Debt and its Effect on Households Across Southeast Asia
According to a study conducted by Milieu Insight, more than 60% of Southeast Asians have outstanding debt. The same study also found that individuals in Malaysia and Vietnam exhibited the highest levels of indebtedness in the region.
This is a worrying situation in a region where 1 in 4 individuals lack personal finance education, and 39% of respondents use the internet to become financially literate.
In the section below, we’ll take a look at what is currently driving up household debt levels in Southeast Asia.
Need for Immediate Funds: According to a survey, up to 37% of Southeast Asian respondents reported that they incurred debt to cover shortfalls in cash.
One of the main reasons for this is likely due to a href="https://asia.nikkei.com/Economy/Thailand-s-household-debt-swells-amid-policy-stagnation-concerns">the long-reaching effects of the COVID-19 pandemic. The pandemic led to job losses and reduced incomes, compelling many households to borrow for basic needs and healthcare expenses.
For example, at the height of the COVID pandemic, the Malaysian government authorised withdrawals from the Employees Provident Fund (EPF), a key retirement savings scheme.
This decision, while providing immediate financial relief, led to a significant depletion of people's savings. The long-term effects of this could be significant, potentially resulting in many individuals being unable to retire comfortably.
Without adequate retirement funds, people might have to continue working into their old age or take on additional debt to address shortfalls in their cash flow, further perpetuating the cycle of debt.
Buying Immovable Property: Another primary reason why household debt in Southeast Asia is on the rise can be attributed to individuals purchasing immovable property such as real estate.
In many Southeast Asian cultures, owning property is a practical investment with significant cultural value. Properties are seen as a symbol of success and stability, reflecting a person's social status and financial achievement.
This cultural emphasis on property ownership drives many individuals to invest in real estate, even if it means taking on substantial debt. The desire to own a home or land is deeply ingrained, and for many, it's an essential life goal that justifies the financial burden of loans and mortgages.
Growing Businesses: In Southeast Asia, small and medium-sized enterprises (SMEs) account for nearly 90% of the economy. This, coupled with the economic instability brought upon by geopolitical tension and rising inflation rates, has forced entrepreneurs to take on additional debt to sustain their businesses.
While this can potentially drive economic growth in the region, increasing interest rates also mean higher debt stress and increased risk of default amongst SMEs.
Educational Purposes: Education is highly valued in Southeast Asia, and many families are willing to incur debt to ensure their children receive a quality education. This includes taking out loans for school fees, higher education, or studying abroad.
In Malaysia, for example, students can have their higher education financed by loans from the National Higher Education Fund Corporation or PTPTN.
However, a significant challenge arises when graduates enter the workforce. Often, the wages they earn are different from the debt they have incurred. This mismatch between educational loan debt and low starting salaries makes it difficult for graduates to make timely loan repayments.
Consequently, this leads to a growing financial burden for young adults at the onset of their careers, which can have long-term implications on their financial stability and ability to save or invest for the future.
From here, you should focus on paying off debts with the highest interest rates first while maintaining minimum payments on other debts. This strategy is particularly beneficial because it addresses the compounding nature of interest.
When debt is not repaid promptly, the total costs escalate due to accumulating interest rate costs. Therefore, tackling high-interest debts first not only helps in reducing the principal amount but also significantly cuts down on the amount of interest that would have otherwise accumulated over time.
By prioritising debts with higher interest rates, you are effectively reducing the overall financial burden in the long term. This approach is a smart financial move, as it minimises the total interest paid, making it more cost-effective compared to a scenario where these debts are left to accrue additional interest.
Debt consolidation is another effective method of clearing debt. This involves taking a new loan with a lower interest rate to pay off multiple higher-interest debts, simplifying payments and potentially reducing the interest burden.
Another method is to take advantage of credit card balance transfers. This method works by transferring high-interest credit card balances to another card with a lower interest rate. Some banks also have a zero-interest payment scheme for customers willing to perform a balance transfer.
