THE ratio of household debt to the country’s gross national product has risen from 69 per cent in 2006 to 75.8 per cent last year, and total consumer debt in Malaysia now stands at more than RM660 billion. The number of Malaysians in financial distress appears to have increased, as evidenced in the jump in the number of bankruptcy filings from 13,855 in 2008 to 19,167 last year. Even young people now face financial difficulties from an early age, according to a survey by the Education and Research Association for Consumers and enrolment figures from debt management programmes conducted by the Credit Counselling and Debt Management Agency (AKPK).
As much of the global financial crisis has its roots in overextended house buyers in the United States purchasing property they were unable to afford, the concern over the risks of easy credit to the broader economy is understandable. However, as Bank Negara Malaysia has taken prudent measures, such as tightening lending guidelines and placing limits on credit cards, there is no cause for panic. The level of household debt remains manageable.
In any case, though the ancient adage “neither a borrower nor a lender be” may sound sagacious, the contemporary reality is that both borrowing and lending are integral to the workings of a modern economy. In any event, many people become overwhelmed by debt because of unexpected situations that affect their ability to repay, like illness. A quarter of those who sought AKPK’s assistance had trouble paying medical bills, or suffered business failure — 15 per cent of the cases. As such, the notion that debtors are spendthrifts who live way beyond their means or that all debt is bad is too simplistic, and there is a need to take a more nuanced approach. In this regard, the establishment of AKPK six years ago to provide advice and assistance to those in deep financial trouble was a step in the right direction.
Whatever the good or frivolous reasons for getting into debt, what is important is to help people struggling to meet payments to get their finances back on track.
Obviously, as debts grow rapidly over time and speedily run out of control, the earlier they are tackled, the easier they are to deal with. In fact, managing debt should start even earlier.
Which is why teaching financial management in universities is important — students with knowledge of financial planning are less likely to run into trouble and to need rescue. Indeed, there is a need to find ways to expose children from a young age to basic financial literacy.