With Malaysia’s household debt reaching RM1.53 trillion, the country and its households are poised to encounter significant challenges during times of hardship.

Centre for Market Education chief executive officer Dr Carmelo Ferlito said the household debt figure was concerning from both micro and macro perspectives.

“The economy proceeds via fluctuations, with ups and downs, booms and busts. If a household is highly in debt, it is likely to suffer during a moment of difficulty, whether it’s a general economic downturn or a personal situation, such as illnesses or a loss of job,” he said.

“From a macro perspective, a financially fragile private sector will suffer more because it does not possess the resources to face such hardships, such as the Movement Control Order.”

Ferlito said addressing household debt and financial strain required long-term solutions rather than quick fixes.

He added that ongoing financial literacy initiatives tailored to individual circumstances should be part of the solution.

“Financial literacy initiatives may help households make more informed decisions. Each step needs to be proportional to the leg length. This will always be true.

“Even with higher wages, without proper financial education, people may make financially unsound decisions.

“In the long run, what is needed is a growth strategy centred on the promotion of entrepreneurship, investments, and the creation of added value,” he said.

Prime Minister Datuk Seri Anwar Ibrahim yesterday revealed that Malaysia’s aggregate household debt stood at RM1.53 trillion at the end of last year.

Housing loans constituted the largest portion of the country’s aggregate household debt at 60.5 per cent, followed by vehicle loans at 13.2 per cent and personal financing at 12.6 per cent.

He said the annual growth rate in household debt from 2018 to 2023 was 5.1 per cent.

The aggregate household debts for previous years were RM1.45 trillion in 2022, RM1.38 trillion in 2021, RM1.32 trillion in 2020, RM1.25 trillion in 2019, and RM1.19 trillion in 2018.

Ferlito said he had consistently highlighted over the years that discussions on home ownership should also focus on household debt and not just home ownership rates.

He said with the home ownership rate close to 80 per cent and the household debt-to-GDP ratio at 90 per cent, the real emergency was household debt rather than home ownership.

Deputy Finance Minister Lim Hui Ying, during the question-and-answer session, said Bank Negara Malaysia was taking a cautious approach to risks associated with household debt to ensure they will not have a negative effect on the country’s financial system.

Apart from ensuring that individuals borrow based on their ability to repay within the stipulated period, she said BNM wasworking to improve the public’s financial literacy level and encouraging households with substantial borrowings to follow the Credit Counselling and Debt Management Agency’s online financial education programme.

Source: NST Online