October 29, 2018
Financial literacy among younger Malaysians is at a global low. How much do you know about the worst case scenario?
While financial education initiatives tend to focus on the processes and benefits of wealth planning, less emphasis is given to the consequences of poor financial planning faced by young Malaysians every day.
Those aged 25 to 44 years comprising nearly 60% of the 293,086 bankruptcy cases reported nationwide in 2017. However, the spectre of bankruptcy can be dispelled with some understanding of the factors that contribute to insolvency.
On average, 51 bankruptcy cases and 98 petitions were filed daily in 2017.
“A high number of bankruptcy cases show lack of diligent financial management and spending, which contributed to the failure to settle debts, thereafter leading to civil and bankruptcy proceedings,” said the Malaysian Department of Insolvency (MDI) in an email interview.
“Hence, those with high levels of debt must practice affordable lifestyles so as not to be burdened by excessive financial commitments.”
The underlying factors behind these factors, noted the government agency, point towards exorbitant spending and the practice of lavish lifestyles far beyond affordable income.
Influence from friends, and lack of knowledge on prudent financial management, and commercial and bankruptcy laws were also considerations.
Based on MDI statistics, the primary causes of domestic bankruptcy cases relate to defaults in personal, hire purchase, housing and business loans, as well as credit card repayments.
From 2014 to September 2018, those aged 35-44 comprised 34.59% of bankruptcy cases, with those aged 45-54 and 25-34 as the next most affected groups.
“We would like to clarify that MDI does not declare an individual bankrupt. Creditors initiate the majority of bankruptcy cases in Malaysia, with the DGI acting as the receiver, manager, administrator and trustee of bankrupts’ estate,” said MDI.
“Bankrupts are required to file their statement of affairs with MDI, but the number of bankrupts who attend MDI’s office is low. We urge all bankrupts to come forward to cooperate in the administration of their bankruptcy cases.”
Up to December 2017, MDI has administered a total of 300,958 bankruptcy cases, with 100,610 of these occurring since 2013. In 2017, this averaged to 51 cases registered and 98 petitions filed every day.
However, the number of successful discharges was much lower. From 2013 to 2017, just 13,906 cases were released or otherwise disposed of through court proceedings, along with 46,329 discharges by DGI certificate.
The article is contributed by Aliff Yusri from Smart Investor. Smart Investor is the country’s leading monthly investment magazine. It focuses on enhancing value for both retail and institutional investors via its extensive corporate and financial commentaries and features.
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