Personal financial planning is important in almost every society. Planning and saving for retirement may seem like a goal that is far off in the future. In Malaysia, medical and health care costs are rising and the interest rate for personal savings rate is decreasing. In addition, retirement savings for every society needs to start early and continue through their lifetime. Gibbs and Braverman (2010) stated that long-term care is a essential part of overall financial planning for retirement because the premiums for long-term care are high enough thus will spend a large proportion out of someone retirement savings. On the other hand, risk response is an individual's ability to manage and control for he or she financial planning issues during critical periods. Based on a study conducted in United States, Low (2008) revealed that about half of all employees born between 1965 and 1972 are at risk of having less savings and funds to maintain their lifestyles during their retirement. Risk response for an individual can be showed at the critical period especially during economic downturn. It is much read and heard about prospects of recession frequently, in tough economy; retirees may face hard decisions when it comes to financial planning issue.
Beverly Moore (Watson, 2002) who conducted the study stated that a survey of high-net-worth Generation X completed by a New York Life Investment Management found that the respondents thought they needed $2 million to retire. Although as if recession is over now. Watson (2002) stated that even a return when the economic is in good condition times doesn't guarantee that most Generation X will reach that level of $2 million benchmark. In Malaysia, according to the EPF's 2005 annual report, Habib (2007) asserted that nearly 90% of EPF contributors only own less than RM100000 in their accounts and the amount is fairly not enough to maintain their life needs through 20 years past retirement. It is not possible for an individual from generation X who will retire in coming 5 years which could live until 80 or even up to stretch RM 100000 for 30 years. In the area of retirement, generation X is expected to take responsibility for the management of risks and determining their risk management tools to avoid unrealistic expectations. There must be risk response to bear as a consequence of inappropriate financial planning.
Table 1.1: Saving range in the EPF until 2005
Saving in RM
No. of contributors
Saving in RM
No. of contributors
9001-10000
111770
70001-80000
128482
10001-15000
482415
80001-90000
101965
15001-20000
384753
90001-100000
82343
20001-25000
313595
100001-110000
67148
25001-30000
262269
110001-120000
55417
30001-35000
223380
120001-130000
46085
35001-36000
190225
130001-140000
38726
40001-45000
162683
140001-150000
32052
45001-50000
139467
150001-300000
173433
50001-60000
222332
300001-400000
26010
60001-70000
165965
400001-500000
12026
500001-600000
6377
Source: The Star, Opinion, "Phased EPF withdrawals a better option" (27th May 2007), EPF's 2005 annual report.
Beverly Moore (Watson, 2002) who conducted the study stated that a survey of high-net-worth Generation X completed by a New York Life Investment Management found that the respondents thought they needed $2 million to retire. Although as if recession is over now. Watson (2002) stated that even a return when the economic is in good condition times doesn't guarantee that most Generation X will reach that level of $2 million benchmark. In Malaysia, according to the EPF's 2005 annual report, Habib (2007) asserted that nearly 90% of EPF contributors only own less than RM100000 in their accounts and the amount is fairly not enough to maintain their life needs through 20 years past retirement. In the area of retirement, generation X is expected to take responsibility for the management of risks and determining their risk management tools to avoid unrealistic expectations. They must be risk response to bear as a consequence of inappropriate financial planning.
Generation X can be technically defined as the generation which follows the Baby Boomers. People in generation X are born between 1961 and 1981 (Erickson, 2010). According to a survey from America's Community Banker (1997) it showed that Generation X may be the most serious generation since the Great Depression when it comes to saving their money for the future. Generation Xers are the first generation to graduate from college with significant student loan debt. Shaughnessy (2008) stated that Generation Xers continues to grapple with college debt or student loans and they are feeling the pressure to put money aside for retirement and college savings for their next generations. However, Arguello Jr (2008) stated that this generation has a high level of optimism. Although they still lack confidence in their money-management skills, they have high expectations for their financial future.
Much responsibility of financial planning preparedness is shifting directly to the employees. However, some of the employees especially those service-based industry and blue collar worker have limited knowledge on financial planning. Elliot (1996) has found that most of Generation Xers wonder where can they get the help and whom can they trust because the current financial marketplace includes several of retirement products. Most people nowadays will no longer be able to differentiate what the real and proper investment is. Variations on newer offerings products such as longevity insurance, asset preservation, Synthetic defined-benefit plans and Capturing home equity offering different types of features which has been a literal confusion to both consumers and financial institutions (Hunt, 2005). It can assert that financial planning issues should be more focused on Generation X in terms of risk response because they are the generation who will face the retirement challenge after the Baby Boomers. Long (1998) argues that Generation Xers take a sophisticated approach to risk and reward for their financial investment. According to Long (1998), in a survey conducted in United States, it showed that 53 percent or more than half of Generation Xers said they were willing to assume above average risk for above average gain. Generation Xers who wants to enjoy a truly golden retirement should take personal responsibility to educate and able to update themselves on the money managers and investment options to increase risk response ability.
