Malaysians struggle as household debt soars


It is not just household debt as a percentage of GDP that we should be concerned about, but household debt compared to disposable income is even more crucial. Take a look at the yellow bar to see where we stand.

Comparison of household debt/GDP and household debt/disposable income. Source: Yong, 2010; Endut and Toh, 2009; Bank Negara, 2010. - Graph: Penang Monthly

While our household debt as a percentage of GDP of 78 per cent may not be exceptionally high, our household debt to disposable income of 140 per cent is worrying.

Household debt to disposable income for selected countries:

  • UK – 176% (2007)
  • Malaysia – 140%
  • US – 130% (2008)
  • Japan – 120%
  • Singapore – 105%
  • Korea – 101%
  • Germany – 95%
  • France – 93%
  • Italy – 70%
  • Thailand – 53%
  • Indonesia – 38%

Sources: Penang Monthly; OECD Factbook 2010/Finfacts Ireland; CAP/Malaysian Insider

Now you know why many Malaysians don’t feel so well off, with this level of household debt. About half our disposal income goes to servicing debt.

What are some of the factors driving the high household debt/disposal income ratio?

  • High growth in consumer-driven spending
  • Low interest rates encourage borrowing
  • East credit by banking institutions due to financial liberalisation (translating into fat profits for the banks?!)
  • Rising house prices especially in KL and Penang where the average house price to average income ratios are much higher
  • and of course, low income/wages

Below is another graph showing the rising household debt to GDP ratio over the last few years. Household debt now stands at 78 per cent of GDP.

Household debt/GDP. Source: Endut and Toh (2009); Bank Negara (2010; Chua (2010). Graph: Penang Monthly
Please help to support this blog if you can.

Read the commenting guidlelines for this blog.
Notify of

Most Voted
Newest Oldest
Inline Feedbacks
View all comments
Loh Eng Hoe
Loh Eng Hoe
16 Nov 2012 6.14pm

Anil, please explain.. when we say household debt to disposable income ratio, are we comparing total household debt outstanding (eg RM200,000 mortgage loan outstanding) to annual disposable income of the family (eg. RM240,000 if husband and wife each makes RM10,000 per month)? I would say it is pretty common for many Malaysian families to be in this 140% position considering the high price of properties and the relatively low salaries in this country. What is considered as a safe number to be be at if not 140%? Fans of property investment as a vehicle for wealth generation would surely contribute… Read more »

Eddy Tan
Eddy Tan
20 Apr 2012 8.06am

Financial literacy wasn’t being taught in Universities ,it is being prudent in your spending and self discipline ,but the trend nowadays are marketeers are good at targeting young generations to spend future earnings via credit cards ,personal loans and maybe parents are pampering their child more nowadays. Fresh graduates driving new cars nowadays, paying more than their Income calculation ratio but who s to be blame, Trend or Habit. Practice Delayed Gratification , car is to take you from point A to B ,don’t fixed anything that is not broken and delay buying something you don’t need urgently, you ll… Read more »

10 Mar 2012 2.49pm

This is a good article related to the topic of discussion.

Malaysia in 2020: A maid exporter, bankrupt and police state?

Michael Lim
6 Mar 2012 9.16pm

House & car already 75% of debt. So how to solve the major problem? Affordable house? Better public transportation system?

8 Mar 2012 10.18am
Reply to  Michael Lim

We have winessed the failure of BN governance, so much so that PM Najib is beginning to apologize and asking for 2nd chance to deliver his ‘transformation’. Why are rakyat continue to suffer while we see the BN government wasting our resources with white elephants and high level of corruption? BN can promise you high income but this will be offset immediately by barang naik/inflation/higher cost of living/higher tax/GST….. The way forward is to establish a powerful 2-party system to ensure some equilibrium so our public fund may end up benefiting Singaporeans and Kazakstan people as the case of NFC… Read more »

9 Mar 2012 4.41pm
Reply to  Hasri

Very true!

6 Mar 2012 12.41pm

Wait for Najib to raise yr income ? Dream on ! Anil for MPPP post !!!!

Super Senior
Super Senior
5 Mar 2012 3.04pm

Malaysians want to keep their 17 days public holidays but demanded higher pay (RM1K min pay?).

The develop countries have only 10-12 public holidays per year. Maybe we should compensate this by reducing the annual leave?
Otherwise don’t be surprised when you normal teh tarik would cost about RM2.50 per glass to offset the higher wage cost.

So the better way is to reduce the number of workers, retain only the good and skillful ones and pay them higher as a motivation for higher productivity.

semuanya OK kot
semuanya OK kot
5 Mar 2012 1.01pm

The solution is to issue or set up more gambling outlets (to feed on addicts), crony contracts, monopolies, and privatisation where civil service worked fine. Also to close one eye to underhand bank practices, loan sharks, illegal gambling outlets, labour injustices including underpayment and non-payment of wages, substandard construction of houses (which lead to more expenses), etc.

Super Senior
Super Senior
5 Mar 2012 12.55pm

Nowadays everyone seems to be able to afford anything as goods can be purchased via hire purchase scheme or via credit line.

Many chooe to live on tomorrow’s money.
They thought it is a way to fight the ‘barang naik’ syndrome.
Perhaps they are emulating the BN government that is heavily in debt too?

