Tomorrow morning, Filipinos will wake up to another round of gasoline and diesel price increases. From painful experience, we know that when oil companies implement price hikes, almost all our daily purchases and expenses tend to follow.
Turns out, we are not alone. Our neighbors in Southeast Asia are also grappling with rising energy costs, and the other compounding challenges of inflation including higher food prices, and interest rates. And according to the latest survey of Singapore-based Milieu Insight, the impact of these economic factors has far-reaching consequences, particularly on debt vulnerabilities, impacting overall borrowing habits, and the financial well-being for consumers in the region.
The regional study polled some 3,000 respondents from Singapore, Malaysia, Indonesia, Thailand, Vietnam and the Philippines in June 2023. Here are the key insights of the survey that include borrowing habits, debt types, and personal finance awareness of Southeast Asians.
6 out of 10 across SEA have debts or loans
The study found that 62 percent in Southeast Asia currently hold debt or loans, with Malaysia (79 percent) and Vietnam (76 percent) emerging as the countries with the highest number of people who have loans or currently holding debt.
Credit cards top list of debts
When asked what debt they own, majority of the respondents admitted they have credit card debt (22 percent), followed by money lenders (18 percent). Buy-now-pay-later (BNPL) and personal loans make up the rest. One good news is that the study also revealed that the majority in Singapore (88 percent), the Philippines (63 percent) and Malaysia (62 percent) consistently pay their monthly credit card bills in full and on time.
Borrowing to buy property and for emergency needs
In Singapore, consumers take on debt to buy property (49 percent) which in personal finance is considered a “good debt” to have (versus “bad debt” which is when you borrow to buy wants like a brand new mobile phone when the one you have is still working). Sadly, respondents from other countries are driven to borrow to meet short-term financial assistance. Consumers in Indonesia (48 percent), Vietnam (43 percent), and the Philippines (41 percent) cited an urgent need for immediate funds as their primary reason to get a loan.
At least 14 pct report zero savings
While having debt is already a problem, what makes it worse is that the same consumers are likely to report zero savings. The study reported that 14 percent of respondents admitted to not being able to save after deducting expenses and debt/loan repayment. The situation in Thailand is even more alarming, with 24 percent unable to save after covering essential expenses and loan repayment. There is a stark contrast in Singapore, where 14% of respondents are saving more than 50 percent of their income.
Can you sleep at night?
Respondents in Indonesia and Thailand (86 percent) expressed the highest level of discomfort in taking out loans. That’s 9 out of 10 in Indonesia or 90% and Thailand comes close with 86 percent. Those in Vietnam (46 percent) and Malaysia (31 percent) show the highest level of comfort with owning debt or loans.
How do we rate at Fin-Q?
The study also revealed that 1 in 4 across the region lacked personal finance education, or have poor Fin-Q or Financial Quotient/Intelligence. In Indonesia, 37 percent of the respondents confessed to not having learned how to manage their personal finance, followed by the Philippines (28 percent) and Singapore (27 percent).
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One worrisome insight of the study is that there is now a notable normalisation of debt, reflected in the rising popularity of credit cards and BNPL payment methods. Many consumers, particularly among younger generations, have embraced the convenience offered by these financial tools, using them as a means to manage their expenses.
While there is no official rule defining good and bad debt, it’s important to understand the distinction for one’s long-term financial health. Good debt, such as a mortgage for a home, can help one secure her or his future with potential returns on the investment. On the other hand, bad debt does not increase net worth and involves spending on depreciating purchases. Worse, bad debt such as credit card balances usually come with higher interest rates.
Financial education is key to help consumers understand the need to map their financial future, and make informed decisions between good debt and bad debt, plus the urgency of saving now. When you know how to manage your money, you will likely make sound financial moves and achieve financial security.