Household debt decision: Poverty or psychology?

Zakaria, R.H. and Jaafar, N.I.M. and Ishak, N.A. (2017) Household debt decision: Poverty or psychology? International Journal of Business and Society, 18 (3). pp. 515-532. ISSN 1511-6670

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Abstract

This study is motivated by the growing concern with the increase in the level of household debt, particularly in Malaysia. One of the debated issues is whether household borrowings are related to poverty factors or due to psychological factors. This study approaches this issue by taking into account the factors as proposed by conventional (Life Cycle Hypothesis) and heterodox (Relative Income Hypothesis) economic theories. The data presented is micro level data collected from a self- administered survey among urban working class in Klang Valley. We find no conclusive evidence supporting the conventional theory, since though age is statistically significant, yet future income expectations are not. The findings also suggested that household debt is not a poverty related phenomenon since the determinants are more “wants” rather than “needs”. Thus, any policy intervention should include educating households on rational consumption decision making.

Item Type: Article
Uncontrolled Keywords: Behavioral economics;Household debt; Social comparison
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HC Economic History and Conditions
Divisions: Faculty of Economics & Administration
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 07 Jun 2018 08:37
Last Modified: 07 Jun 2018 08:37
URI: http://eprints.um.edu.my/id/eprint/18840

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