Fads are a debt trap for the youth

Consumers Association of Penang (CAP) calls on Malaysians to face the reality of the global economic downturn in the midst of geopolitical uncertainties. Overspending has driven our youth to the brink of bankruptcy through an unsustainable lifestyle of spending as much as they have and using credit cards when the money runs out.

The statistics of youths in debt are shocking. Last year’s UCSI Poll Research Centre revealed that 73 per cent of Malaysian youths are in debt and that they also do not have sufficient funds to meet their financial commitments.

Youths should learn to watch their budget closely and should not indulge in impulse buying, particularly with the ease of using credit cards and credit facilities such as Buy Now, Pay Later (BNPL). The reason is that many people do not keep track of their expenditures on their credit card or any credit facility until the end of the month when they receive their bills. By then they would have accrued a debt they find difficulty in settling. They seldom consider the effects of compound interest charged on the amount they owe. Besides accruing compound interests, debtors may not be able to obtain bank loans in the future when they have a record of poor repayment history with a credit reporting agency such as CTOS or CCRIS.

Other youths fall for fads and get into financial problems. Business sectors have no qualms about starting a commercial fad arising from a combination of psychological, social, and economic factors. Fads help to fuel enormous expenditures, distorting a person’s budget and better judgement.

People tend to look to others for cues on how to behave, especially in ambiguous situations. When they see others adopting a product or trend, they’re more likely to follow suit. This creates a snowball effect as more people join in, further validating the trend.

Limited availability or the perception of scarcity can drive an increased desire to buy a product. People often fear missing out on something that others are enjoying, leading them to jump on the bandwagon before it is too late. One such example is the launching of a new product whereby people would even camp outside stores to make sure that they don’t miss the “opportunity of a lifetime” to purchase something that they can do without.

Another psychological effect of a fad is that of herd mentality which refers to the tendency for individuals to conform to the behaviours and opinions of the majority. People may feel pressure to participate in a fad simply because “everyone else is doing it”.

Humans are drawn to novelty and new experiences. Fads often promise something fresh and exciting, providing a break from the routine and monotony of everyday life. One example of this is participating in cosplay whereby they can identify with one another at the events held.

Successful fads often tap into people’s emotions, whether it is through humour, nostalgia, or a sense of belonging. Emotional resonance can create strong connections with consumers, driving them to embrace the trend. This is the role of influencers in social media in particular.

Products associated with a particular fad can serve as symbols of identity and belonging. By adopting the trend, individuals signal their membership in a certain group or subculture, enhancing their sense of self and social connection. It is quite evident when people join certain clubs that they perceive it as a way to achieve prestige symbol or having a product of a certain brand.

Fads often promise tangible or intangible benefits, whether it’s improved health, status, or happiness. Even if these benefits are exaggerated or unsubstantiated, the promise alone can be enough to attract consumers. The global craze for dietary supplements with unproven benefits is one example whose market size was estimated at RM832.298 billion in 2023. Rather than eating nutritious food, people are willing to spend on expensive supplements.

Effective marketing campaigns and media exposure play a crucial role in fueling fads. Through strategic messaging and promotion, companies can create buzz around their products and generate widespread interest. Advertising is a means for businesses to reach out, capture the consumers’ attention and influence them to buy the product or service. This explains why the global advertising market size has been estimated at RM3,035 billion in 2023, convincing people to buy things or services with the belief that they need them.

Fads that are easy to adopt and integrate into everyday life are more likely to spread quickly. Whether it’s a simple product like a fidget spinner or a catchy dance craze, accessibility and simplicity are key factors. Social media is an effective means to propagate fads and subliminal messages to influence people even though their eventual decision is irrational.

If consumers are to stand back and look at their purchases and financial commitments, they might see that they are vulnerable to fads. They think that their credit card or a credit facility such as Buy Now, or Pay Later is an easy solution to their problem. However, when they are unable to pay at the end of the month, their debts will begin to accumulate to a point where they cannot extricate themselves from the debt trap.

We would urge youths who are in debt to seek help from the Credit Counselling and Debt Management Agency, better known as AKPK. For those who realise that they are heading towards a debt trap to start looking at their monthly budget, paying off whatever debt they have, and trimming down their expenses. Clearing debts is of primary importance.

The Education Ministry should introduce and include a course on financial management in upper secondary schools.

Mohideen Abdul Kader
President
Consumers Association of Penang

Letter to the Editor, 26 March 2024