PETALING JAYA: Bank Negara Malaysia must tighten policies on issuing credit cards to new graduates as it could exacerbate the country’s already high household debt, said Universiti Teknologi Mara Academy of SME and Entrepreneurship Development coordinator Dr Mohamad Idham Md Razak.
“Malaysia’s household debt-to-gross domestic product (GDP) ratio is already high, standing at 81.9% in 2023. This will only worsen with lenient credit policies.
“Banks should be cautious when offering credit cards to fresh graduates as early access significantly influences financial behaviour and could lead to overspending and debt accumulation,” he said.
While access to credit can help manage cash flow, build financial records and integrate users into formal banking systems, fresh graduates often have unpredictable incomes, heightening the risk of loan defaults.
To mitigate this, banks should implement stricter lending procedures, including income verification and customised credit limits.
Mohamad Idham suggested that careful lending could enable banks to capture economic gains from consumer spending while maintaining financial stability, turning credit into an empowering tool rather than a debt trap.
In April 2024, the National Credit Counselling and Management Agency reported that 53,000 youths aged 30 and below were in debt, totalling nearly RM1.9 billion, with personal loans making up 40% of the sum.
He noted that early credit access shapes financial habits, with financially literate individuals using credit responsibly, improving budgeting skills and strengthening their credit scores.
“However, those lacking financial literacy tend to spend impulsively, leading to high-interest debt and poor credit ratings, which limit long-term financial opportunities.
“Cognitive biases – including present bias in behavioural economics – heighten financial risks, reinforcing the need for structured financial education to promote responsible credit usage,” he said.
While credit card access boosts economic activity by increasing spending power among fresh graduates, he stressed that long-term growth depends on borrowing habits.
“Investing in education and essential assets delivers sustainable returns, whereas spending on non-durable goods creates short-term, unsustainable demand.
“In economies such as Malaysia, where household debt burdens are significant, robust risk-assessment frameworks are essential to mitigate systemic risks,” he added.
Mohamad Idham urged credit card approvals to be based on verified income levels, stable employment history and a clean credit record.
“Policy frameworks must require credit affordability assessments and set interest rate limits on revolving credit, while ensuring transparent fee structures. Balancing financial inclusion with caution is key to ensuring borrowers’ repayment ability aligns with available credit,” he said.
With private consumption making up nearly 58% of GDP, he called on policymakers to introduce financial incentives that encourage strategic spending, such as tax benefits for essential purchases and penalties for luxury spending.
He said the absence of regulatory measures such as debt-to-income limits allow debt dependency to spiral.
“The lack of practical financial guidance in education leaves young adults vulnerable to predatory marketing and debt traps.”
He also pointed out behavioural biases as a reason for the low demand for financial literacy programmes.
To bridge these gaps, financial education must be repositioned as a public-private mission, integrating technology for scalable delivery and embedding financial literacy into national education systems.
“A strong political commitment, joint sector efforts, and sustained funding are crucial to ensuring its success,” Mohamad Idham said.
