Report shows low-income earners, millennials living beyond their means

KUALA LUMPUR: A new report by the World Bank says many low-income earners and millennials are living beyond their means, warning that this may lead to more bankruptcies due to personal financial loans and credit card expenses.

The Malaysia Economic Monitor 2019 report titled “Making Ends Meet” said 27% of households in Kuala Lumpur earn less than the decent living wages set by Bank Negara Malaysia (BNM).

In 2016, the central bank estimated the living wage in Kuala Lumpur to be RM2,700 for a single adult, RM4,500 for a couple without a child and RM6,500 for a couple with two children.

“There is a strong correlation between level of education and households earning less than the living wage,” the report said.

“Findings by BNM show that 73% of those earning below the living wage have either secondary, primary or no education.”

Yet, it said, such households also tend to take on personal loans to maintain “lifestyle choices”.

“It provides an improvement in living standards beyond the basic items needed for survival,” it said, citing examples such as participation in meaningful social activities and events such as festive celebrations.

This in turn causes high rates of bankruptcy due to the practice of borrowing for consumption instead of wealth accumulation, it said.

It also noted criticism of millennials for “living beyond their means” due to “impulse-buying behaviour, easy access to personal loans and credit card financing, the want for instant gratification, and seamless online purchasing”.

“About 40% of millennials admitted to spending more than they can afford, while 70% expressed dissatisfaction with their current income,” it said.

It also said more people are turning to credit cards which allow for prolonged outstanding balances and, consequently, the rapid build-up of debt.

According to the report, defaults on motor vehicles and personal loans constitute almost half of all bankruptcy cases (49% in 2018) while the number of bankrupt borrowers with either personal financing or credit card debts has increased since 2013.

Last year alone, the number of bankruptcy cases involving personal financing and credit card debts grew by 104% and 43% respectively from the figures in 2012.

The report also mentioned an increasing concern over bankruptcy among those aged 25 to 34, noting that 60% of bankrupt borrowers were within this age group.

“Millennials’ spending beyond their income can be detrimental and lasting if they continue to lack financial knowledge and money management skills,” it said.