[COLUMNIST] The high cost of living: Dilemma of fresh grads

AS Malaysia grapples with rising inflation, the cost of living has become a significant dilemma for fresh graduates, weaving a complex web of financial challenges that hinder their ability to achieve economic stability and personal independence.

Living paycheck(s) to paycheck(s) is increasingly common, as essential expenses like housing, food, healthcare, insurance and transportation keep rising, pushing many to rely on side hustles.

The widening wage disparity in Malaysia

Factors contributing to the wage gap among fresh graduates include education mismatches, socio-demographic economic differences and labour market dynamics.

Employers still frequently use the minimum wage as the beginning compensation for fresh graduates, which remains inadequate.

The current minimum wage of RM1,200 per month in Peninsular Malaysia and RM1,100 in East Malaysia does not align with the living wage required for a decent standard of living, particularly for young graduates living in densely populated urban areas while dealing with student loans and other financial obligations.

As previously highlighted by Bank Negara Malaysia (BNM) in its report “The Living Wage: Beyond Making Ends Meet”, a single individual is expected to earn at least RM2,700 (2018) to maintain a decent standard of living in Kuala Lumpur.

However, according to the Khazanah Research Institute (KRI) report titled "Shifting Tides: Charting Career Progression of Malaysia’s Skilled Talents," a significant proportion of Malaysian graduates are overqualified for their current jobs. In 2021, 48.6% of graduates were working in positions that did not match their qualifications, often accepting low or semi-skilled jobs due to a lack of suitable opportunities.

This prevalent issue of overqualification is compounded by stagnant wage growth. In 2021, 65.6% of fresh graduates earned less than RM2,000 per month, a figure that has remained relatively unchanged over the past decade.

While the older generation may perceive fresh graduates as “demanding and privileged”, today’s graduates face distinct challenges, including greater economic uncertainty, far more intense job market competition, student loan debt, etc.

The rising cost of living has outpaced entry-level salaries, placing financial strain on these fresh graduates and leaving many without emergency funds.

Despite the lower cost of living compared to many global cities, the minimum and stagnant wages for fresh grads pose challenges in affording major metropolitan areas like Kuala Lumpur and Penang.

A fresh graduate’s starting wage should not be solely determined by the entry-level salary. Instead, companies should consider various factors, such as demographics and the nature of employment. Additionally, federal and state governments should periodically review wage policies, at least every five years.

Financial struggles: Housing affordability and students loan debts

Despite various research findings indicating the rising cost of living for individuals, the Ministry of Economy revealed in Belanjawanku 2022/2023 report that the estimated cost of living for single individuals in the Klang Valley is RM1,930. The figure contradicts Bank Negara Malaysia's previous estimate of RM2,700.

For instance, the report highlights that the cost of renting a room in Klang Valley is merely RM370. However, in reality, the cost of renting a room has increased, especially in urban areas wherein employment prospects are most abundant, forcing many graduates to either compromise on living standards or incur significant debt to afford good accommodation.

A quick search on rental platforms in Malaysia (Figure 1) reveals that, to have access to public transportation and live comfortably in Klang Valley, the rent ranges from RM500 to RM900 per room per month.

Furthermore, instances of racial preferences in renting rooms, favouring one ethnicity over another, have made it even more challenging for some to find an affordable and comfortable room to rent.

As rent is taking a significant portion of their income, this significantly contributes to the cost-of-living pressures on fresh graduates.

Providing housing allowances, as done in other countries, could be one of the ways to alleviate these pressures.

In Sweden, housing subsidies for individuals aged 18 to 28 have helped maintain a balanced work-life environment by making affordable living options more accessible.

A similar policy should be considered and implemented in Malaysia for fresh graduates who have graduated within the past three years. Such a policy would contribute to higher retention rates among young workers, fostering a more stable and inclusive workforce.

Additionally, rent control measures in major urbanised areas like Penang and the Klang Valley could further reduce financial strain by preventing exorbitant rental increases. EMIR Research has emphasised already that successive administrations have long overlooked the critical issue of commercial (and residential) rents as a major contributory factor to cost-of-living pressures (see “Subsidy rationalisation, rents and inflation”).

Promoting remote work opportunities is another effective strategy, allowing graduates to reside in more affordable areas without compromising their career prospects.

These combined measures can significantly reduce the financial burdens on fresh graduates, enhancing their quality of life and economic stability.

The reality today is that, even before entering the job market, students are burdened with debt, specifically education debt accumulated from tertiary education. Among these students, those with multiple loans to repay and IPTS graduates face higher repayment rates. A study by Ooi et al. (2022), involving 301 PTPTN borrowers, highlights that 72% of the respondents pay RM100 to RM300 per month for their student debt.

