Not Financially Savvy or Reckless Lending?

According to Bank Negara Malaysia (BNM), 47% of Malaysian youths have high credit card debt and 38% have high personal loans. An Assistant Governor said “I challenge all of you to break the myth... young generation are not financially savvy...” (The Star, 4 September 2018).

According to AKPK, the top five reasons for accumulating excessive debt are:

Of those who participate with AKPK, the profile looks like as follows:

(i)     Income level      -           73% have household income of less than RM4,000 per month

(ii)    Location             -           64% live in urban areas with high costs of living

(iii)   Age group          -           40% are between 30-40 years old

(iv)   Employment      -           64% work in the private sector

(v)     Borrowing type -           93% have unsecured debt (credit cards or personal loans)

The young could be financially savvy but are led to “slaughter” by the aggressive sales of commercial banks. All the banks focus on consumer lending and engage actively in selling their cards or personal loans. Just like sub-prime in the U.S., standards are waived to meet sales targets and commissions. In the early 1980s, it was difficult to get a credit card. It was as if you have arrived – a status symbol. Today it is the “Platinum” or “Premier Miles” card, otherwise you are a low level human being.

If behaviour is to change, it starts with the regulator and the banks. As long as bank managements throw “caution to the wind” (pardon the cliché), young people will end-up in debt beyond their means. It is time to rein in consumer lending or face the consequences.

Reference:

-The Star, 4 September 2018

-AKPK, Advancing Prudent Financial Behaviour, BNM, March 2018