High debt, low salary | The star


Malaysian households are in debt of nearly RM1.38 trillion, exceeding what the federal government owes its creditors.

Between 2018 and 2021, household debt in Malaysia jumped by almost 17%, raising concerns about the country’s debt service capacity, especially in times of crisis.

This situation is further exacerbated by the fact that most Malaysian households have low savings reserves.

According to Bank Negara, 76% of households have savings that can only cover less than three months of living expenses.

The situation is aggravated by the rising cost of living and unwise lifestyle choices. Low-income households in the bottom 40% (B40) are the most affected.

Group B40 has a net income of RM230 per month in 2019 after accounting for expenses and financial obligations, according to Bank Negara.

The middle 40% of households and the richest 20% of households, on the other hand, have a monthly net income of RM1,127 and RM4,081, respectively.

With insufficient savings reserves, most Malaysians do not have a proper ‘safety net’ and it is no surprise that many have had to dip into their pension funds as they have been hit by the wage cut and job loss over the past two years.

High household debt is also a problem for Malaysians seeking home loans.

In its recently published 2021 annual report, Bank Negara points out that 65% of borrowers already have car or personal loans.

This can limit the ability of potential borrowers to take out a home loan, he adds.

Total household debt comes from hire purchase and personal loans, as well as credit card debt which was 28%.

Experts say high car prices, partly due to high taxes, as well as lack of money management skills, have contributed to soaring hire-purchase and personal loans, as well as card debt credit.

Bank Negara warned that excessive debt accumulation could affect household purchasing power.

Within the region, Malaysia has one of the highest ratios of household debt to gross domestic product, at 89%, compared to 9.9% in the Philippines, 17.2% in Indonesia, 69, 7% in Singapore and 89.3% in Thailand.

Although the central bank says households’ ability to repay remains supported by targeted assistance and prudent lending standards, that doesn’t change the fact that over-indebted borrowers remain vulnerable.

Speaking to StarBizWeek, Chief Economist of Bank Islam Malaysia Bhd, Dr. Mohd Afzanizam Abdul Rashid, said the high ratio of household debt to GDP should serve as a reminder that knowledge of financial literacy is essential. .

“It’s about ensuring that all Malaysians would be able to make a sensible financial decision, be it in terms of spending, saving, investing and managing risk,” he says.

Meanwhile, a financial adviser believes that Malaysia’s high household debt is the result of structural problems in the economy.

The lack of cheaper housing options, despite plans announced by federal and state governments, is pushing Malaysians to take out high mortgages.

It should be noted that around 55% of household debt is due to housing loans.

Housing prices in Malaysia are unaffordable in most states. Interestingly, Melaka is the only state with an affordable housing market.

Center for Market Education chief executive Dr. Carmelo Ferlito says the national push for homeownership has led to high household debt.

He believes that the real problem policymakers should be tackling is household debt, not home ownership.

Over the past decade, the government has pushed for the affordable housing program through various funding programs such as My First Home, Youth Housing and MyHome.

Under Malaysia’s 11th plan, the government had announced plans to build 606,000 affordable housing units for low and middle income groups. Meanwhile, under Malaysia’s 12th plan, it was announced that 500,0000 affordable homes would be built.

“Like many other problems, high household debt is a problem which, having reached the proportions it currently has, cannot be solved overnight or with short-term measures and the prolonged closures have aggravated the problem.

“It’s very difficult and I think we have to recognize that there are two major issues – the rising cost of living and the lack of financial literacy.

“In the long term, educational solutions aimed at increasing financial literacy are very important in building a culture that values ​​savings more than consumption. People should buy a car or a house according to their income level and rediscover the importance of virtuous consumption habits,” he says.

Ferlito also urges the government to tackle the rising cost of living.

Malaysia needs an economic strategy that aims to generate healthy, investment-led growth and contain inflation by reducing the amount of money in circulation, he said.

Echoing a similar view, Mohd Afzanizam of Bank Islam says there is an urgent need to ensure the economy is competitive and will provide more opportunities for households to earn a better living.

This in turn should spur higher income growth, better jobs and business opportunities, and stable prices.

“In my opinion, household debt is only a symptom rather than a cause.

“So we may need to find the real cause of high levels of household debt rather than dealing with the symptoms,” he says.


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