A descriptive analysis by Atasha et al. (2022) involving 136 fresh graduates found that the majority of respondents financed their education through loans (45.6%), followed by scholarships (23.5%). Even more alarming, 36% had debt exceeding 40% of their income, signalling high levels of financial stress and instances of being unable to afford basic needs.

Furthermore, the burdensome buildup of debt, financial pressure from family, etc. lead some fresh graduates to make poor financial decisions. In desperation, they turn to credit card loans, personal loans, or, in the worst-case scenario, unlicensed money lenders, commonly known as loan sharks.

Employability stability and career development

The rising cases of underemployment, continuous stagnant wages, and limited room for career growth and development pose major dilemmas for fresh graduates.

High youth unemployment rates further exacerbate wage disparities. The intense competition for limited job opportunities forces many young graduates to accept lower-paying jobs.

According to the Department of Statistics Malaysia, the youth unemployment rate in April 2024 was 10.64%, significantly higher than the national average of 3.3%.

This high unemployment rate pressures young workers to settle for any available job, often at lower wages than expected, whilst increasing the rate of underemployment. For instance, the “Shifting Tides: Charting Career Progression of Malaysia”s Skilled Talents”, report by KRI reveals that 42.0% of working graduates in 2021 held a job unrelated to their field of study.

Besides, the prevalence of the gig economy has led many fresh graduates to forgo pursuing higher education, as job security in traditional roles diminishes.

With the rising educational costs and limited job opportunities in semi-urban and rural areas, many school leavers are turning to gig work as a necessary alternative. This shift underscores the need for more stable employment options and better economic opportunities in less developed regions, ensuring that higher education remains a valuable investment.

Furthermore, the cost and time associated with professional development courses and programmes can be significant barriers for young graduates seeking career advancement.

A survey of 1,375 employees across the Asia-Pacific (APAC), including 100 employees from Malaysia, found that the most significant obstacle to upskilling involving digital skills in Malaysia is cost, with 39% of employees reporting that expensive courses prevent them from acquiring new digital skills.

To address this, continuous collaboration between the MoHe, HRDF and TalentCorp in providing support and assistance for lifelong learning courses and training, can help retain young talent by making continued professional growth more accessible and affordable.

Furthermore, the government should consider providing tax incentives to employers—especially small and medium-sized enterprises (SMEs)—who hire fresh graduates, provide lifelong learning programmes etc.

One critical aspect that many companies overlook is the importance of regular performance appraisals, both in small and large companies. These appraisals play a crucial role in employee retention by providing valuable feedback and direction for career growth, especially for fresh graduates just transitioning into the job market.

In the long term, systematic appraisals benefit both employers and employees, by enabling them to track progress, recognise achievements, and identify areas for improvement in their personal career development.

Finally, MoE and MoHE play critical roles in providing high-quality education and reforming educational policies. As emphasised in EMIR Research's article “The Future Economy: Reinventing Malaysian Educational System”, reforms should aim to better align education with market needs, ensuring graduates are well-prepared for the evolving job landscape.

By implementing these measures, Malaysia can better support its fresh graduates, ensuring they have the opportunities and resources needed for long-term success and stability in their careers.

Other National Impacts

As previously emphasised in EMIR Research’s article “Addressing the socioeconomic gaps in nutrition transition on health”, socioeconomic inequalities, including income, education, housing instability, etc., pose a considerable risk for poor dietary choices.

When these graduates earn insufficient incomes, they often limit themselves to one meal a day, while also opting for cheap and non-nutrient-dense meals or skipping meals entirely to save money.

This hunger can lead to fatigue and poor concentration, adversely affecting their performance at work or in educational settings. Moreover, chronic hunger impacts mental health and overall well-being, exacerbating stress and reducing quality of life.

Besides, the limited job opportunities, inadequate wages, and insufficient career advancement prospects increase the prevalence of brain drain among these young professionals as revealed in extensive report by EMIR Research “Malaysian Brain Drain: Voices Echoing Through Research”.

As a result, the home country faces a significant loss of talent, which hampers its economic growth and development, as emphasised in “Harvesting Genius: Unravelling the Complex Dance of Brain Drain”.

The time has come for stakeholders to act and implement long waited policies and measures that adequately support and protect our fresh graduates. By ensuring their long-term success and stability, we can prevent our country’s chronic loss of talent.

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Jachintha Joyce is a Research Assistant at EMIR Research, an independent think tank focused on strategic policy recommendations based on rigorous research.

** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.

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