Financial stress – when not having enough becomes a problem

KUALA LUMPUR: Malaysia may be one of the few countries in the world which is still seeing good growth when it comes to gross domestic product (GDP), but with household debt standing at 89.1% of GDP and almost four out of five Malaysians having no savings in case of loss of income, every working adult has faced financial stress at some point in their life.
Credit Counselling and Debt Management Agency (AKPK) financial education manager Nirmala Supramaniam said even though Malaysia’s household debt is high, this does not mean that the people are in trouble.
”There’s no statistics to say that we’re financially stressed because stress is a feeling. It could be that people have properties and assets, which are not defined in cash value. Commitments are high but people are still paying (their loans) so you can’t define it as trouble yet, but what can lead to trouble is if there’s a change in your income, it drops and you don’t have a contingency plan,” Nirmala told SunBiz in an interview recently.
In aggregate, most household debt was undertaken to finance house purchases, according to the Khazanah Research Institute report, The State of Households II. Nonetheless, the overall household balance sheet is still healthy, as households continue to accumulate more financial assets than debt.
Nirmala said financial stress can be felt when people are worried that they do not have enough money, they might miss their loan payments and not having enough savings for an emergency. The top reason for default or debt problems is poor financial planning.
“When taking a loan, people usually look at how much is being offered but we should look at how much we can afford. Affordability is important so you can assess how much loan you can take. There’s a lack of planning for the long term and many of us don’t do those calculations. We will just cross the bridge when we come to it. No planning, no budgeting, no cash flow management, all these come under poor financial planning,” she explained.
When people do not plan, they tend to overborrow, Nirmala said, adding that when giving out loans, banks will look at 60% of one’s income but the ideal debt-to-income ratio should be below 40%.
A major component of financial resilience is savings.
Nirmala said the lack of savings can cause financial stress as many people are living month-to-month, within one’s means for survival and have nothing extra.
Bank Negara Malaysia’s Financial Inclusion and Capability Study found that only 6% of Malaysians can survive more than six months, and 18% up to three months, after losing their main source of income.
“Most of the people who come to us (AKPK) are borrowing when an emergency happens. That’s when they look for fast cash. Personal loans, car break down, hospital emergencies ... these small emergencies make you start to borrow and eventually it grows big,” said Nirmala.
She said people go through the financial problem phase in life but how fast a person takes action is what makes the person different.
“You should immediately move on, seek help, seek advice and change your habits,” said Nirmala.
Financial Planning Association of Malaysia CEO Linnet Lee said financial stress affects a person’s personal life in terms of relationships with family, friends and colleagues, as well as work life in terms of productivity, absenteeism, health and financial integrity.
“Among Malaysians, financial stress is high, looking at household debt. Those who are in the 89% will have a certain amount of financial stress, especially those with money woes,” Lee told SunBiz, adding that the high household debt is an alarming situation due to the current economic climate.
“Although a lot of household debts have assets like cars or houses to back them up, looking at the economy now, a lot of people are finding it hard to pay bills. If you can’t pay, you may lose your house. That is worrying,” said Lee.
Cases of severe financial stress include suicide due to high debts, broken relationships due to arguments over finances and young people going bankrupt early on in their career.