On Monday (7 Aug), I had the privilege of hosting a discussion featuring the founder RinggitPlus Hann Liew and Economist Sani Hamid.

Our conversation centered upon the recent wage report released by the Department of Statistics, which highlights the alarming wealth gap between the rich and the poor.

We also addressed the question of whether Malaysians are underpaid, and the possible solutions that can be implemented in order to resolve this crisis.

Finally, we talked about investing in general – what details that newbies should look out for and how to plan their personal finance journey.

For those who missed the insightful session, the full replay is now available on Spotify. Listen to it here.

Scroll down for a written summary of the session.

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Quick facts:

The recent quarterly wage report released by the Department of Statistics showed that the median salary of formal employees rose from RM2,400 to RM2,600 y-o-y in March, representing an 8.3% y-o-y increase.

When presented in a horizontal bar chart, the stark reality of the wealth gap between the rich and the poor is unsettling. A significant 82% of employees earn below RM5,000 monthly, while an astonishing 35% of the populace contends with salaries lower than RM2,000 per month.

The distribution of wealth decreases exponentially as the salary figure increases, but it abruptly skews towards the rich (ie. those earning more than RM15,000 per month).

The median salary of 9 states in Malaysia is RM2,000 or less. In Perlis and Kelantan, this figure is slightly above the minimum wage of RM1,500. Only KL, Selangor, and Penang exceed the overall median salary of RM2,600.

Q1: Are we in a wage crisis right now, and are Malaysians severely underpaid?

It’s no doubt that we are in a wage crisis, as the median income is simply not enough to cover the expenses associated with the cost of living.

With a median salary of RM2,600, fifty percent of the population is earning below this threshold, while Bank Negara’s recommended living wage is RM2,700 per month.

Just think about it: the minimum expenses required to live a meaningful live is RM2,700/mo if you’re single, yet we have more than 50% of the population earning below this amount.

To make matters worse, the recently released statistics was for the formal sector and those that are in gainful employment - what about the informal sector? That is a whole other area which is equally if not more alarming.

Compared to Singapore, as of 2022, the median salary stood at SGD$5,070, accompanied by a notably lower cost of living.

Q2: But is RM2,600 – RM2,700 per month even enough to survive? Can Malaysians afford to save?

RM2.6k to RM2.7k is the minimum expenses of single people who own a car. As an example, let’s just assume that it is just enough to survive (even though we know it’s clearly not).

Married couples with two children require at least RM6,890 per month to live a meaningful life.

With the average income of RM2,600 and assuming each partner works and earns this amount, it only adds up to RM5,200, which is much lesser than EPF’s study.

For single people, if we can’t survive with RM2,600, this amount puts us at the 50th percentile, so what about the rest of the population below this salary?

The reality of this crisis is disturbing and is systemic in nature, but as citizens, we shouldn’t be discouraged.

If you’re earning RM2,600 and live like someone who earns RM2,400, that’s RM200 saved per month. Every little amount goes a long way to your financial freedom.

How did we even get here, and what are the sustainable solutions to this crisis that government officials should undertake?

• Inconsistency and deterioration in education - poor matching of skills required in the workforce versus skills that were taught.

• Poor execution of policies – government plans were great when proposed, but the execution is usually the opposite.

• Political instability – poor governance, scandals, corruption, and frequent change of government.

• Imbalance between demand and supply – ie. Market is saturated with lawyers (high supply) with insufficient law firms to accommodate (demand).

Solutions:

The key in achieving higher wages lies in establishing a foundation of proper and consistent education. By aligning the skills taught with those required in the higher-paying job sectors, wages will increase.

Educational institutions should adapt their syllabus to mirror the current market demands. For instance, in a landscape dominated by artificial intelligence and computer science, schools should actively encourage students to pursue subjects that align with these contemporary requirements.

To address the issue of high-skilled labor oversupply, the government should take on the responsibility of structuring the economy in a manner that can effectively absorb this surplus workforce.

Will a progressive wage system (similar to Singapore) resolve the crisis? What are the impacts on the economy (ie. prices & inflation).

Low wages can stifle economic growth, as a substantial portion of GDP falls on consumer expenditures. A progressive wage structure not only elevates employee salaries but also fosters heightened economic productivity.

For instance, the career progression of a general cleaner to a toilet cleaner, then to a machine operator, and ultimately to a general manager, represents the journey of an individual's professional growth and productivity.

Employers need to reward workers as they progress along their career while ensuring that they contribute more to the economy.

However, this system predominantly benefits blue-collar and lower-wage workers. To extend its benefits to highly skilled employees, we need to unionize the highly skilled employees. This safeguards them against potential exploitation by employers, thereby offering a layer of protection on their salaries.

What can we as citizens do in order to lessen the impact of the wealth gap on ourselves, especially for those who are currently earning less than RM2,000 per month?

Be eager to learn and upskill yourself. By acquiring new skills and being more efficient at your work, you can negotiate a better salary from your employer.

Apply the progressive wage model on yourself – learn how to be better at what you do to increase your salary.

For instance, if you work as a cleaner, assess areas where you can improve the existing system and climb the ranks. Similarly, if you are employed as a clerk, consider learning fundamental accounting skills and related competencies.

Once you've developed these skills, set high goals and seek out an employer who values and acknowledges your talents. Alternatively, consider exploring opportunities in foreign countries where your skills might be in demand.

Another method to transition out of a salary range or lessen the wealth gap is to invest right. What should people look out for if they are absolute beginners? What are the most common do’s and dont’s?

1. Establish a Financial Cushion: Before diving into investments, ensure you maintain a monthly surplus – your expenses should be lower than your earnings.
   

2. Emergency Funds: Accumulate a reserve of at least six months' worth of living expenses in an easily accessible account to provide a safety net during unforeseen circumstances.
   

3. Insurance Coverage: Prioritize insurance coverage, especially medical insurance, to shield yourself from potential financial setbacks due to unexpected health issues.
   

4. Educate Yourself: Invest time in learning about various investment options, understanding market dynamics, and comprehending risk and return relationships.
   

5. Diversification: Spread your investments across different asset classes to mitigate risks. This might include stocks, bonds, real estate, and other instruments.
   

6. Low-Risk Funds: Start with low-risk investments such as cash apps, fixed deposits, or government-sponsored funds like ASB/ASM.
   

7. EPF (Employees Provident Fund): Contribute regularly to your retirement fund, which typically involves a mix of fixed income and equities, designed to provide a stable and steady return over time.

The full replay of the discussion is available on Spotify. Be sure to give it a listen!

That’s all for this week’s newsletter!

DISCLAIMER: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.

Get early access to our newsletter and miss nothing from the markets. Join our journey towards financial literacy today.

Our private announcement group will keep you updated with market movers and urgent matters. For only $1/month, you'll receive our weekly newsletter every Sunday night and daily notifications on important events, some with detailed thoughts from economist Mr. Sani Hamid and RinggitPlus founder Hann Liew.

✅ No commitments.

✅ Cancel anytime.

✅ Zero ads, zero shills.