Rein in youth credit spending to curb debt

MALAYSIA is facing a growing financial crisis among its younger generation that is fuelled by easy access to credit cards and buy now, pay later (BNPL) schemes.

According to the Credit Counselling and Debt Management Agency (AKPK), more than 53,000 individuals under 30 were burdened with nearly RM1.9bil in debt in 2024.

Even more alarming, 28% of young working graduates were forced to take on loans to purchase essential goods.

This troubling trend highlights the urgent need for Bank Negara Malaysia to impose stricter regulations for issuing credit cards and deploying BNPL schemes to prevent unchecked debt accumulation among young people.

The financial distress of young Malaysians is not an isolated issue. The country’s household debt-to-GDP ratio hovers around 85%, one of the highest in the region.

A significant portion of this debt stems from unsecured lending, such as credit cards and personal loans, which appeal to young consumers with limited financial literacy.

Many freshly graduated youth entering the workforce are enticed by the flexibility and convenience of credit cards, only to find themselves trapped in a cycle of minimum payments, high interest rates and mounting debt.

Compounding the problem is the rise of BNPL services that allow users to defer payments on purchases, often without interest for the initial period.

While this may seem convenient, it ultimately leads to reckless spending when young consumers accumulate multiple deferred payments across different platforms.

Since BNPL purchases are often tied to credit cards, this exacerbates the debt problem, making it easier for individuals to accumulate substantial financial liabilities without immediate consequences.

As a regulator, Bank Negara could help to prevent young Malaysians from falling into debt traps.

For instance, the accessibility of credit cards and BNPL services should be tied to an applicant’s financial capacity and repayment ability.

Currently, banks issue credit cards with minimal scrutiny, often disregarding an applicant’s ability to repay debt.

Bank Negara could require banks to evaluate an individual’s creditworthiness before approving a credit card.

This should include stricter eligibility criteria that consider the applicant’s source of minimum income, student loans, existing debts, and daily living expenses.

A mandatory savings buffer should also be considered before approving new credit lines.

Also, as many young applicants have little understanding of compound interest, late payment fees or debt accumulation, applying for a first credit card should come with a mandatory introductory financial literacy course.

And first-time credit cardholders should have a lower credit limit to prevent excessive borrowing. The limit should be tied to their savings and cash flow rather than their declared income.

BNPL operators must also be subjected to the same credit assessment rules as traditional lenders.

Since these services are often linked to credit cards, BNPL providers should be required to report transactions to credit bureaus to ensure borrowers’ debt levels are accurately reflected.

Banks and BNPL providers that fail to conduct proper credit assessments should face regulatory penalties.

A cap on low interest rates and late payment fees to prevent financial institutions from issuing credit cards must also be introduced to discourage banks from easily issuing these credit facilities.

Bank Negara must intervene decisively to prevent young adults from beginning their life’s journey buried under a mountain of debt.

Stricter regulations and responsible lending practices could help prevent a future where financial instability becomes the norm rather than the exception.