Materialism, over-indebtedness and financial fragility: An empirical study of Malaysian civil servants / Amien Arief Jamaluddin

Amien Arief, Jamaluddin (2024) Materialism, over-indebtedness and financial fragility: An empirical study of Malaysian civil servants / Amien Arief Jamaluddin. PhD thesis, Universiti Malaya.

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Abstract

The rapid increase of household debt in the advanced and developing countries over the past decade is detrimental to economic growth in the long run. Excessive borrowing at the micro-level not only reduces household consumption and standard of living, but at the same time increases household exposure to financial fragility and default. Despite the alarming statistics, several other studies suggested that the raise in household debt is supported by the new entry and the financially sound borrowers which imply an optimistic economic environment. Based on contradictory past evidence, this micro-level study aims to investigate household debt and financial fragility by examining socio-economic characteristics with a specific focus on household life cycle, debt service ratio (DSR) level, and household materialistic values. By utilising a multi-staged sampling procedure this cross-sectional study focuses on Malaysian civil servants as its population sample. The selection of these specific groups is due to their larger total debt accumulation and higher DSR level compared to the Malaysian average. A binary logistic regression model is employed to analyse the probability of being over-indebted and financially fragile. Further examination on the likelihood of being financially fragile is conducted by utilising ordered logistic estimation to assess the level of reliability and robustness of the main findings. It is found that nearly 7 out of 10 Malaysian civil servants are over-indebted and almost 3 out of 10 are financially fragile. While the study identified a moderate level of financially fragile civil servants, the non-financially fragile which represents 47% of households are facing some form of financial constraint. Despite this, analysis on household perceived financial condition shows that 65.1% are financially sound indicating household’s ability to keep a fair amount of income as precautionary savings. The contradiction gap between the actual and perceived financial position is likely to be contributed by the constant use of the accumulated savings to finance additional expenditures that lead to insufficient long-term savings as well as the sense of financial stability due to future income expectation, and guaranteed pension remuneration during retirement. Apart from household life cycle, level of income and debt, as well as gender and number of dependents, household level of materialistic orientation are proved to be the key determinants to household financial position. It is suggested that higher attachment to material possession lead to higher non-debt expenditure, decreases household ability to save, and increases the probability of being financially fragile. Several short-term and long-term policy responses are proposed to ease the demand for debt as well as reduce household attachment to material possessions. These include reviewing the civil servant housing and cost of living allowances for households in the urban area, tightening the lending and borrowing procedure, particularly for personal loan applications as well as introducing the mandatory debt management program for newly recruited public employees.

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