Household Debt Rise a Concern

1.0 INTRODUCTION

According to an article in The Star under segment StarBiz, title of the article is ‘Household debt rise a concern’ taken on Tuesday March 20, 2012 and it was written by Daljit Dhesi.

Household debt is at a record high relative to disposable income (Durkin & Staten, 2001). Many analysts are concerned with the unique level of debt that might risk the health of Malaysian’s financial health and this will lead them to limit their spending. . Economic growth occurs whenever people take resources and rearrange them in the ways that are more valuable (Romer, 2007). Thus, Malaysia is affected with current world’s crisis on Eurozone debt and US economic crisis.

The author emphasizes on even though this is not an imminent danger but it needs to have close supervision. A subtract taken from the article, “Rating Agency Malaysia (RAM) Ratings head of financial institution ratings Wong Yin Ching said, ‘The nation’s household debt as a percentage of gross domestic product (GDP) had risen to 77% as at end-2011 compared with 69% at end-2006, and its household debt-to-GDP ratio was considered high when compared with other countries in the region, especially in relation to GDP per capita’”.

Gross domestic product (GDP) is commonly used as an indicator of the economic health of a country, as well as to measure a country's standard of living. GDP are consisting of consumption, government’s spending, sum of country’s business spending on capital and net export.

Bank Negara Malaysia have had put early measures preventions implemented since 2010 to safeguard the health of financial system. According to Wong Yin Ching, she said all domestic banks are prepared to meet the new capital requirements under Base III which will be applied in 2013. Even though it will lift up bank’s funding cost, but this is one measure to ensure the safeguard of banking sector against unexpected shocks.

2.0 PROBLEM STATEMENT

Problem statement is an important element when conducting a research. The problem statement introduces the key problem that is addressed in the research project. A problem statement is a clear, precise, and succinct statement of specific issue that a researcher wishes to investigate. There are three key criteria to assess the quality of the problem statement: it should be relevant, feasible, and interesting (Sekaran&Bougie, 2010).

The first problem statement of this study is ‘Is Malaysians salaries sufficient to the debt obligation?’ This issue might not be relevant to the financially stable families but this issue emphasize on middle-income and low-income families. Moreover, the standards of living in Malaysia are getting higher, day by day comparing with the rapid increment on the household debt from August 2011 to January 2012. Therefore,