditure in 2009, from 26.5 per cent in 2000. In contrast, the proportion of household expenditure on basic necessities has declined gradually since 2002. Spending on food items as a share of total household expenditure fell to 21.8 per cent in 2009 from 24.1 per cent in 2000. Similarly, the average household spending on housing and utilities fell to 16.7 per cent in 2009 from 21.7 per cent in 2000 (Malaysiandailynews, 2011).
Malaysia’s consumer lifestyle has been evolving and changing due, in part, to rising affluence and education levels. Malaysian also has a strong shopping fetish, especially during the weekends and on public holidays. However, the consumers comes in three categories: those whose purchasing power is high enough to go on periodic shopping sprees, people who shop for necessities, and bargain hunters (Pricewaterhouse Cooper, 2006).
According to the Malaysian Communication a
Business Environment of BT Group
1.0 Introduction 1.10 Brief Outline of the Company BT group is a global telecommunications company, serving customers in more than 170 countries worldwide. It is based in the UK where it is the major provider of telecommunication networks, in addition to its global customers to whom it provides computing, IT and communication services. The company’s operates within the in the IT sector where it serves to increase accessibility and usability of convergence of networks and services, mobile and fixed products, media and communication. UK is the home to its tradition business, the broadband network, where it connects at least 70% of UK homes (BT group 2011). Currently, the company is rolling out an advanced ADSL copper broadband with speeds of up to 20Mbs. Roll out is in progress, covering 55% of UK homes now with more progress expected (BT Group 2011). It also has a keen eye on investing in fibre-based broadband in the near future as a means of providing super-fast broadband.
Structurally, BT has four principle lines of business. BT retail serves business and residential customers with the wholesale arm providing network services and solutions to other communication companies. BT global service serves multi-site organizations worldwide while the open reach owns, maintains and develops the access network that links homes and businesses to the networks of Britain’s communication providers. These arms are supported BT Innovate and Design, and BT Operate that oversees service delivery and research and development (BT Group 2011).
BT serves both local and corporate customers within the IT sector. Apart from supplying homes, it provides network services and solutions to communication companies and multisite organization worldwide. Currently BT is looking to diversify its services to rural market towns within the UK to increase accessibility to IT to underdeveloped areas. In its industry, BT has a number of competitors with the most popular being Deutsche Telecom AG and the Vodafone group. These present a stiff competition with each other at the stock exchange and in network coverage and service delivery (Daily Finance 2011).
BT’s generic strategy is “to meet demand for IT infrastructure and solutions among global organizations and to satisfy the rapid expansion of broadband in the UK” (BT Group 2011). To this end, BT is in a constant process of innovating means of connecting people facilitated by research and strategic planning. For example, the broadband network is its current project whereby it aims to provide fast-speed services to a majority of homes in the UK and rural market towns. Meanwhile, for the sake of its corporate customers, it has designed a Fibre-to-the-Premise product that has maximum speed capabilities (BT Group 2011)
2.0 Strategic Analysis 2.10 PEST Analysis PEST analysis will evaluate the external microenvironment in which BT group exists, reviewing political, economic, social cultural and the technological environment. This will help establish BT’s market situation and determine future directions for the business (Downey 2007, p. 6)
BP group operates in a diverse external political microenvironment, both local and international. In its mother country, the European Union legislation has set the framework for areas as diverse as fibre access, spectrum, net neutrality and green ICT widening BT’s scope of operation. The latest policy, the Digital Agenda confirms Europe’s commitment to promote new high speeds networks (BT Group 2011). Strategic political relationships between UK and the rest of the world are of keen interest to the government, especially with developing countries. The UK maintains good relationship with both its neighbors and several countries around the world via trade links or humanitarian activities with a keen eye on ensuring political stability in its strategic partners. There is an increase in diplomacy; an approach that international bodies are using to maintaining political stability and security in all countries, all factors that BT can take advantage of (Fox 2010).
Economically, globalization is on the rise, transforming economics of business. As more and more business enters the international arena, there will be increased need for efficient communication and new products. Changing investment climate necessitated by political stability and growing demand will see more business emerge with existing ones expanding to large-scale operations. Governments and international organizations are also in the process of transiting from paper-based operations to modern technology and will definitely need the services of a well-established, credible service provider (BT Group 2011, Pierce 2006, pp.40-41).
Socially, there are visible changes positively influencing the IT area. Earning capabilities have increased following increasing investment rates. Though family sizes have not changed much, the ratio of the younger to the older generation is larger, noting that it is the largest user of internet and technological innovations. Lifestyle changes, increased earning capacity, and population shift has produced a gap within the service industry such as health care, leisure industry and merchandise companies. With time, these will need to improve their operation procedures, most probably adopt IT to serve better and reach more consumers (BT Group 2011, Neate 2010).
Regarding to technology, there are not only new inventions but also, several factors prompting technological innovations. For example, the health sector, which is the most vibrant economically, is boldly embracing research creating a need for relevant technologies while adopting others (Sastry, Nyshadham