5 Mar 2012 2.24pm
Reply to  Super Senior

Superior Senior, Yes, we are living on borrowed money.Just imagine your apartment 400k, you pay only 10% or 40K and you get to pay off in 30 years times. That`s borrowed money of 360k and by the time you finished the loan it would have been 700k+. Likewise its the same for your car. But if you don`t use borrowed money you may never own any house or car. So borrowed money is good in a way as long as you control it. But one thing you must never never do. Borrow from Ah Long. One you do that you… Read more »

6 Mar 2012 4.35pm
Reply to  Yang

I think Super Senior is refering to borrowing money to satisfy one’s wants rather than needs e.g. wasting money on fancy car, luxury bags, latest tech gadgets, fine dining when one can ill afford. These are actually expenses that are not an investment for the future. Sad to see many youngsters are borrowing future earnings to ‘upgrade’ their mobile phones/tablets regularly or sipping RM15 coffee at Starbucks just to look hip. Easy credit line and temptations from advertisements with hire purchase scheme is making the situation worse. Yang should not feel guilty in investing in good homes with borrowed money… Read more »

5 Mar 2012 11.45am

The 2-4% Inflation rate published by the Government is very misleading. In the basket of items, many are controlled items and we need more than these to survive. Foodstuff had gone up by about 15-20% over the last year. Meals in standard kedai makan to up-market restaurants have gone up by 10-20%. Car repairs have also gone up with spare parts that include re-con parts and 2nd hand potong kereta parts seeing significant price hikes. Nornal semi-synthetic engine oil has also seen prices shoot up from the RM80+ to RM100+ now. Handymen and trademen have also pushed up their rates… Read more »

5 Mar 2012 11.13am

The spiralling household debt problems is surely a matter of concern. High inflation rates and low incomes are the main reasons for this problem. People have to work longer in order to support their families. The govt should help the rakyat tackle this problem.


5 Mar 2012 9.15am

Actually its a lot worst than you think because its disposable income you are talking about. Remember that disposable income is after tax. We live in a country where 40% of govt revenue comes from non-recurring source of oil & gas. They are now talking GST, removing subsidies, 1Care, more toll roads. When oil is gone soon enough, THESE numbers will be horrendous..

ong eu soon
ong eu soon
5 Mar 2012 2.00am

Stimulus spending??????
High growth in consumer-driven spending
Low interest rates encourages borrowing
East credit by banking institutions due to financial liberalisation (translating into fat profits for the banks?!)
Rising house prices especially in KL and Penang where the average house price to average income ratios are much higher

But why low income/wages? How to spend? Be a slave!

4 Mar 2012 11.40pm

With the increase of the cost of living by Barang Naik policy, our household debt against disposable should be very much higher than that was indicated

Gerakan K
Gerakan K
4 Mar 2012 10.08pm

Anil, can you educate me on what is household debt ???

Formal debt like housing and car loans ???

Thrifty 60's
Thrifty 60's
6 Mar 2012 7.52am
Reply to  Anil Netto

The young generations should be conscious of thier spendings. Excessive spending at the mall and gadget-based culture if not being curbed reasonably will add misery to future houldholds !

Cars should be a means for transport and if not there yet beter don’t shoiw off flashy car with expensive loan purchases !

Don’t change mobile phones every new gadget comes along !

More important, save to get an affordable house/home for a start. Better to get a safe roof above everything else; even a car !

Go for home cook food as much as possible to cut down expenses.

6 Mar 2012 4.05pm
Reply to  Thrifty 60's

Cut up all the credit cards you have and use only PayPal for online purchases if you need to for work-related purpose. Have only one debit card linked to your saving account, that way you can’t overspend without money in it. Curb that one big ego of covetousness and “Bing Chui” inside you, defer purchases with this mantra: No Money, No Gatai, No Need “Bing Chui”. After all that Bing Chui MyVi or Bing Chui iPhone 4 can’t buy you 3 decent meals or get your envious neighbors to hormat you like a YB for Bing Chui ‘status’. Bing Chui… Read more »

9 Mar 2012 4.39pm
Reply to  Thrifty 60's

The new iPad with certainly make more people poorer, right?

10 Mar 2012 8.56am
Reply to  Raymond

How many users really/actually use all the features in iPad? I think it is more of a lifestyle statement to show one’s status@cafes and social interaction than a utility of necessity and purpose. The same goes for iphones & other gadgets that feed on our voracious appetite for trendy and new but underused ‘exhibiting’. And O’Blady banks will always laugh to their own banks at each launch of newer version iPad with offer of “Why Wait?” easy financing at a click. Time for morning Kopi-O kau kau with a great sense of genuine freedom from covetousness of gadgets or envies… Read more »

4 Mar 2012 9.24pm

Penang’s Economic Think Tank should understand this dire straits beforehand to advice our state gomen on the direction and implication of state development. Development for who, for what purpose, why such development and how will it be sustainable and beneficial. Business-positive implication is one thing, how will the common folks be able to withstand the change of living standards or take advantage of economic opportunities or skewed opportunities is another story. What economic policies will favor/benefit/protect our local workforce to take to the next level of high income earners? Will the upper 1% of society be ‘kind’ enough to help… Read more »