The credit card balance strategy can temporarily relieve high-interest charges, allowing more of the payment to reduce the principal balance.
Adopting sustainable financial habits is crucial for households looking to improve their financial health and reduce debt. These habits involve making conscious decisions about spending, saving, and managing finances to create a stable and secure financial future.
Here are some examples of these habits:
Budgeting and Expense Tracking: This involves creating a detailed budget that accounts for all sources of income and expenses. Households should regularly track their spending, categorising it into necessities (like rent, utilities, and groceries) and non-essentials (like dining out and entertainment).
Tools like budgeting apps or spreadsheets can be helpful for this. Families can identify areas where they can cut back by keeping a close eye on where money is going.
Increasing Household Income: This can include looking for part-time jobs, freelancing opportunities, or other side hustles. For example, someone might take up freelance writing, ride-sharing, or selling handmade goods online to bring in extra income. This additional income can then be directed towards paying off debt more quickly.
Cutting Unnecessary Expenses: Households must critically evaluate their spending and identify areas where they can reduce costs. These include choosing a cheaper streaming package, cancelling unused subscriptions, or cooking at home instead of eating out. The key here is to adopt a more frugal lifestyle and consume less to reduce expenditure.
Smart Shopping Habits: Adopting smarter shopping habits, like using coupons, looking for sales, buying in bulk, or choosing generic brands over name brands, can lead to significant savings.
Energy Efficiency: Implementing energy-saving measures at home, such as using LED light bulbs, reducing water waste, and optimising electricity use, can significantly lower utility bills.
Regular Financial Reviews: Consistently revisiting and reassessing your household budget and financial plan is essential to stay aligned with changing personal or economic circumstances. This includes evaluating income stability, tracking progress towards debt reduction, and ensuring savings goals are on track.
Accessing external support and utilising available resources can be pivotal for those grappling with debt. There are a variety of community support programs and government assistance schemes that can offer substantial relief and practical aid.
Recognising the problem posed by rising household debt, the governments of various Southeast Asian countries provide free credit counselling services to support those in debt.
Malaysia — The Malaysian government offers various debt relief programs through agencies like AKPK (Agensi Kaunseling dan Pengurusan Kredit). AKPK provides debt management, financial education, and counselling services to help individuals restructure their debts.
Thailand — The Thai government has initiated several programs to assist debtors, including the Debt Clinic program, which helps individuals restructure consumer debt. The Bank of Thailand often coordinates these efforts, providing guidelines for debt restructuring and relief for borrowers.
Singapore — Credit Counselling Singapore (CCS) is a non-profit organisation endorsed by the Monetary Authority of Singapore. CCS offers debt advisory services, helping individuals with debt management and restructuring plans. Additionally, various government-backed financing schemes assist businesses in managing debt.
Indonesia — The Indonesian government, through the Financial Services Authority (OJK), has introduced policies to restructure loans and provide relief to debtors, especially in response to economic challenges caused by the pandemic. These measures include extending loan tenures, lowering interest rates, and providing loan guarantees for SMEs.
Debt can cause families to spiral downward where they cannot pay off what is owed. This will lead to increased financial strain, forcing households to prioritise debt repayment over essential needs like education, healthcare, and savings for emergencies.
In extreme cases, these consequences include long-term financial instability, reduced quality of life, and even intergenerational debt, where the burden of repayment is passed down to future generations.
Besides government agencies and NGOs, Collectius also assists Southeast Asian customers. If our representatives have contacted you, then it means that our organisation has acquired your debt or the creditor has requested Collectius to collect outstanding it on their behalf.
But don't worry, at Collectius, we believe debt should never be scary. We understand our customers' challenges and are more than happy to work together to find a solution.
Through the Collectius Way of Collections, we take a compassionate approach to helping our customers become debt-free. To learn more about our range of services, visit us here.
This is a worrying situation in a region where 1 in 4 individuals lack personal finance education, and 39% of respondents use the internet to become financially literate.
