Age group living beyond their means with many facing bankruptcy due to compulsive buying: Adviser

PETALING JAYA: Youths have been warned to stop their impulsive shopping habits, failing which they will add themselves to those who have already been made bankrupt.

Financial adviser Bryan Zeng was commenting on the Department of Insolvency statistics, which recorded a total of 31,140 individuals aged 35 and below who have been registered as bankrupt from 2014 to May 2023.

The Malaysian Association of Borrowers and Consumers Solution also said it receives an average of 15 complaints daily from youths who have been made bankrupt.

Calling on the government to address the problem, Zeng said among the main reasons for youth bankruptcies is the lack of financial literacy and insufficient discipline in managing their finances.

“Youths seem to live beyond their means, no thanks to the availability of the ‘buy now, pay later’ option, zero interest payments and credit card usage.

“While buying now and paying later may seem convenient, purchasers are indirectly coerced into a false sense of financial flexibility due to deferred payments. But it leads to financial strain in the long run, especially if individuals fail to budget effectively.”

Zeng said materialism, instant gratification and the need to stay fashionable with current lifestyle trends contribute to an extravagant way of life that many youths cannot afford.

He warned youths to recognise the warning signs of financial difficulties, such as the inability to meet monthly commitments, shortage of funds after making monthly payments and expenses exceeding income.

He said the younger generation may not fully grasp the consequences of borrowing money, especially through loans or credit cards, as they usually underestimate the real cost of borrowing and the time it takes to repay debts.

“Due to easy access and convenience, youths may find themselves accumulating debts without fully comprehending the long-term financial consequences associated with credit cards, for instance.

“As a result, high-interest credit card debts can quickly spiral out of control, leading to financial distress and difficulty in making repayments,” he said, adding that the lack of emergency savings adds a layer of complexity to their financial difficulties.

Emergency savings serve as a financial safety net and provide a buffer against unexpected expenses or unforeseen circumstances.

However, many youths do not prioritise or have emergency savings, and without this, they usually resort to borrowing to cover emergency expenses. This perpetuates the vicious debt cycle.

He emphasised the importance of youths being mindful of how their actions could impact their future.

“If an individual takes the matter lightly and is declared bankrupt, he will face significant challenges in obtaining loans, which can affect his ability to acquire assets such as a house or car.

“It may also affect his employment because when one declares bankruptcy, it becomes a matter of public record.”

Zeng said potential employers can access such information during background checks and this may raise concerns about a candidate’s financial responsibility and trustworthiness.

He said it is crucial to be financially literate so that one can better assess opportunities, evaluate potential returns, reduce the risk of bankruptcy and prioritise savings.

“Reducing discretionary spending to typically save about 5% to 10% of income and gradually increasing it over time can make a lot of difference,” he said.

He advised youths to underscore the importance of adopting responsible spending habits by tracking their expenses.

“Identify areas where you can reduce or eliminate unnecessary expenses and better allocate resources towards your financial goals.”

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