Based upon the aforementioned facts, it is important to conduct a research to determine the risk response planning ability among Generation Xers in term of financial planning issues due to Generation Xers' life expectancies; their retirements will likely exceed even the Baby Boomers. Therefore, they must save more aggressively. Gordon (2007) stated that Baby Boomers will retire between 2010 and 2020 and Generations X and Y are set to replace them. Generations X will become a major business human resources (HR) strategy in the next 15 years. Hence, it is important to conduct a research to examine risk response among Generation Xers in term of financial planning issues as Malaysia is on its goal to be a developed country in the future. This study should not be taken lightly as standard living and quality of live considered as criterion to be a developed country. That is why the topic is on study is focus on Generation Xers instead of focusing all generations because of the important of risk response and financial planning behavior is crucial to the country.
PROBLEM STATEMENT
Mixed results have been detected from the professionals and researchers on the study of risk response among Generation Xers in term of financial planning issues. Hence, this study would be to identify the result encountered and help to curb the problems. According to Paim, Masud, and Hamid (2010), little studies were focused on how older employees in Malaysia allocate their EPF fund in old age. This is because research being conducted outside Malaysia in different contexts and settings. So, it will be inappropriate to generalize the findings from different researchers which are different nationality and apply them to those studies to Malaysia because of the uniqueness of each country which is based on the different pension or retirement fund and insurance's mechanism and policy has adopted, together with their different educational and income level which they use in their country. The statement has been supported by Lindeman (2002) who stated that Asian policymakers including Malaysia do not face the same level of challenge thus this will cause a different in setting the percentage of payroll for provident fund. Moreover, Ulun (2009) found that less study has been focused on investigating how households make saving plans and the method they collect all related information to make financial planning decisions.
Some of the statements argue that Generation Xers are do not well prepared for their own financial planning issues and this include their retirement, insurance, children education fund, medical advances, dept or saving. In Canada, Low (2008) stated that the nowadays is many members of Generation Xers tend to be spenders instead of savers; they even not focused on retirement planning. Loh (2009) found that only 13% of Americans said they were confident of a comfortable retirement, the figure is a drastic reduction from the figure of 27% in 2007. Malaysia also shows a similar sentiment. The AXA Life Outlook Index findings for 2009 indicate that Malaysians' satisfaction with their preparation for retirement has dropped. In 2007, 23% were confident of their retirement, but this has since dropped to 14%. In Malaysia, Paim et al. (2010) claimed that Malaysians are far behind in income security because Malaysian only spends RM 442 on life insurance annually which is far lower than Singapore, Taiwanese and Americans. The study also indicated that only less than half (47%) of respondents surveyed in Malaysia are confident of having enough funds to last them into retirement based on their current savings patterns.
However, there are the existences of statements that argue and showed opposite findings. Arguello Jr (2008) argues that Generation Xers actually have a high degree of concern and serious about their financial matters. He also stated that Generation Xers has showed the attitudes and feelings about money and financial planning which are different from last generation. Arguello Jr (2008) found that 48 percent of them say they are very confident in their ability to reach all of their financial goals over time compared to 36 percent of their parents of Boomers feel that way. Furthermore, the American Institute of Certified Public Accountants (AICPA) (2006) found that more than half the Generation Xers surveyed (55%) indicated they will depend on savings and investments to carry them through their golden years. This statement showed that Generation Xers knows how to control their own financial planning for the future because they realize that the social security and pensions might evaporate by the time they leave the workforce.
This research is intended to go an extra mile on stressing the risk response among Generation Xers towards financial planning issues without adding other factors so that a clear picture could be revealed with the help of the variables selected such as avoidance, risk transference, mitigation, opportunity enhancement, opportunity sharing and exploitation of opportunity.
RESEARCH OBJECTIVES
To determine the relationship between risks responses towards financial planning issues.
Gordon (2007) stated that the Baby Boomers will retire between 2010 and 2020 and Generations X and Y are set to replace them. Generations X will become major business human resources (HR) in the next 15 years. As Generation X being one of the largest populations in the workforce in future, any factors of risk response in term of financial planning issues that would affect them will definitely have huge influence in the nation as well as whole world. Therefore, it is essential to analyze and identify on the risk response among Generation Xers towards financial planning issues for the benefit of society and nation.
To provide academic materials for future studies of risk response among generation X in term of financial planning issues.
Due to the limited studies on this topic in Malaysia, the finding from this study would be beneficial to provide reference and academic reference to future researcher regarding the risk response among generation X towards financial planning issues for the benefit of society and nation.