Why are More Households in Southeast Asia Taking on Additional Debt
As household debt levels rise across Southeast Asia, several critical questions arise: Why are more households in this region taking on additional debt? And how will this affect people and families living in the region?In the section below, we’ll take a look at what is currently driving up household debt levels in Southeast Asia.
Need for Immediate Funds: According to a survey, up to 37% of Southeast Asian respondents reported that they incurred debt to cover shortfalls in cash.
One of the main reasons for this is likely due to a href="https://asia.nikkei.com/Economy/Thailand-s-household-debt-swells-amid-policy-stagnation-concerns">the long-reaching effects of the COVID-19 pandemic. The pandemic led to job losses and reduced incomes, compelling many households to borrow for basic needs and healthcare expenses.
For example, at the height of the COVID pandemic, the Malaysian government authorised withdrawals from the Employees Provident Fund (EPF), a key retirement savings scheme.
This decision, while providing immediate financial relief, led to a significant depletion of people's savings. The long-term effects of this could be significant, potentially resulting in many individuals being unable to retire comfortably.
Without adequate retirement funds, people might have to continue working into their old age or take on additional debt to address shortfalls in their cash flow, further perpetuating the cycle of debt.
Buying Immovable Property: Another primary reason why household debt in Southeast Asia is on the rise can be attributed to individuals purchasing immovable property such as real estate.
In many Southeast Asian cultures, owning property is a practical investment with significant cultural value. Properties are seen as a symbol of success and stability, reflecting a person's social status and financial achievement.
This cultural emphasis on property ownership drives many individuals to invest in real estate, even if it means taking on substantial debt. The desire to own a home or land is deeply ingrained, and for many, it's an essential life goal that justifies the financial burden of loans and mortgages.
Growing Businesses: In Southeast Asia, small and medium-sized enterprises (SMEs) account for nearly 90% of the economy. This, coupled with the economic instability brought upon by geopolitical tension and rising inflation rates, has forced entrepreneurs to take on additional debt to sustain their businesses.
While this can potentially drive economic growth in the region, increasing interest rates also mean higher debt stress and increased risk of default amongst SMEs.
Educational Purposes: Education is highly valued in Southeast Asia, and many families are willing to incur debt to ensure their children receive a quality education. This includes taking out loans for school fees, higher education, or studying abroad.
In Malaysia, for example, students can have their higher education financed by loans from the National Higher Education Fund Corporation or PTPTN.
However, a significant challenge arises when graduates enter the workforce. Often, the wages they earn are different from the debt they have incurred. This mismatch between educational loan debt and low starting salaries makes it difficult for graduates to make timely loan repayments.
Consequently, this leads to a growing financial burden for young adults at the onset of their careers, which can have long-term implications on their financial stability and ability to save or invest for the future.
Coping with Rising Household Debt
1. Prioritising debt repayment
A key tenet of debt management is prioritising debt repayment. This begins with listing all outstanding debts and confirming the total amount owed, interest rates, and due dates. While it may seem overwhelming initially, this step is important as it gives you a big-picture view of your outstanding debt.From here, you should focus on paying off debts with the highest interest rates first while maintaining minimum payments on other debts. This strategy is particularly beneficial because it addresses the compounding nature of interest.
When debt is not repaid promptly, the total costs escalate due to accumulating interest rate costs. Therefore, tackling high-interest debts first not only helps in reducing the principal amount but also significantly cuts down on the amount of interest that would have otherwise accumulated over time.
By prioritising debts with higher interest rates, you are effectively reducing the overall financial burden in the long term. This approach is a smart financial move, as it minimises the total interest paid, making it more cost-effective compared to a scenario where these debts are left to accrue additional interest.
Debt consolidation is another effective method of clearing debt. This involves taking a new loan with a lower interest rate to pay off multiple higher-interest debts, simplifying payments and potentially reducing the interest burden.
Another method is to take advantage of credit card balance transfers. This method works by transferring high-interest credit card balances to another card with a lower interest rate. Some banks also have a zero-interest payment scheme for customers willing to perform a balance transfer.
