Bankruptcy Due To Credit Card Debts Finance Essay

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Background of the study
The raise of credit card ownership and usage has been devastating around the globe. A credit card is a
system of payment named after the small plastic card issued to users of the system and is different
from a debit card in that it does not remove money from the user's account after every transaction. The
increasing of the credit card due to many reasons which one of it stated by Watkins (2000), which is
credit card becomes one of the main systems of transaction or payments that encourage domestic and
personal spending even in many developing countries of the world (as cited in Ahmed, U.Z., Ismail I.,
Sohail, M. S., Tabsh, I.,& Hasbalaila, A. 2010). In the case of credit cards, the issuer lends money to the
consumer or the user for the usage of the credit cards. Besides, a credit card allows the consumer to
rotate their balance, and having the interest charged at top of it.
A review of literature on credit card reveals that most studies have been undertaken in developed
country. Credit cards were first issued in the USA in the early twentieth century. In Malaysia, the first
card was introduced in the mid-1970s (Loke. 2007; as cited in Ahmed, U.Z & et al., 2010). At the early
on period, credit cards were only issued to professionals or successful business persons by card
issuing companies. However, with the passage of time, eligibility criteria for obtaining credit cards have
been changed because credit cards are now easily obtained by individuals regardless of their income
or other measures of financial well being. As a result, the number of cardholders reached to about three
million by the turn of the last century (Ahmed, U.Z & et al., 2010).The market for consumer credit has
undergone significant change over the past few decades. This because there is deregulation of the
banking industry and the need of lenders for more profit-making market instruments increased the
availability of consumer credit in the form of credit cards. Therefore, increasing in credit card ownership
means that the use of credit cards as short term loans has increased as well.
Besides that, the increase of credit card has brought many side effects to the users especially for the
young executives. This is because credit card influence them in making the excessive spending
because it easier and convenient for user to pay with credit card rather than bring the cash with them.
As a result, in the year March 2009, outstanding debts from credit card holders amounted to RM15.719
billion were reported. Then, by the year 2009 outstanding credit card debts accounted for 1.35 percent
of the total loans outstanding or 11.41 percent of the total consumer credit (Bank Negara Malaysia,
2009; as cited in Ahmed, U.Z & et al., 2010). Thus, its shows that increase in the number of credit card
holders seeking bankruptcy records over the years were also reported. The people below 30 are the
leading aged group that has been declared bankrupt because of credit card debts (Credit Card Debt
And You: Under-30s Under Siege, Malay Mail Insight, 2009).
Problem statement
According to Datuk Abdul Karim Abdul Jalil, Director-General of the Department of Insolvency Malaysia
there is total of 3,548 people declaring bankruptcy due to the credit card debt whereby 1,780 people
belong to those aged 30 and below (Credit Card Debt And You: Under-30s Under Siege ,Malay Mail
Insight, 2009).
Tables 1.1 and 1.2 indicate the number of bankruptcy due to credit card debts focused on the young
executives aged below 30. The researches found that from year 2005 until 2009, more than 46% of the
bankruptcy was experienced by the people aged below 30. The above figure shows the seriousness of
this bankruptcy problem due to credit card debts among the young executives happen within 5 years.
Besides that, as stated by Datuk Abdul Karim, there are many reasons for the situation occurs but
there is no serious study of the matter has yet been done. (Credit Card Debt And You: Under-30s
Under Siege,Malay Mail Insight, 2009). Therefore, reserchers found the great base to conduct this
study.
1.2 Research Objectives
To identify the relationship between the factor of knowledge on credit
card and bankruptcy, financial management, and lifestyles towards the bankruptcy due to credit card
debts among young executives.
To identify which factor (knowledge on credit card and bankruptcy, financial management and lifestyles)
that contributes most to the bankruptcy due to credit card debts among young executives.
1.3 Scope of research
1.3.1 Territory
This research was conducted in Sungai Petani area, namely at Central
Square, Tesco (U), Tesco (S) and Giant Hypermarket.
Time
The research conducted from March 2011 until April 2011.
Level
The research focused on public opinion on factors contributes to the young
executives bankruptcy due to credit card debts around Sungai Petani area.
Research was conducted among respondents age 18 years until 30 years old.
Significance of research
1.4.1 Young executives
The result of the research can provide the information to young
executives about the factor that lead to the increase number of bankruptcy due to credit card debts
within their aged. Besides, it can educate them in order to make a greater planning by using the credit
card in their daily lives.
Public
The result of the research can help public to know about the right way of using the credit card so that
they can be more careful in using the credit card. Thus, it can avoid them from being stated of
bankruptcy because of credit card debts.
Limitation
Limited literature review because there is not much study done on this issue. Therefore it quite difficult
for the researches in order to finds the appropriate article to review and support the research.
The result of this research will not represent the whole public opinion on this issue because the
research only done at Sungai Petani area and not throughout Malaysia.
1.6 Definition terms and concept
Credit card bankruptcy
According to Datuk Haji Mohamad bin Haji Aziz stated in copies of the Third Meeting of the Twelfth
Board of the Parliament (2010), he stated that the Malaysian young executives declaring bankruptcy
because of unable to pay the credit cards debts .This can be concluded that, bankruptcy due to credit
card debts is mostly because of inability to pay back their debts. Therefore, the same definition used in
the research.
Knowledge on credit card
The Association of Banks in Singapore (2010) stated that credit card holders should read and
understand terms and conditions for the use of credit card before signing the card agreement and use
the credit card, as it is a binding contractual document between card holders and the card issuer. The
terms and condition would cover items such as cash advance charges, finance charges for purchases,
loss or stolen card liability, minimum payment, late payment charges, annual membership fees,
transaction in foreign currencies and others. Thus, mandatory disclosure of information itself which
leads to awareness does not help consumers make effective credit decisions unless they understand
the information provided. Thus, in the perspective of this research, the knowledge on credit card refers
to the level of knowledge about nature of credit card such as terms card condition of that particular card
hold by the card holder.
Knowledge on credit card bankruptcy
DisputeDebts.com (2010) stated that knowledge on cases or nature of credit card usage that can lead
to bankruptcy such as frequent default payment, excessive use of credit limit and not pay at all.
Financial management
Worthington (2006 stated that financial literacy has been defined as the competence to undertake
rational, informed judgments pertaining to money management (as cited in Joyce K.H. Nga, Lisa H.L.
Yong and Rathakrishnan D. Sellappan, 2009). This includes the general understanding on budgeting,
conceptual knowledge of financial products offerings by financial institutions and ability to make
responsible investments to facilitate the achievement of ones financial goal (Macy, 2001; Beal and
Delpachtra, 2003; as cited in Worthington, 2006). General financial awareness concepts surveyed in
this study. Hence, this research will go through the same definition in term of the financial management
among the young executives.
Lifestyle
Halil Tunali and Ferda Yerdelen Tatoglu (2010) stated that there are some consumers seeing credit
cards as a lifestyle choice rather than a method of payment. These people generally hold more than
one credit card. There are many reasons why credit card can be seen as a lifestyle and trendy. One of
the main reasons for holding credit cards not used is prestige and social status. On the other hand,
active credit card users hold and use credit cards because they provide security, comfort, financial
source etc. for the users (Chang and Hanna, 1992 as cited in Halil Tunal and Ferda Yerdelen Tatoglu,
2010).
1.6.6 Young executives
G.M. Mirchandani (2000), President of Arvind Brands Limited segmented and targeted his customer
into categories which are teenagers and young executives. He defined that the young executive is the
young people that aged below 30.In this research, the researcher defined the young executive just like
G.M. Mirchandani, which are people below aged 30.
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