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final_RM - Abstract Nowadays households who live in the...

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Abstract Nowadays households who live in the modern world seem hard to escape from debt moreover with the growing amounts of products and service that banking institutions had offered such as unsecured debt like credit cards. Problem arises when households choose to consume more than the amount earn, in which case they to borrow which is making loan usually from the bank or other resources. According to Credit Counseling and Debt management Agency (AKPK) of the 50,361 cases that enrolled in debt management program, 10.6 percent households could not pay their credit card debt while the remaining 74.3 percent had repayment problem with housing loans, car loans and credit cards outstanding. Thus it is necessary to study about the factors that determine household indebtedness. This study will examine the relationship between economic, socio-demographic and behavioral factors and household indebtedness. A survey will be conducted by using convenience sampling of working households in Kuala Lumpur to understand the micro explanation that underlies household indebtedness. Possibly, this would give some insights on why households borrow and gives some indications on what kind of policy that is needed to help curb this problem.
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1.0 Introduction Nowadays households who live in the modern world seem hard to escape from debt moreover with the growing amounts of products and service that banking institutions had offered such as unsecured debt like credit cards. Households also face a very challenging task in managing their economic decision which basically involves the decision to consume or to save their monthly income. Problem arises when households choose to consume more than the amount earn, in which case they to borrow which is making loan usually from the bank or other resources. Since the 1997 Asian financial crisis, banking institutions in Malaysia had reduced the credit to business and focused more on giving credit to the households as a part of banking business diversification strategy. Government policies also play a role in provided greater access to credit by the households. For example government promotes home ownership policy and the reduction of duties on cars. Government’s promote the home ownership policy thus bank directly by using their capacity and business strategy are encourage to offer housing loans especially to low income class. According to Norhana and Hua (2009) in their research on “Household Debt in Malaysia”, banking institutions have been willing to finance residential mortgages because such loans are typically viewed as low risk. Local press, The Star reported studies have shown that Non Performing Loans (NPL) for home buyers with properties below RM 150,000 were higher compared with those in the higher income. The reduction of duties on cars also contributes to increase in household’s credit. Thus the purchase of passenger cars is second largest proportion of household debt. As the consequence the car loans contributed 23% of total household loans at the end of 2007 (Norhana and Hua, 2009).
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