International Journal of Social Science Research (IJSSR) eISSN: 2710-6276 | Vol. 4 No. 4 [December 2022]
Journal website: http://myjms.mohe.gov.my/index.php/ijssr
MALAYSIAN YOUTH AND THEIR PERCEPTIONS OF INCOME AND CAUSES OF DEBT: AN UPDATE
Azlineer Sarip1*, Roziana Shaari2, Mohamad Abdillah Royo3, Noraini Rusbadrol4 and Shah Rollah Abdul Wahab5
1 2 3 4 5 Faculty of Social Sciences and Humanities, Universiti Teknologi Malaysia, Skudai, MALAYSIA
*Corresponding author: [email protected]
Article Information:
Article history:
Received date : 7 October 2022 Revised date : 8 November 2022 Accepted date : 28 November 2022 Published date : 7 December 2022
To cite this document:
Sarip, A., Shaari, R., Royo, M. A., Rusbadrol, N., & Abdul Wahab, S. R.
(2022). MALAYSIAN YOUTH AND THEIR PERCEPTIONS OF INCOME AND CAUSES OF DEBT: AN UPDATE.
International Journal of Social Science Research, 4(4), 52-62.
Abstract: The youth of Malaysia continue to have a disproportionately high rate of declaring bankruptcy.
There has been a steady stream of reporting on young people who have declared bankruptcy, as well as data on the financial literacy of college students. As a result, the purpose of this study was to provide an up-to-date perspective on the youth's perspective on their household income as well as the factors that contribute to the high amount of debt that youth in Malaysia carry.
This research involved 539 youths in peninsular Malaysia. An online survey was disseminated to the sample using convenience sampling. According to the findings, the vast majority of the youth agreed that the income they got was just sufficient to meet their most fundamental requirements. On the other hand, ten percent of those who participated in the survey are in a situation in which the income they receive each month is insufficient. The study also revealed that a significant portion of young people in Malaysia are in debt as a result of personal financing and other loans (such as credit cards and others). The results make it very interesting to be looked at as a way to keep young people in Malaysia from filing for bankruptcy.
Keywords: Youth, bankruptcy, salary, financial status, Malaysian youth.
1. Introduction
"All costs are rising but our salary is staying the same" is a typical remark that many people in Malaysia have heard or perhaps spoken. When speaking of the cost of living, the group of people that face the issues is majority among the young people or youth. Based on data published by Malaysia Youth Data Bank System out of the total population in Malaysia, 45%
of the population are youth. This is why, not just for academic purposes, but also for all relevant parties, it is critical to offer consistent trustworthy statistics on issues pertaining to youth, as they constitute Malaysia's largest demographic. However, the focus of this study is not the cost of living, but rather the perceptions of young adults on the monthly income they receive to cover their living expenditures, as well as the causes of the debt they had to face.
The continuous, and possibly even rising, occurrence of personal bankruptcies among Malaysia's younger population served as the impetus for this research. When the number of cases for March 2022 reached 287,411 people in the country had been proclaimed as bankrupts, the government of Malaysia expressed worry regarding the amount of people filing for bankruptcy (Yunus, 2022). Another disturbing study claims that 60% of individuals declared bankrupt between 2018 and May 2022 were between the ages of 25 and 44. In addition to this, it was stated that 200 of the individuals who had declared bankruptcy since 2018 were 25 years old or younger (The Star, 23 June 2022). In order to assert the severity of the youth bankruptcy problem, Figure 1 illustrate the number of youths who filed for bankruptcy before the age of 25 (Malaysian Department of Insolvency, 2021). Even when the number is decreasing, it is desirable for the number to remain low. This is because Malaysia has placed so much focus on the youth to contribute to the economic growth of the country (Diana-Rose & Zariyawati, 2015).
Figure 1: People Aged 25 and Under Filed for Bankruptcy
The previous empirical studies have contributed in a great deal in understanding the reasons for bankruptcy among youth. A report by the Consumer Research and Resource Center (CRRC) on the behavior of young people spending more than their monthly salary found that the practice of excessive spending and poor financial planning is caused by individuals themselves, resulting in unhealthy financial habits of youth. These findings were based on the behavior of young people who spent more than their monthly salary (Nurauliani et al., 2015).
According to another study conducted by Murthy and Mariadas (2017), the factors that
contribute to bankruptcy are credit cards, bank regulations, inadequate financial planning, and attitudes towards money. Recent studies have also demonstrated that the more loans a person has, the greater the likelihood that he or she will declare bankruptcy (Suzanna, Muhamad Kholib, Nurul Huda & Mohd Azlan, 2021). According to the findings of Diana-Rose and Zariyawati (2015), non-performing loans are a contributing factor in the occurrence of bankruptcy. One of the most intriguing conclusions drawn from their study is that positive and significant relationships exist between income per capital and bankruptcy. This association between income per capita and personal bankruptcies does make sense because there is a potential that people with consistent monthly income have the tendency to make loans because they are eligible according to the requirements set forth by the banks.
