Debt there be light

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  • Sunday, 15 Dec 2019

Prof Mohd Nazari believes that there needs to be a drastic change in value systems in order to address the issue of unrestrained debt.

BUSINESS was bad last year for 30-year-old Alicia*. It came to the point where she was not paid for more than eight months as she earned on commission without a basic salary.

At the time, Alicia was behind on her house, car and credit card bills. She had even reached a default interest rate of 8% on her mortgage.

Fortunately, she turned to the Credit Counselling and Debt Management Agency (AKPK) for help.

“The AKPK officer reviewed my pay and bills, as well as future commissions I would get. They helped me step-up my house loan and credit card, reducing both greatly in terms of monthly repayment. My credit card payments were reduced from RM400 monthly to RM100. My house payments were reduced from RM2,200 to 1,650, ” she says.

“The minute you feel like you’re lost, just head over to AKPK for advice. I didn’t know it existed until the banker I kept calling told me about it, ” she says.

“Go before you’re in too deep. Or before you make any financial decisions, go ask for advice on handling your finances. They’re really helpful and it doesn’t even take long, ” she says.

A wholly-owned subsidiary of Bank Negara Malaysia, AKPK provides financial education, credit counselling and debt restructuring services to individuals as a way to encourage financial literacy.

Further information on AKPK services can be found on

The World Bank’s Malaysia Economic Monitor (MEM) report found that about half of Malaysian working adults lack financial resilience, especially the younger generation. In 2018, AKPK discovered that 28% of Malaysian working adults surveyed had to borrow from friends and family to purchase essential goods.

To compensate for inadequate income, many Malaysian households turn to borrowing as a means of short-term relief. The MEM report found that more than 40% of borrowers with monthly household incomes less than RM3,000 spend more than 40%of their income on debt repayment.

Worryingly, among lower-income borrowers, debt is mostly for supporting consumption instead of longer-term investments.

Millenials are found to lack financial knowledge and capacity, with about 40% admitting to spending more than they can afford – and most of that spending going to necessities such as food and utilities. There is also increasing concern over bankruptcy among the youth with 60% of bankrupt borrowers aged between 25 to 44.

Savings are severely limited.

Presently, more than 89% of Employees Provident Fund (EPF) members agree that their EPF savings are insufficient for retirement but only 38% have started planning for it. Concerning still is that 60% of Malaysian adults are not covered by the EPF.

Economist Prof Mohd Nazari Ismail believes that there needs to be a drastic change in value systems – where people spend within their means and not from money obtained from bank loans – in order to address the issue of unrestrained debt.

“This may sound like a radical idea. But to be honest, there is no other alternative if we really want to solve the cost of living problems among the middle and lower income groups in society, ” says Mohd Nazari, who is from University Malaya’s Department of Business Strategy and Policy.

“Economic expansion in a debt-based economy where banks create money from thin air when they issue loans will usually be accompanied by cost of living problems for low income groups, ” he adds.

Mohd Nazari explains that this is because there will be a reduction in the value of money but no increase in salaries and wages for the workers.

“The long term solution is to have an economy which is not dependent on banks as the main creator of money and where debt is not a norm and not an industry. Sources of funds for investment activities should be in the form of equity and not loans. For consumer spending, the sources should be consumer savings and not loans from banks, ” he elaborates.

Apart from raising awareness on financial literacy, the MEM report report suggested creating a repository of financial planning tools which are available online and in local languages. Other solutions include strengthening consumer protection and encouraging more responsible behaviour by both banks and non-bank financial institutions.

The MEM is a long-running flagship publication produced by the World Bank Group Malaysia country team twice per year. Its 21st edition focuses on the cost of living.

*not her real name

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