The credit card balance strategy can temporarily relieve high-interest charges, allowing more of the payment to reduce the principal balance.
2. Adopting Sustainable Financial Habits
Adopting sustainable financial habits is crucial for households looking to improve their financial health and reduce debt. These habits involve making conscious decisions about spending, saving, and managing finances to create a stable and secure financial future.
Here are some examples of these habits:
Budgeting and Expense Tracking: This involves creating a detailed budget that accounts for all sources of income and expenses. Households should regularly track their spending, categorising it into necessities (like rent, utilities, and groceries) and non-essentials (like dining out and entertainment).
Tools like budgeting apps or spreadsheets can be helpful for this. Families can identify areas where they can cut back by keeping a close eye on where money is going.
Increasing Household Income: This can include looking for part-time jobs, freelancing opportunities, or other side hustles. For example, someone might take up freelance writing, ride-sharing, or selling handmade goods online to bring in extra income. This additional income can then be directed towards paying off debt more quickly.
Cutting Unnecessary Expenses: Households must critically evaluate their spending and identify areas where they can reduce costs. These include choosing a cheaper streaming package, cancelling unused subscriptions, or cooking at home instead of eating out. The key here is to adopt a more frugal lifestyle and consume less to reduce expenditure.
Smart Shopping Habits: Adopting smarter shopping habits, like using coupons, looking for sales, buying in bulk, or choosing generic brands over name brands, can lead to significant savings.
Energy Efficiency: Implementing energy-saving measures at home, such as using LED light bulbs, reducing water waste, and optimising electricity use, can significantly lower utility bills.
Regular Financial Reviews: Consistently revisiting and reassessing your household budget and financial plan is essential to stay aligned with changing personal or economic circumstances. This includes evaluating income stability, tracking progress towards debt reduction, and ensuring savings goals are on track.
3. Seeking Support and Resources
Accessing external support and utilising available resources can be pivotal for those grappling with debt. There are a variety of community support programs and government assistance schemes that can offer substantial relief and practical aid.
Recognising the problem posed by rising household debt, the governments of various Southeast Asian countries provide free credit counselling services to support those in debt.
Malaysia — The Malaysian government offers various debt relief programs through agencies like AKPK (Agensi Kaunseling dan Pengurusan Kredit). AKPK provides debt management, financial education, and counselling services to help individuals restructure their debts.
Thailand — The Thai government has initiated several programs to assist debtors, including the Debt Clinic program, which helps individuals restructure consumer debt. The Bank of Thailand often coordinates these efforts, providing guidelines for debt restructuring and relief for borrowers.
Singapore — Credit Counselling Singapore (CCS) is a non-profit organisation endorsed by the Monetary Authority of Singapore. CCS offers debt advisory services, helping individuals with debt management and restructuring plans. Additionally, various government-backed financing schemes assist businesses in managing debt.
Indonesia — The Indonesian government, through the Financial Services Authority (OJK), has introduced policies to restructure loans and provide relief to debtors, especially in response to economic challenges caused by the pandemic. These measures include extending loan tenures, lowering interest rates, and providing loan guarantees for SMEs.
Debt can cause families to spiral downward where they cannot pay off what is owed. This will lead to increased financial strain, forcing households to prioritise debt repayment over essential needs like education, healthcare, and savings for emergencies.
In extreme cases, these consequences include long-term financial instability, reduced quality of life, and even intergenerational debt, where the burden of repayment is passed down to future generations.
Collectius - Guiding Customers Back to Financial Stability
Besides government agencies and NGOs, Collectius also assists Southeast Asian customers. If our representatives have contacted you, then it means that our organisation has acquired your debt or the creditor has requested Collectius to collect outstanding it on their behalf.
But don't worry, at Collectius, we believe debt should never be scary. We understand our customers' challenges and are more than happy to work together to find a solution.
Through the Collectius Way of Collections, we take a compassionate approach to helping our customers become debt-free. To learn more about our range of services, visit us here.