KUALA LUMPUR, Oct 15 — Malaysia’s youngsters in their early 20s and 30s tend to overspend when buying on impulse, which is the main reason why they are in debt at such a young age, a recent survey by the Asian Institute of Finance (AIF) showed.
According to AIF, this group that covers both the Gen-Y and millennials are savvy when it comes to using technological equipment, but not on financial matters, resulting in 40 per cent splurging on purchases while a whopping 70 per cent live beyond their means.
"This report reveals a picture of a generation that is on the road to financial stress with many of them living beyond their means, as they are trapped in emotional spending and are on the edge of a financial cliff.
"Many of them are on the back foot when it comes to longterm financial security as they accrue debt before they even enter their professional career life," AIF's chief executive officer Dr Raymond Madden and director of strategy, policy development and research Wan Norsofiza Wan Azmi wrote in a joint foreword to the survey report.
AIF's survey of 1,011 young professionals aged between 20 and 33, found that three-quarters or 75 per cent were in one long-term debt — which includes loans for cars, education or housing, while 37 per cent have more than one long-term loan to repay.
Over half of the youths surveyed, 56 per cent, admitted they had car loans to service while 40 per cent and 28 per cent said had study loans and property mortgages respectively to repay.
"To offset this debt, they are relying on high cost borrowing methods — 38% of Gen Ys reported to taking personal loans, while 47% are engaged in expensive credit card borrowing," the report said.
It also said that the debt woes of the Gen Y group were caused by "impulse-buying behaviour coupled with easy access to personal loans and credit card financing".
Technology appears to have made things worse for millennials who crave instant gratification, with the reliance on credit cards for easy online shopping further spurring on the "buy-now-pay-later" behaviour, the report said.
It noted that the habit of indulging in impulsive buying behaviour was due to their preference for brand-name goods, reinforced by their parents’ tendency to give in to their predilection.
"As a result, many of them stay in debt using credit card lending much longer than they ever intended," the report said.
According to the survey, 70 per cent of Gen Ys here tend to pay the minimum monthly payment for their credit cards at some point.
"However, only 55% said they pay their debt on time, suggesting that nearly half of Gen Ys delay paying debts," it said.
But the survey also found that many of the young working adults have saved a portion of their monthly income with a respectable 54 per cent saying that they saved at least 20 per cent of their wages.
They tend to save more as they grow older, with the highest percentage of savers or 57 per cent being those aged 27 to 33, the report said.
"Despite their spendthrift behaviour, which is reflected by their credit card debt burden, Gen Ys’ positive saving habit suggests that they are conscious of the value of money, but may not currently have the necessary knowledge to manage it effectively.
"Studies on Gen Y savings habits also show that, although they do develop good saving habits, these savings tend to be focused on short-terms goals," it said.
The AIF report is titled "Finance Matters: Understanding Gen Y (Bridging the knowledge gap of Malaysia's millenials)"; the period when the survey was conducted was not stated.