1.4 SIGNIFICANCE OF RESEARCH
This study will show the importance, significance and usefulness to the government, society, industry and also researchers. Firstly, this report would be useful to government because it show them the types of current financing planning behavior and issues among generation X. Therefore, government would be able to evaluate the trends and needs and update the policies, programs or acts which will maximum beneficially for the generation X to generate their own wealth. Secondly, the findings from this report would be beneficial to the insurance and financial service-based industry due to the fact that they will realize the demands and needs for this generation from different perspective and come out with the services and financial products which fulfill the demand of generation X. Also, industry can obtain latest information and statistic regarding market trends and purchasing behavior which would be much useful for them to increase their competitiveness. Thirdly, this research would be useful to society. Generation X are less than three times the size of generation Y (NAS Recruitment communications, 2006), but this population are the main spender and saver which contribute huge portion in the both economic and society. Their financial and purchasing behavior might affect the nation economy structure. Lastly, this research will be useful for future and current researcher because this study might assist them as a reference point to gain information regarding the latest trend of risk response among generation X in term of financial planning issues which may unavailable in the previous.
Government
The findings in this research would enable the government to evaluate the current risk response level among Generation Xers in terms of financial planning issues and to draw appropriate policies which can improve Generation Xers retirement plan and saving level in the future.
EPF savings might not be enough for retirement in the future. The existence of the Employees Provident Fund (EPF) has many people assuming that enough is being saved for retirement. However, the unfortunate fact is that more than 70% of EPF members will exhaust their EPF money within 10 years of retirement. (Tupling, 2010)
A greater understanding of Generation Xer's attitudes towards trend of financial planning behavior in future due to the demographic transition may assist the Ministry of Human Resources to update policies, programs or acts to be more effective and will help Generation X to obtain better welfare and employee benefit.
As a result, the government can ensure a higher quality of living standard for Generation X and also other retirees.
Industry
The financial service agency will be able to realize the degree of focus on retirement planning issues towards generation X and provide financial products and services that improve the availability and affordability of generation X which compatible to their financial level.
Insurance industry play the important role financial planning issues all the time. Ahmad and Sungip (2008) stated that the insurance industry in Malaysia faces numbers of challenge but the biggest challenge faced by the insurance industry nowadays is meeting customer expectations for faster, better service in the face of rising loss cost and increasing price competition.
Government was encouraged the globalization of financial institutions to increase the international competitive markets especially in the insurance market.
The industry will be able to obtain information and statistics on the latest financial planning trend among generation X in Malaysia, this study will be helpful to improve on business strategy that adapts to the Malaysian's generation X status.
Society
The finding of this paper will also be useful to the society because the Generation X has long been ignored by the business world. They will soon to play a vital part in the world economy. Their purchasing and saving behavior might affect the nation economy structure.
It enables the Generation Xers to understand the information, types and trend of financial planning issues and may increase the risk response ability when deal with retirement plan.
This study calls for Generation Xers in providing appropriate learning opportunity which might help them to perform better in financial planning and saving behavior.
Society will be effectively served if the awareness of financial planning has been increased among Generation Xers and others generations. Also, the public become more financially responsible.
Research
This study will assist researchers gain information which was not mentioned in the previous researches due to the lack of study being done in this part.
Future studies of Generation X's risk response level in term of financial planning issues can take advantage of the explanatory benchmarks which is reported in this study.
1.5 SCOPE OF STUDY
In accordance to the topic of this study as investigation on the risk response level among Generation Xers in term of financial planning issues. This research was tested on individuals in the Generations X who are employed and are aged between the 30s to the late 40s. This study is focuses on Generation X because it would be more practical and convenient as the changes in financial planning issues in generation X would lead a massive change towards comparison to others generation which are the Baby Boomers and Generation Y. Not only is this easily feasible but it solves problems of understanding trends of financial planning behavior amongst generation X in more detail.
Besides, this study focuses on Johore and Malacca instead of the whole of Malaysia.
Generation X which will be the targeted respondent in this study. The questionnaire will consist of 2 parts: Parts A and B. Part A of the questionnaire gathers background information whereas Part B of the questionnaire comprised of questions that address the variables that is being researched on. Each variable in the questionnaire will be subdivided in to questions which are ranked on a scale of one to five, with one as the least favorable and five as the most preferred response. The questionnaires will be distributed to Generation Xers.
1.6 DEFINATION OF TERM
Generation X: Members of sizeable population who are born between 1961 and 1981 which were broadly shaped by economic uncertainty and domestic social change. (Erickson, 2010).
Financial planning: The financial planning process is the goal and values driven strategic management of the client's financial resources, a derivative of the strategic planning process that is well known in both the organization and management field and the finance literature. (Overton, 2007).
1.7 LIMITATION OF STUDY
Several limitations have been identified in the current study regarding the risk response among generation X in term of financial planning issues. There are educative journals and informative article from abroad that assisted a lot in literature review but the stressors for this study in Malaysia not really recognize at current phase. Besides, this study stemmed from the smallness of the sample size. This study will face the limitation of generalizability and external validity. Hence, the sample in this study might not be reflective of the entire population.
