Determinants of household debt: country and household level / Siti Aminah Mainal

The unwarranted household debt is one of the major factors that initiated the global
financial crisis which led to severe worldwide financial instability. Deleveraging
process which has been taking place since the crisis has been slow and there is no
quick fix to the household debt issue. Household debt affected not only the advanced
economies, but ASEAN countries as well. For the past few years, Malaysia has
emerged as the country with the highest household debt to Gross Domestic Product
(GDP) in the ASEAN region. Apart from the troubling ratios, financial and social
problems usually accompany households with large debt burden. Some of these
financial problems include cash flow problems, loan defaults, foreclosures and even
bankruptcies. Meanwhile, social implications such as psychological distress,
depression, anxiety, anger, and even suicidal contemplation can be the result of too
much household debt. The present study examines the determinants of household debt
at country and household level. The main study at country level applies panel data
analysis and compares results between ten advanced economies and five ASEAN
countries from 2001 to 2013. Pooled Ordinary Least Square (Pooled OLS), Fixed
Effect and Random Effect estimators have been applied in the regression to examine
the effects of macroeconomic factors, and financial crisis period as well as household
characteristics on household debt. Findings confirm that macroeconomic factors
including inflation, house prices, and household consumption encourage household
debt in advanced economies while in ASEAN countries, economic growth boosts
household debt. Post financial crisis period has significant negative effect on
household debt of developed nations which affirmed the deleveraging process in most
advanced economies as opposed to ASEAN countries. Household characteristics such
as working age population and urban population growth also encourage household
debt in advanced economies while in ASEAN countries, the increase in internet users
is causing more households to be in debt. Robustness test were carried out and
findings confirm that house prices and personal healthcare costs are positive
significant determinants of household debt in advanced economies. While in ASEAN
countries, interest rate and retiring age population are negatively significant.
Meanwhile, a complementary study at household level is also carried out to study the
household behaviour towards debt in this challenging environment. This study
examines the predictors of intention to incur household debt among Malaysian
households. Using multiple regression analysis on 386 fully completed questionnaires,
this study reveals that attitude, perceived behavioural control, financial planning and
adoption of financial innovation as significant predictors of intention to incur
household debt. Consequently, to curb on excessive household debt which can cause
much grievance to households and to the economy of a country if not contained,
specific policy implications such as government intervention on the housing sector
through numerous mechanisms, including policies, tax systems, loans, regulations and
incentive programs to stabilize the house price and improve affordability for the
people. More importantly, governments and related authorities should give financial
education top priority in educating the society in the importance of financial wellbeing
and empowering households to take responsibility for their own financial
position.