Indonesians’ love of savings may end up costly in long run

Saving versus investing illustration.
Saving versus investing illustration. Nattanan Kanchanaprat/Pixabay.

Unlike many other parents, Budi Hikmat has never allowed his children to save their excess cash in a bank and instead tells them to invest it in various instruments, like stocks and mutual funds.

As a senior fund manager, Budi learned that keeping money in banks is as futile as watching the grass grow.

“If we had saved our money in banks within the past 10 years, we would have gotten a 5 percent yield, but little do people know that if we had bought bank stocks, we would have gotten a 21 percent yield,” the chief economist and investor relations director of fund manager Bahana TCW Investment Management told The Jakarta Post recently.

As a matter of fact, only a tiny fraction of 250 million people have started to invest, whether in mutual funds or stocks.

At present, the Indonesia Stock Exchange (IDX) has only about 490,000 single investor identities (SID) who have invested in shares and 340,000 who have invested in mutual funds, according to Indonesian Central Securities Depository (KSEI) data.

Bahana TCW president director Edward P. Lubis said Indonesians tend to play things safe, especially considering the discovery of many bogus investment products in recent years.

Over the period of 2013 to 2015, the Financial Services Authority (OJK) discovered more than 750 investment or financial service companies selling bogus products or lacking proper licenses to market financial instruments.

“Moreover, the money-saving trend is triggered by banks’ dominance within the local financial industry,” said Edward, who also serves as chairman of the Fund Managers Association (AMI).

Edward compared Indonesia’s situation to that of India, the government of which purposely set an ideal climate to form an “investment society”, since bank return rates were only 1 percent, while bonds could provide yields of more than 5 percent.

“Hence, we should change this [money-saving] trend, as people can enjoy a higher return with a high but manageable risk,” he went on.

Meanwhile, Freddy Pieloor, a financial planner from the Jakarta-based MoneynLove Planning and Consulting, attributed the money-saving trend to people’s tendency to expect big returns in a short investment period.

“That’s why many people have been deceived by bogus investment products. Therefore, there is lots of work to do to boost the country’s financial literacy,” Freddy said.

Indonesian capital market investors expect gains of 12 percent on average per year, the second-highest after Russia among 28 countries surveyed by British multinational asset manager Schroders. However, Indonesians only spend 2.3 years on average with an investment product, the fifth-shortest period in the world, according to Schroders’ Global Investor Study 2016.

Efforts have been made by the OJK and the IDX, as well as industry players, to promote capital market investment as a long-term instrument to manage money instead of the more popular bank deposits.

The IDX, for instance, plans to organize a business incubator program to help the country’s startups develop their businesses so that they are eligible to float their shares on the stock market. It will team up with state-controlled lender Bank Mandiri to hold the incubator program, which consists of various workshops, such as legal and accounting consultations.

Indo Premier Investment Management president director Diah Sofiyanti said that people had been trapped in an exaggerated fear over investments. Diah said one should set a long-term plan before starting to invest, so that he or she could pick the right investment products.

“For instance, we could save some money by riding a bicycle from Jakarta to Surabaya in East Java [a distance of 785 kilometers], but for what? We can just take an airplane to save time and energy,” she said.

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Note
1. This story was first published in The Jakarta Post newspaper.

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