Youth are not keeping up with credit card and loan payments
By ANGELIN YEOH
alltherage@thestar.com.my

WHEN asked about her experience with credit card debt, the first thing Paige (not her real name) said was “do you know the movie Confessions Of A Shopaholic?”

The movie, of course, is based on the best-selling novel by Sophie Kinsella, telling the story of a young writer whose shopping addiction lands her in some serious credit card debt, and the ingenious and humourous excuses she came up with to avoid having to deal with that debt.

“Yeah, I’m kind of like that,” said Paige, 26. “I got my first credit card with a RM4,000 limit about three years ago. I remember telling myself that I would only use it to pay for petrol.”

Before she knew it, she had got herself a second credit card, and racked up a bill of RM4,000. Hardly Confessions Of A Shopaholic stuff, but, like many young Malaysians out there, it was a debt she was ill-equipped to manage.

She ended up incurring an additional 16% in interests, having failed to recognise how substantial an amount it would be.

“You don’t feel it when you swipe! It’s just too easy to keep telling yourself that you can afford to pay it off slowly,” said Paige, who also had to pay off a car loan at the time on an RM3,500 salary.

Evidently, the true stories about the debts of working young adults in Malaysia – credit card debts, housing loans, car loans, study loans, insurance payments, etc. – rarely make for such whimsical reads as Kinsella’s novels.

Datuk Paul Selva Raj, CEO of the Federation of Malaysian Consumers Associations (FOMCA), said 47% of young Malaysians are currently in “serious debt” (debt payments amount to 30% or more of their gross income), something that could catch up with them very quickly.

“Car purchases and credit card debts are among the main reasons for bankruptcy in Malaysia,” said Paul. “It’s the culture we live in. There’s a lot of emphasis on status and being ‘cool’ – but being cool costs money.”

In some cases, it can cost you more than just money. Koid Swee Lian, CEO of the Credit Counselling and Debt Management Agency (AKPK), came across one such case.

“This young man had over RM13,000 in credit card debts. He had difficulty paying it off and the bank threatened him with bankruptcy. He couldn’t face the pressure, so he committed suicide,” she said.

Planning ahead
According to Koid, a lot of young Malaysians are too nonchalant about their credit card and loan payments.

“A lot of them think ‘as long as I pay the minimum amount, I should be fine’. We’ve had people coming to the agency asking why it’s taking so long for them to settle their credit card bills. Then only they realised that after so long, they’ve only been paying for the interests incurred, and barely covering the amount they’ve actually spent,” said Koid.

Established in 2006, AKPK is a subsidiary of Bank Negara that aims to improve the financial knowledge of Malaysians through its counselling and debt management programmes. More than 80,000 have been enrolled under their Debt Management Programme.

Koid added that a lot of young people are unaware of the consequences of defaulting on credit card and loan payments.

“If you have a history of being a bad paymaster, you’d have difficulty applying for a housing or car loan in the future. If you have a debt amount of over RM30,000; you may get a bankruptcy proceeding initiated against you,” she said.

According to the Insolvency Department, 41 Malaysians are declared bankrupt every day, with the majority of them being under the age of 44. The main reasons cited are inability to pay off car loans, poor control of credit card usage and a failure to pay off personal loans.
Earlier this year, Paige resolved to not become part of that statistic.

“Whenever I get my salary now, I pay the full amount I owe from the credit card. It’s a bit tougher on me financially, but anything is better than having a huge debt constantly looming over my head,” she said.

It’s almost impossible for Paige to put aside any money for savings at the moment, but she recognises that she has no one but herself to blame for her current financial situation.
She said: “The problem is really the spending habit, not the credit card.”

Dealing with debt
The problem with young Malaysians is that too many of them do not have any financial planning skills.

Paul gives an example: “Credit cards are supposed to be a short-term convenience. You use it, then you pay it off at the end of the month. But a lot of young Malaysians are using it almost like a loan! The problem with that is it keeps adding up, and the interest rates, of course, are very high.”

The numbers Paul gets from Visa and MasterCard show that credit card usage is on the rise, but it is becoming increasingly obvious that the knowledge on how to manage them hasn’t caught up.

In 2012, Visa conducted a Financial Literacy Barometer survey on over 900 participants in Malaysia. The survey showed that one in five respondents had no savings at all, and over 70% cannot endure a personal economic emergency of over three months.

“We find that a lot of parents don’t talk about financial issues and money with their children. It’s sort of a taboo topic. Parents often worry of other how people will perceive their financial situations through hearsay therefore they prefer to keep it to themselves,” said Jason Alderman, Visa’s Global Head of Financial Education, during the launch of Visa Financial Football, an online game that helps educate young people about financial planning.

In order to catch their attention, the game will also give one lucky winner the chance to attend the Confederations Cup final in Rio de Janeiro, Brazil.

Visa Malaysia country manager Stuart Tomlinson said: “With sound knowledge on financial education, young people would become better consumers. They will be able to fully utilise their credit cards, manage their loans and avoid falling into the debt trap.”

Clueless about money
The Consumer Research and Resource Centre (CRRC) conducted a survey on the financial behaviour of 1,000 Malaysians aged 18 to 35 living in urban areas. Here’s what they found:
> Close to 50% of young Malaysians are in “serious debt” (debt payments amount to 30% or more of their gross income)
> They pay an average of RM932 on housing loans, RM619 on car loans, RM199 on study loans and RM391 on insurance payments. That adds up to over RM2,100 a month.
> Sixty-five per cent earn less than RM3,000 a month.
> An average of RM702 is spent using credit cards every month.
> (From a separate Nielsen global survey) Less than 50% of Malaysians settle their credit card bills in full every month (compared to 89% in Taiwan and 87% in Japan).

Get help!
IF you’re struggling to get a grip on your finances, there are a few ways you can get help;
The Credit Counselling and Debt Management Agency (AKPK) has an online learning portal (power.akpk.org.my) designed to provide young people with essential financial knowledge.
Both AKPK and the Federation of Malaysian Consumers Associations (FOMCA, (fomca.org.my) organise free seminars to help people with financial planning.
If you’re looking to learn about financial planning while having fun, try the Visa Financial Football online game (my.financialfootball.com).