2. Literature Review
The primary factor that contributes to people declaring bankruptcy is a rise in the proportion of their personal indebtedness relative to their income (Warren, 1998). The definition of income can be fairly broad since it is dependent on the context in which the income is stated, such as from the perspectives of financial accounting, taxation, business, or family accounting;
however, the definition of income can be rather difficult to pin down because it depends on whatever context the income is described from (Smeeding and Weinberg (2001), Abreu and Greenstein (2011), Bromwich, Macve and Sunder (2010) and Brook (2017)). This study, however, follows Brook's (2017) recommendation to define income based on the purpose of the study. The household income is the variable of interest in this study since it has been shown that an increase in household income corresponds to an increase in monthly income (Smeeding and Weinberg, 2001). The term household income refers to the aggregate sum of cash-inflows from various sources, including but not limited to: wage income; net income from business, livestock, and agricultural activities; rental income; investment income; and gifts earned and/or received by all members of the household in the preceding twelve months (Mustapa, Al Mamun and Ibrahim, 2018). Household income can be defined as ''the average monthly income acquired by all members of the household from all possible sources in the last 12 months” (Al Mamun etc., 2018, p.356). In this study, the term income refers to the total amount of gross income received by young household in Malaysia over the course of a year, prior to any deductions or taxes. The typical amount of income earned by Malaysian households is depicted in Figure 2. According to the statistics that were provided by Department of Statistics Malaysia (DOSM), the states of Selangor and the federal territories of Kuala Lumpur and Putrajaya have the highest average household income. The federal territories of Kuala Lumpur also have the highest average household income. Figure 2 also demonstrates that, on a yearly basis, the income of Malaysian households is, on average, growing. To what extent, though, are these revenues able to cover their month-to-month commitments? This is due to the fact that states with high reported average incomes are also the states that have the highest mean monthly household consumption expenditures (DOSM, 2020). The DOSM (2021) also reports that the emergence of the COVID-19 pandemic in 2020 led the household income in Malaysia to plummet to RM7,089 as a result of a decline or loss of income. In addition, there was an increase of 12.5 percentage points in the number of households that had household income of less than RM2,500 in the year 2020.
The change in the average household income is clearly attributable to the fact that the economy of Malaysia has been severely impacted by the impact of the COVID-19 pandemic, which has resulted in the closure of several businesses (Asnidar Hanim and Oyelakin, 2022). Even the World Bank (2021) has agreed that Malaysian companies are more vulnerable than their regional counterparts and that the pandemic is worsening problems that the country's private
sector was already facing prior to the outbreak. Consequently, this affects the household income in Malaysia. Yet, according to Fagerang and Halvorsen (2016), lower income has a greater impact on youth than on other household categories.
Living with debt and a low salary will cause one to believe that financial management is exceedingly challenging. But what causes people, particularly youth to incur debt in the first place? Generally, according to a report produced by Agensi Kaunseling dan Pengurusan Kredit (AKPK) (AKPK, 2020), people reached their organizations due to poor financial planning (36.5%), high cost of living (35.3%), failures or lowdown in business (12.2%), lost of job or lost of breadwinner (8.9%), high medical expenses (5.8%) and others (1.3%). Another study by Syan, Mohd Rom, and Md Hassan (2020) found that attitudes and behaviors about spending are among the things that affect the amount of debt that young people have. According to the findings of more recent research conducted by Hassan et al. (2021), some types of debt, such as non-performing loans, might result in personal insolvency. The World Bank, in their most recent study claimed that the return of COVID-19 has boosted household debt (The World Bank, 2022). Therefore, they urged that policy makers take steps to minimize unemployment among youth because it was found to be high (11%). However, the research done by Hassan demonstrates that there is no significant relationship between the two (Hassan et al., 2021).
Figure 2: Average Household Gross Income 2012-2019
2.1 Problem Statement
This study is a supplement to previous research undertaken on the causes of youth bankruptcy, which include a variety of factors but are primarily attributable to a lack of financial literacy, financial planning, financial management and financial behavior. However, this study focuses solely on income and debt since primary factor that contributes to people declaring bankruptcy is a rise in the proportion of their personal indebtedness relative to their income (Warren, 1998).
Consequently, the aims of this study are to measure the adequacy of youth's income and the causes of their debt.
3. Method 3.1 Materials
The survey is the method of data gathering that is used in this study. It has wide range of questions, the majority of which were closed-ended: demographic information, monthly income, income sufficiency, and reason for debt. Respondents were asked about their monthly income, whether or not it is sufficient, and the causes of their debt.
3.1.1 Samples
Adults in the workforce between the ages of 18 and 35 were the sample of this study. To get more working-age youth in the sample, a snowballing method was used to add more respondents, bringing the total number of questionnaires to analyze to 539.
3.1.2 Site
A study involving all four regions of the Peninsular of Malaysia was carried out: the northern region, which included the states of Perlis, Kedah, Pulau Pinang, and Perak; the central region, which included the states of Selangor, Wilayah Persekutuan, and Negeri Sembilan; the eastern region, which included the states of Pahang, Terengganu, and Kelantan; and the southern region (Melaka and Johor). Peninsular Malaysia was chosen since the majority of youth bankruptcies occur in Peninsular Malaysia.
