Instilling good financial habits in children for a debt free future

BANKRUPTCY is a legal proceeding where a debtor (a person who owes money to a creditor) is unable to repay his/her outstanding debts and is declared bankrupt following a court order.

According to the Bankruptcy Act 1967, a person could be subjected to bankruptcy proceedings if he or she fails to settle a minimum debt of RM30,000.

Based on figure provided by the Insolvency Department, about 84,805 Malaysians were declared bankrupt between 2015 and 2019, of which people below the age of 34 made up 26% of the bankruptcy cases.

Prior to that, the Malaysian Financial Planning Council (MFPC) found that 22,663 Malaysians under the age of 35 were declared bankrupt between 2011 and Sept 2015.

Some 64,632 Malaysians aged between 18 to 44 years old have been declared bankrupt from 2013 to 2018.

Also, 47% of Malaysian youth have high credit card debt in 2018, according to the then Bank Negara Malaysia (BNM) Assistant Governor Nazrul Hisyam Mohd Noh. In addition, almost half the youths in Malaysia have high credit card debt while some have taken out personal loans.

This goes to show that financial literacy among young Malaysians back then was still lacking. Also, youths in Malaysia are irresponsible in managing their finances and not prepared to deal with financial debts.

They are not aware or least bothered with the fact that being in debts (or a bankruptcy) will affect their future.

With a poor credit score, it makes them lose their financial credibility, resulting in difficulty to obtain loans such as personal loans or hire purchase loans in the future.

Did the COVID-19 pandemic serve as a wake-up call for youths to be more prudent and thriftier? More importantly, did the COVID-19 pandemic make youths realise the importance of being financially responsible?

Well, the pandemic has indeed changed a lot of things around the world. However, it did not change the way Malaysians youth managed their money.

The Malaysian Financial Literacy Survey (RMFLS 2020) by RinggitPlus revealed that 60% of youths surveyed (under 35) admitted that they would not survive longer than three months.

Despite 76% of Malaysians claimed that they are in control of their money, 46% of Malaysians revealed that they spend exactly what they earn or more and 53%.

In its analysis of consumer credit score trends and credit facility utilisation of Malaysians for the period 2018-2020, Experian Information Services (Malaysia) highlighted that credit scores weakened in COVID-19 impacted year particularly for the 22 to 28 year-old segment.

Additionally, Experian also found that the largest shift in the credit mix from 2018 to 2020 was seen among younger Malaysians (22 to 28-year-old segment).

“The most significant proportion of their credit facilities mix three years ago was in the Government and Education Loans and Others (32%),” Experian Information Services (Malaysia) CEO Dawn Lai commented.

“In 2020, this changed to Credit Cards which almost doubled from 20% t to 38%. Nearly two in five individuals (39%) within this age group also saw their risk grades deteriorate.”

Thus, it’s crucial to give young Malaysians a better understanding of the responsibility of managing their finances and to take proactive measures to improve financial literacy early.

Moreover, it’s always better to start from young – instilling healthy financial habits at a young age will encourage them to grow into responsible and debt-free adults. – March 11, 2021


Photo credit: Shutterstock

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