Household debt has macroeconomic implications. High household debt will lower household consumption and this will reduce overall demand in the economy.
A high household debt also raises the risk of default, which in extreme cases can lead to bank fragility.
As household debt is reduced, more money will be made available for better consumer spending. This will allow more expenditure and, ultimately, support economic growth.
The primary reasons for the accumulation of household debt are usually spending beyond one’s means and poor management of resources.
The route to overcoming these tendencies lies in proper financial management, which in turn requires financial literacy. And these are exactly the issues that the government had targeted when it tabled the 2024 budget last year.
It is, therefore, not surprising that the 2024 budget addressed the issue of household debt in various ways. Primary among these have been access to credit, financial literacy and the provision of basic services.
The budget also prioritised education and healthcare to ensure that these services are within the reach of the M40 and B40. The reach of these services has been extended and facilities improved.
Access to credit has also been enhanced under the last federal budget. For instance, a RM1.4 billion allocation was provided for Bank Simpanan Nasional to provide micro loans to hawkers and small entrepreneurs to help them with business capital, equipment purchases and premises. Nobody is too small to be ignored.
RM330 million was allocated under the National Entrepreneurial Group Economic Fund (Tekun) for financing small traders such as batik and craft operators.
Discounts were also provided on National Higher Education Fund Corporation (PTPTN) loan repayments, lowering the burden on the incomes of the M40 and B40 groups.
Financing is often a problem for those in the M40 and B40 groups. The government has taken note that access to credit must be made easier for people in these groups.
Therefore, reforms were made in the 2024 budget under the Skim Jaminan Kredit Perumahan (SJKP) to make housing loans more accessible.
Financial literacy is a necessary tool to address indebtedness among households.
Programmes were devised by the Credit Counselling and Debt Management Agency (AKPK) to educate and create awareness among the M40 and B40 on how to manage their personal finances.
AKPK’s Debt Management Programmes (DMP) were created to teach Malaysians how to budget and manage their debts. Often emergencies arise and there are financial implications that arise alongside, making emergency financial planning necessary.
DMP also helps households to consolidate and restructure debt. This reduces monthly payments and prevents defaults, something that would be dreaded by banks and the borrowers themselves.
Prime Minister Anwar Ibrahim made an initial allocation of RM50 million to the Madani Youth Financial Literacy programme in August this year.
Under the programme, initiated by Perbadanan Nasional Bhd (PNB) and Amanah Saham Nasional Bhd (ASNB), RM50 will be credited into the accounts of university students as well as those studying in vocational institutions.
The RinggitPlus Malaysian Financial Literacy Survey 2024 clearly indicated that the government’s efforts have been successful.
The survey points out that, in 2024, 33% of Malaysians saved over RM500 per month. This is an improvement as compared to 2023, when only 29% managed to do so.
The survey also found that 39% of Malaysians can survive for four months or more in the event of income loss, compared with 33% the previous year. More heartening is the finding that 47% of Malaysians reported better financial conditions than in 2023.
Budget 2024 recognised household debt as a problem and did a lot to address it, showing the government’s responsiveness to the plight of those affected.
It provided programmes in financial literacy and devised credit reforms. These are useful tools to manage debt.
Aside from financial literacy, the government has attempted other measures to help households, particularly in the B40 group, to overcome their debt including various social welfare and support schemes.
Household debt cannot be allowed to persist unattended because it causes misery and anxiety for households. Beyond that, household debt reduces an economy’s resilience.
Budget 2024 took a constructive view of household debt and came up with well-planned strategies to handle it. - FMT
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