encik abdul rasheed ghaffour : shaping the future starts now speech by mr encik abdul rasheed ghaffour, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the launch of the financial management for retirement module " shaping the future starts now ", kuala lumpur, 7 april 2017. * * * importance of financial literacy there is a growing concern on the low financial literacy level of malaysians as measured by financial knowledge, attitudes and behaviours. based on the financial capability and inclusion demand side survey conducted by bank negara malaysia in 2015, the main observations on the state of financial literacy of malaysians can be described by : a. first – the majority of malaysians have inadequate knowledge on financial matters to enable them to make informed financial decisions, particularly among the vulnerable groups ; b. second – a significant majority of malaysians display short - sighted tendencies and are inclined to ‘ live for the moment ’ – that is to only focus on instant gratification at the expense of long - term financial planning ; c. third – more than 75 % of malaysians find it difficult to even raise rm1, 000 to meet emergency needs ; d. fourth – only a quarter of malaysians have any form of investment ; and e. fifth – most malaysians indicated that they will face financial pressure should there be a loss of income. therefore, building the financial capability and literacy of malaysians is certainly a priority for the nation. what we want to achieve is to improve people ’ s ability – to manage money well – through their entire life cycle, and their ability to handle periods of difficulties. financially literate population – will help to improve the well - being of individuals and households ; ensure a sound and competitive financial system ; as well as contribute to the sustainable growth of the economy. let me explain further on the importance of elevating financial literacy : a. for individuals and households – financial literacy has become a key life skill. those who go through life by making sound financial decisions – will potentially be more resilient and end - up with a much higher standard of living throughout their lifetime, including during retirement. with the right knowledge and skills – individuals can live within their means ; manage finances ; and improve chances of achieving their ultimate financial goals. a financially literate malaysian – would be aware of the importance of long - term financial planning and will actively save for the future. b. empowered financial consumers – is an important element in

framework, monetary policy can influence the risk in the financial system. increased risk of instability engenders lower expected future economic activity. when the janet l. yellen ( 2014 ) : “ monetary policy and financial stability ”, ( 2. july 2014 ). bis central bankers ’ speeches central bank assesses the future path of inflation and output, it has an incentive to dampen the build - up of financial imbalances. let me illustrate by means of this framework how a central bank can contribute to a smoother path for inflation, output and employment over time when it takes into account that financial imbalances may develop. chart : financial stress does not arise as a point of departure, let us look at a situation that is not unlike the one experienced in recent years : external interest rates fall and there are prospects that they will remain low for a long period. the decline in external interest rates results in a widening of the differential between norwegian and external interest rates, leading to an appreciation of the krone exchange rate. this in turn may lead to lower inflation and economic activity and the central bank therefore wishes to lower the policy rate. for reasons of comparison, let us first assume that neither the central bank nor other economic agents recognise that stress may arise. the blue lines in the panel show the path for the key policy rate, the output gap, inflation and financial imbalances obtained in this case. capacity utilisation increases and inflation returns to the target. at the same time, the low interest rate level leads to an increase in financial imbalances in the economy. if we use the framework i just described instead, the central bank will take into account the possible impact of financial imbalances on inflation and output and will therefore reduce the interest rate somewhat less. in this case, it takes longer for inflation to move up to the target. the policy stance also results in a somewhat weaker increase in activity. at the same time, the slightly higher interest rate contributes to dampening the build - up of financial imbalances. in this example, a higher interest rate does not provide any gains as the assumption so far is that financial stress does not arise. let us now see what occurs if financial stress arises after a period, with all else being equal to the first scenario. chart : financial distress does arise the purple lines in the panel again show a situation where the central bank has taken into account the possible effect of monetary policy on risk in the financial system. when financial turbulence occurs