SATISFACTION TOWARDS FINANCIAL RISK MANAGEMENT OF PUBLIC EMPLOYEES

Abstract

Risks are faced daily and anywhere by individuals. Any unexpected bad events occured would most probably lead to incurring high costs. In spite of that, the ability to handle t1he situation financially differs across individuals depending on the extent of their financial preparedness. Such uncertainty in economic risks faced in daily life are loss of job, sickness, bankruptcy, failure of loan repayment, poverty and hardship or pauperism at old age (Goldsmith, 2009). The increase in cost of living due to the increase in consumer products would pose another risk in terms of daily expenses. The monthly average household expenditure for Malaysia increased from RM3,578 in 2014 to RM4,033 in 2016 (Department of Statistic, 2016). This increase would have a direct effect on the ability on loan repayment and others. Savings risks might be elevated in the long run and may contribute to the delay in achieving specific financial goals of the households.
As compared to the private sector employees, public sector employees are also being protected their longterm savings in the Employee Provident Fund depending on their retirement option and are covered their work related risks by the Social Security Organisation scheme. However, some risks are not covered under these schemes. Local residents were facing other financial risks as shown by statistics of nonperforming loan. A total of 50,361 individuals were involved in nonperforming loan (NPL) with an estimation of RM4.8 billion NPL due to their inability to pay the cost of medical treatment (Department of Statistic, 2010). Hence, there is a need to manage risk well apart from managing spending, savings, loan and investment (Garman & Forgue, 2003).
Managing daily risk should be a long-term effort which comprises of four types of methods that are risk avoidance, risk reduction, risk assumption and risk transfer. Risk can be transferred to a third party such as an insurance company or fund institution. The Employee Provident Fund is a local fund institution that can manage savings risk faced by individuals whereby the risks of losing savings made by individuals are transferred to the institution. With the restricted withdrawal of the contribution made to the fund, this kind of savings has low liquidity as compared to the savings in savings or deposit accounts. The fund is in the form of long-term funds where contributions based on salary are made by the employee and employer periodically over their life span during their service term. This study focused on public sector employees where majority of them made option for pension scheme and there is availability of a regular income during the retirement period however with a lower amount. Hence, dependency on the pension income alone might not guarantee the adequacy of income for their retirement life.