Starting from what seems like a small flu outbreak in China to an all-out global pandemic which put a quarter of the world in lockdown. This is a tough time indeed and possibly life-changing — how life-changing? For starters, air pollution has dropped significantly and touristy sites which normally packed with people is now empty.
And of course, the obvious effect from this is the market is now tanking. Bursa is at the low level of the year 2011 and Dow Jones Industrial Average has dropped about 35%, prompting a possible recession incoming.
Economic activities (buying and selling) is at minimal and prolonging this situation will be terrible. Small businesses will be forced to close, employment is at risk and other possible issues could arise such as crime, unemployment and poverty.
To combat this, governments such as the US, Singapore, Spain and South Korea has already announced a stimulus package in order to inject cash into their economy — including Malaysia. And this stimulus package is what they call the “helicopter money”.
What is a Stimulus Package?
A stimulus package is an economic measure (fiscal policy) put together by a government to prevent an economic slowdown. Essentially, the government increases its spending and lowering taxes to directly inject money into the economy.
The logic behind this is that when people have more money, they have the incentives to spend or invest more. This creates demand which leads to an increase in hiring for production and a decrease in unemployment. The decrease in unemployment leads to competitive hiring among employer which drives higher wages. People will then have more money to spend and invest. And the cycle repeats.
Sounds confusing, but that is what I can simplify based on my understanding of the whole logic behind the stimulus package. I’m glad that I paid attention during Macroeconomics 101 class now.
The Prihatin Stimulus Package
On 27th March, our PM announces RM 250 billion worth of stimulus package aptly named “Pakej Ransangan Ekonomi Prihatin Rakyat (Prihatin)“. Three main objectives of the package are to safeguard the people’s welfare, supporting businesses including SMEs and strengthen the national economy.
I think the package itself is pretty comprehensive and covers A LOT of ground. Read the full package announce speech by the PM here.
1. Who Qualifies For The Stimulus Package?
Pretty much all Malaysian will receive some degree of benefit through this package but more emphasis is given to B40 and M40 group. Below are some highlights on who is eligible for the Prihatin Stimulus Package and their benefits:
- Free 1 GB of internet data
- 15% to 50% discount on electricity for 6 months beginning in April
- 2-month extension on income tax declaration. From April to June.
- Up to RM 300 subsidy for Covid-19 testing to all policy and takaful holder.
- RM 600 allowances per month of allowances to medical staff & doctors starting April.
- RM 200 allowances per month to soldiers, RELA, police, civil defence starting April.
- RM 800 to the single individuals above the age of 21 earning less than RM 2,000 per month.
- RM 250 to the single individuals above the age of 21 earning between RM 2,001 to RM 4,000 per month.
- RM 1,600 for a family with a total household income of up to RM 4,000.
- RM 1,000 for a family with a total household income between RM 4,001 to RM 8,000.
- 3-month moratorium to family insurance & Takaful to those who affected from Covid-19.
- RM 500 one-off cash assistance.
- Full salary and 1-month contract extension for cleaning and food services involved in the RMO.
- Withdrawal of up to RM500 from Account 2 until March 2021.
- RM 500 in April to civil servants Grade 56 and below including those who work on a contract basis.
- RM 250 one-off cash assistance in April.
Students and Student Loan Borrowers
- RM 200 one-off cash assistance for the students currently in institutions Higher Education.
- PTPTN loan repayment deferment for 6-months.
- MARA student loan repayment deferment for 6-months.
This is just a selected summary and not the full list of people eligible for this package. You can check the full details here.
2. I’m Qualified! When and How Can I Get The Money?
To those who qualify, the payment will be made in two-phase that is in April and May 2020. The government will make use of the existing B40 data from Bantuan Sara Hidup (BSH) and M40 data from LHDN/IRB database. For those who are not eligible for BSH or an existing taxpayer, a new application can be made after 1st April through www.hasil.gov.my.
In addition, a special unit, LAKSANA will be formed to ensure the money will be distributed to the targeted groups.
Best Way to Spend the Stimulus Money?
I’m not a financial advisor and certainly not going to advise you on WHAT you should spend your money on. However, here are some ideas that I want to share on what to do with the money. As they said, with great helicopter money, comes great responsibility.
1. Cover Your Essentials
Whatever situation you are in, this should be the priority — health and basic needs. This includes having enough money for medication, food, rent, utility bills, groceries, fuel and internet connection. Use the money to purchase those items and to boost your emergency reserves.
Sure, the RMO is ending on 14th April but it can be extended further. Even if it does end on 14th April, it is unlikely that everything will be back to normal. For instance, I will most likely still avoid the places with lots of people which means less eating out and more takeaways and stocking up groceries now and then.
The RMO may have a long-term effect on our employer which possibly leads to payment or benefits cut or even retrenchment. So, use the money to prepare for the worst-case and to stretch every ringgit as far as you can.
2. Invest in Yourself
If you have the essentials and emergency reserve covered, then you are good to invest…in yourself. Take this time to add value and prepare yourself to get ahead professionally and creatively. There are a lot of activities you can do now that helps to fill up your free time.
For me, I’ve been brushing up my web development skills, which is why this whole blog has seen a little bit of makeover starting this week. Yeah!
3. Invest for Retirement
If you got the first two suggestions covered, congrats! You are well-prepared and probably have been savvy with your finances all along. You have a variety of investment opportunities here since the market is very low. There is an opportunity somewhere for massive growth in the upcoming years.
If you’ve been eyeing to invest your money somewhere, no is probably is a good time since more millionaires are created during the recession. Take this with a grain of salt since an investment can go either way and make sure to do your research first.
However, if you want to invest in ETF, Wahed Invest is a robo-advisory platform which you can take a look. Don’t forget to use “mohbin241” as your referral code for an extra RM 20, if you deposit RM 100 in your account within 30-days of registering.
Where Does The Stimulus Money Come From?
So…the real question is, where is this helicopter money coming from? Is it from our government coffers? Or BNM just print the money out of thin air? There is, of course, a downside to an expansionary fiscal policy such as this one but that is not the focus of this post.
According to the Finance Minister, the RM 250 billion is coming from government agencies, related parties within the government ecosystem and borrowings. He noted that all borrowings are done locally with the majority of them are coming from the private sector. Full articles here and here.
Whatever that is, time will tell but we certainly need the stimulus package in this telling times for now.
The Prihatin Stimulus Package is designed to effectively kick-start our economy. However, the positive impact might take a while and recession is still on the horizon in the short-term. With the extra money, hopefully, we can soften the impact on our daily life. Kudos to our government who came up with this stimulus package in a timely and responsible manner.
Stay safe, stay healthy. #StayAtHome
ACTIONABLE TIPS: Go through the stimulus package in detail and identify which one that you are eligible for. Stay up-to-date on how you can claim the package in the next few weeks.
How are you benefitting from the Prihatin stimulus package? Share with me in the comment section below. Also, do share this post within your Twitter, Facebook, LinkedIn circle using the share button below so that they can start planning for their additional money.