Tuesday, November 23, 2010

Mounting household debt

Credit cardsImage via Wikipedia
The Edge Malaysia headline . Mounting household debt. Figures do not lie.Total household debt, comprising mainly house mortgages, cars loans and personal financing such as credit cards, debit cards stood at an all time high of RM560 billion as at Aug 31, 2010 from Bank Negara Malaysia data. Will the rapid growth in household debts make the economy and the financial sector vulnerable to instability and crises ? Is this cause for alarm ?
It is worth noting that our household debt to GDP ratio shot up to 76% between 2004 and 2009 , and is the highest in Asia ex- Japan.
What is perplexing through is that unlike Japan's per capital income of US$32,700 or about RM8000 per month in 2009, Malaysia's average income per capital is less than RM2000 per month.
According to a note by CIMB Research dated Oct 28 , the ratio of household debt to personal disposal income hit 140.4 % in 2009- higher than Singapore 105.3% and the US 123.3%. This means Malaysians own double the amount they earn.
According to AKPK of the total 50,361 cases that enrolled in debt management program, 10.6% could not pay their credit card debt while 74.3% had repayment problem with housing loans, car loans and credit cards outstanding. Credit Counselling and Debt Management Agency (AKPK) CEO Mohamed Akwal Sultan says some 44% of the individuals who join the programme belong to the 30 to 40 age group. Actually some individuals start to have repayment issues when they are even younger because many of them do not have salaries that commensurate with their lifestyle. The problems start to snowball when they hit their 30s.
This is because by then, most of them are married and thus have bigger commitments such as larger mortgage loans and car financing and higher living expenses. Additional their parents are not able to help them with their finances as much because they would have retired by then.
Interesting for 26% of defaulters the No 1 reason for finding difficulty in servicing debt is high medical expenses. Plan yourself well and spend what you can afford.Remember to take care of yourself first. The goose that lay the golden eggs. Insured yourself against any unforeseen circumstance such as premature death, total permanent disability, accident or critical illness and mounting medical cost. Insurance and risk management must be plan ahead. I do have all the solutions for you.
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