Millennials in Malaysia face online shopping debt trap

millennial shopping
Today Online Staff | July 14, 2017

KUALA LUMPUR — It all started when Amy (not her real name), 31, went online to buy a present for a friend’s baby shower. Three months after making her first purchase, online shopping had become an obsession.

Ms Amy had maxed out her credit cards on six shopping sites and was seeking help from the Counselling and Debt Management Agency. She also terminated her online shopping memberships.

“It started off with that one purchase that I had to make,” she said.

“It seemed like a good idea as some of the items were much cheaper than they would be in stores. It was also so convenient.

“First, it was just one site, then it became two. Before I knew it, I was registered on six shopping sites.”

Ms Amy is not alone. Her friend, who gave his name only as Sam, 35, was also hooked on online shopping. He maxed out all of his three credit cards on shopping for gadgets and had to seek his parents’ help to pay off his online shopping debt.

“I feel embarrassed and guilty for putting my parents through this,” he said. “I have learnt my lesson, for sure.”

A survey on the spending habits of millennials by United Overseas Bank Limited (UOB) Malaysia found there was a 38 per cent growth in online spending in the first six months of last year, with millennials spending 1.4 times more than other age groups.

It found that millennials, who grew up with the Internet, used their credit cards to buy airline tickets, book hotel accommodation, and shop at fashion and retail outlets online.

Millennials’ preference for online shopping also led to a 26 per cent rise in credit card spending among card members aged between 26 and 35.

Mr Ronnie Lim, UOB Malaysia managing director and country head of personal financial services, said millennials’ spending habits would shape the consumer market.

He noted that millennial spending accounts for more than one-third of credit card spending across UOB’s customer base. They are also spending much faster than other age groups.

“The volume of credit card spending among millennials was five times higher than that of customers above the age of 35 in the first six months of last year, compared with 2015,” he noted, adding that they would soon make up the largest consumer demographic for his bank.

Millennials tend to be tempted to spend due to the spending pattern of friends they follow closely, said Mr Rajen Devadason, a financial planner with Manulife Asset Management Services Bhd.

He noted that compared with older adults, young adults tend not to rely on cold hard cash. The psychological barriers a person may have to spending cash are much higher than those associated with spending electronic funds which have “no tactile, tangible feel”, he said. One often does not see the consequences until the “dreaded” credit card bills arrive, he added.

“It’s always difficult for a young person just starting out in life to understand the importance and wisdom of exercising delayed gratification instead of caving in to the cravings of instant gratification,” he observed.

He advised millennials who do not have credit card debts to protect themselves by preparing a list of items that they need to buy before going online.

“The quickest way to deal with credit card woes is to immediately stop all credit card purchases and embark on a disciplined programme of paying off one credit card’s bills at a time,” he said. After paying off the existing debt, he suggests cutting up the card and cancelling it. Use cash or debit cards to pay for normal expenses instead.

He also said it is vital to recognise the emotional triggers used by manipulative marketers.

“Ask yourself, ‘Why am I buying this item? Do I need it? Do I truly want it? Does this purchase empower me to make more money in the months and years ahead or otherwise?’” he said.

Kenanga Investors chief executive officer and Financial Planning Association of Malaysia (FPAM) president Ismitz Matthew De Alwis said millennials are spending beyond their means and often indulge in impulse-buying. As a result, they will fall into the debt trap easily.

Ironically, he noted, Malaysian millennials, generally earn higher incomes than the previous generation. Their ‘‘buy now, pay later’’ mentality shows that they lack sound financial knowledge and are ill-equipped in making investments or savings. He said a study paints a bleak picture of millennials’ overall financial literacy.

The study conducted by the Asian Institute of Finance shows that most millennials tend to borrow to support their spending as well.

About 38 per cent take personal loans and 47 per cent engage in expensive credit card borrowing.

Conversely, millennials appear to ignore the downsides of borrowing. For example, seven out of 10 owning credit cards pay only the minimum sum required, and 45 per cent did not pay on time at some point.

They also do not know how to invest their money. The study noted that only 28 per cent of respondents were aware of financial risks, 36 per cent had knowledge of financial products, 37 per cent sought financial advice from a professional planner and only 26 per cent dealt with a financial adviser.

Due to their reliance on social media and the need to conform to a certain image on social media, this segment faces higher risks for insolvency when it is time for them to buy big-ticket items such as houses and cars as they get older. He said the Insolvency Department had already warned that the rising number of young bankrupts in the country was due to study loan debt.