Prudent Consumers in the Post-Pandemic ‘New Normal’ Era

By Mohammad Mafrukhin Mokhtar, AKPK

Consumer behaviour shifts to a new normal during the pandemic

From managing the COVID-19 crisis to reopening the economy, Malaysia’s road to recovery is paved with many challenges. The pandemic has had a profound impact on consumption patterns—from grocery shopping and buying essential items to performing work. The changing landscape of consumer behaviour presents yet another challenge. While the rapid shift from brick-and-mortar to online shopping platforms bodes well for the digital economy, it also has important consequences on consumers’ financial management and resilience.

A survey by AKPK among more than two (2) thousand consumers throughout Malaysia during the pandemic has shown a shift in spending behaviour. Overall, the survey found that a majority of the consumers (85%) said that they would continue in this new normal spending even after the pandemic is over. More than half of the consumers (60%) were found to have made online purchases several times within a month. There has also been an increase in the amount spent online where buyers who spent at least RM200 increased from 16% to 30%.

Indirectly, the pandemic has taught us some good lessons

At a time when the nation was curbing the spread of COVID-19, along with the implementation of several preventive measures such as the Movement Control Order (MCO), inadvertently, the situation has led to a pattern of better spending behaviour among consumers. In the survey by AKPK, 69% of the consumers agreed that their spending habits have indeed improved and that 77% of them were motivated to improve their financial behaviour.

During the pandemic, consumers reduced their overall spending by approximately 11% whereas the self-employed and high-income earners recorded the highest spending adjustment. The two biggest discretionary spending cuts were on ‘restaurants and hotels’ (-56%), followed by ‘recreation services and culture’ (-52%). These cuts came hand in hand with budget adjustments to facilitate work- and learn-from-home arrangements.

The pandemic has also shown that consumers have become more innovative in generating additional income, and this can be seen through an increase in the number of businesses operating online. This is a very positive change in behaviour and is recommended in order to build financial resilience among consumers.

Good expense management guarantees financial well-being

With the emergence of various applications and platforms that enable seamless spending for consumers, prudent management of their personal spending is crucial to protect them from overspending. The same study by AKPK found that consumers with a good spending plan are able to make savings on a consistent basis. A thorough spending plan starts with assessing affordability, preparing a budget, spending according to the budget, and finally, recording all expenses. On average, the savings ratio almost doubles for those who observe a spending plan compared to those who do not. In addition, it also helps to prevent consumers from making compulsive purchases, and at the same time, guides them in prudent spending.

Three (3) out of 10 consumers were categorised as online compulsive spenders

Unplanned and uncontrolled online spending (referred to as compulsive) negatively impacts the consumers’ financial position. The study revealed that three (3) out of 10 consumers have compulsive spending behaviour and that youths are more inclined towards such behaviour. Additionally, women, singles and those working in the private sectors are also found to have the same inclination to compulsive buying compared to the other profiles. Based on research, compulsive buyers have a lower level of financial well-being compared to prudent buyers.

The emergence of the BNPL platform during the new normal

There has been a rise in the use of the Buy Now Pay Later (BNPL) platform as Malaysian consumers adapt to the shift from offline to online purchases. BNPL allows consumers to purchase and pay in instalments online. Even though the platforms that offer BNPL services do not charge any interest, consumers will still be subjected to late penalty charges if they do not make the payment as stipulated. To summarise, the advantages and disadvantages of BNPL are as follows:

Advantages:

• A simple and organised method for payment of purchases at regular intervals
• Low or no interest rate compared to credit card instalment plans
• Faster approval on instalment purchases
• Can be used to purchase equipment needed to generate revenue (business)

Disadvantages:

• Difficulty in monitoring payments, especially when several purchases have been made from a variety of different sellers
• The tendency of consumers, particularly compulsive shoppers, to overspend
• High penalty charges for late payments

Source: Financial Education Network (FEN)

Prudent spending while leveraging consumer technologies

With an increasing number of online shopping platforms and the advent of purchase schemes such as BNPL, here are some simple guides for consumers to be prudent when spending in the new normal era, and consequently, improve their financial capacity in the future:

1. Examine three (3) things before making a purchase through the BNPL scheme:
   • Purpose of purchase – use for productive purposes such as buying goods that can generate revenue
   • Ability to pay – ensure the ability to make repayments
   • Loan terms – understand the application process, repayment policy, and late penalty charges
      
2. Perform three (3) steps to take advantage of technology for easier management of your finances:
   • Download a financial management application that is available in the market
   • Take the effort to fill out your financial information and start creating a budget
   • Monitor and record your expenses using the application
      
3. Perform three (3) steps to get further information about financial management and financial advisory services:
   • Identify financial education providers such as Agensi Kaunseling dan Pengurusan Kredit (AKPK)
   • Visit their education portal such as AKPK’s POWER! Portal via its website: www.akpk.org.my
   • Register and complete any online financial education modules of your choice

Source: AKPK (2022) - Rebuilding Financial Resilience: What Consumers Can Learn from the Pandemic