Expert Opinion - How Interest Rate Hike Impacts Further Study Plan?

Dr Brian Wong Kee Mun, Head of School, School of Business, KDU University College.  
Often we believe that interest rate hike dampens the market sentiments as it favours savings and discourages spending. What is the implication of interest rate hike on individuals who intend to pursue tertiary education? Should they or should they not consider spending on further study in this scenario?

According to Dr Brian Wong Kee Mun, the Head of School of Business at KDU University College, theoretically, it is the norm that interest rate hike generally affects consumer spending. However, it is also a sign of market readiness for the government to decide on interest rate hike.

He elaborated, “There are two ways to look at interest rate hike – First, interest rate hike has an inverse impact on consumer spending as it encourages savings; Second, it has a positive impact on interest income. As more disposable income is available, spending will be encouraged. However, in a general scenario, the negative impact may outweigh the positive impact, causing a less positive impact of interest rates hike on consumer spending.”

Nevertheless, he suggested that we should also be aware that the hike also encourages consumers to think thoroughly on their spending priority. If education is considered as an expense, the priority to spend on further study will be lower during this period of time. However, if we equate education to investment, which we should, the yield from further study shall be given the priority.

“One should view education as an investment instead of an expense. The rationale is simple. Further study enhances an individual's knowledge and skills, thus, enhancing their capability to harvest higher income generation opportunities,” he added.

 “So, during situation like interest rate hike, one should think twice on what to spend. Spending on something that yields in long run, like education, perhaps is a better spending choice.” He equates the outcome of an investment in further study to the concept of interest earned in bank deposits due to interest rate hike. He added, “The yield from education investment may not be visible in the immediate term. But, when it is accumulated through a certain period of time, just like the compounded interests earned in bank deposits, the yield will make a difference to the individuals in the long run.” 

Dr Brian has been awarded a Doctor of Philosophy (Ph.D.) in Management by University of Malaya. Prior leading the KDU’s School of Business, he has held several senior management positions in local and multi-national companies, including Panasonic, Lafarge, Malaysia Healthcare Travel Council, and Putra Business School.
He added, to better understand any matter through the human perspective, KDU’s School of Business is now developing the concept of Personification of Matters through the Humanistic Entrepreneurialism philosophy.

He explains that we can personify a matter and understand the matter as if a human. If we personify ‘interest rate hike,’ perhaps, this is a person who brings fortune to the bankers and their depositors. It also acts as a person who reminds others to prioritise their spending, like education. And if we personify ‘investment in further study,’ this person will be someone who can bring you fortune if you know how to work with her well’, concluded Dr Brian.

Malaysia's central bank – Bank Negara Malaysia on 25 January 2018 raised its overnight policy rate, used by banks to calculate interest rates, to 3.25 percent from 3 percent, for the first time in four years, citing a stronger domestic and global economy.