3.1.3 Procedures
The electronic media that was used was a Google form, and it was delivered to all of the samples that were located in Peninsular Malaysia. This allowed for access to data from a vast geographical area (Sekaran and Bougie, 2013). Adults in the workforce between the ages of 18 and 35 were the sample of this study.
This research focuses on a specific set of variables, namely the adequacy of income and the sources of financial liabilities.
This study's sample consisted of working-age adults who fell within the age range of Malaysia's youth, which is considered to be between the ages of 18 and 35.
3.2 Data Analysis
Descriptive analysis was utilized in order to evaluate the data. Due to the fact that there is only one variable involved, frequency distribution was utilized in order to generate counts for the various responses (Hair, Money, Page and Samouel, 2007).
4. Results and Discussion
The SPSS software was used as a means to carry out the analysis for this research. As can be seen in Table 1, the distribution of respondents in this study was quite similar to one another.
In terms of gender, the number of respondents was well balanced, with female respondents making up 52% of the total and male respondents making up the remaining. 35% of the responses fell into the age bracket of being between 23 and 27 years old. The majority of those who responded identified themselves as Malay (94%), followed by Indians and others (2%), and then Chinese (1%). This distribution is reflective of the actual demographics of Malaysia.
When it comes to the respondents' status of employment, the vast majority of them are working in the private sector, while 23 percent work in the public sector, and the remaining 14 percent are self-employed. In terms of the respondents' educational backgrounds, the vast majority (40%) had attained either a certificate/diploma or a degree. The majority of responders were either married or single.
In terms of the respondents' individual incomes, one third of them, or 35 percent, fall into the lowest income band (RM 1000 - RM 2000). The range from RM2001 to RM3000 made up the next 30% of the total. Ten percent has a monthly income that is greater than RM5000, and 7 percent has a monthly income that falls between RM4001 and RM5000.
The descriptive statistics for the studied variables on the adequate level of income are presented in Table 2. According to the study's findings, fifty percent of Malaysian youth agree with the statement that their salary is sufficient to meet their needs. The majority of respondents (56%) were from the Eastern Region, which accounted for half of all respondents. Only 18% of youth agreed that their monthly income was sufficient to cover most necessities, with the Northern Region having the highest percentage (25%).
It's also worth noting that approximately 21% of young people have extra money that they can put towards saving for the future. The majority of these young people come from the Central Region of Malaysia, which is made up of the country's largest cities with high costs of living.
In spite of this, 10% of youth in Malaysia believe that the amount of income they earn on a monthly basis is not sufficient. The Eastern Region accounts for the majority (85%) of this.
The following analysis will focus on the reasons why youths in each of Malaysia's four regions have so much debt. It was clear from looking at Table 3 that the three prime causes of debt are personal loans, which account for an average percentage of forty percent across all four regions.
The high cost of living is the second factor contributing to debt, with the eastern area having the largest number of debtors (27%) due to this factor. Paying off other debts comes in at number three on the list of the top causes of debt. The remainder of the reasons for debt only account for a minimal percentage.
On the basis of this data, we can conclude that the majority of youth in the Eastern Region feel that their income is sufficient, even if it is just sufficient to cover essential expenses. Even if they have to contend with a relatively high cost of living, the younger generation in the central area still has money left over for savings. And lastly, the young people from the Northern Region came to the conclusion that the income they were given was sufficient to cover the majority of their needs.
According to these statistics, young people have a higher incidence of debt (Drentea and Lavrakas, 2000). Because so many young people in Malaysia took out student loans, they have accumulated significant amounts of debt. As a consequence of this, they begin their jobs with a considerable amount of outstanding debt.
Even more than three decades ago, Berthound and Kempson (1990) noted that youth had financial issues, and the lower their income, the greater their debt issues. This research's findings on the northern and southern regions are consistent with the purported correlation between the two. However, the situation is different in the eastern and southern parts of Malaysia. Here, youth have reported that their incomes are lower as compared to the central and northern regions, and at the same time, personal loans have a lower percentage of cause of debt in comparison to the central and northern regions, as shown in Figure 2.
Table 1: Summary of Demography
Table 2: Youth Income Adequacy in Peninsular Malaysia by Region
Table 3: Causes of Debt Among Peninsular Malaysian Youth by Region
Figure 2: Percentage of Inadequate Income Versus Personal Loan
5. Conclusion
It is plausible to anticipate that it will be increasingly challenging for youth to maintain their financial wellbeing in light of the accumulated personal loan, rising cost of living and the amount they need to spend to pay off their debts. Understanding the perception of the income level and the degree of debt among young people is crucial for many parties, particularly policymakers as high levels of debt will result in bankruptcy (Selvanathan et al., 2016). This helps to explain why the study on the bankruptcy of youth, their financial well-being, and similar topics is still significant up until today. However, it is recommended that future research give focus on how a change in behavior is possibly will help to contribute to the stabilization of the youth financial situation.
6. Acknowledgement
The research has been carried out under UTM Encouragement Research project Q.J130000.2653.18J34 provided by Universiti Teknologi Malaysia.
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