MALAYSIA'S population is about one-tenth of the United State's — about 34 million against almost 340 million. Yet we Malaysians wield just one per cent as many credit cards: 10 million versus America's one billion.
So, it seems likely the absolute number of credit cards issued in Malaysia will grow at a faster rate than it will in the developed world — led by the US — because of Malaysia's low base effect.
That growth will unleash both the benefits and banes of credit card ownership. In my recent Aug 27, 2023 column entitled Awesome and awful: Twin sides of credit card usage (www.nst.com.my/lifestyle/sunday-vibes/2023/08/947774/money-thoughts-awes...), I pointed out that credit cards possess two key traits, namely convenience and line of credit.
Now, assuming you have at least one credit card — and millions of Malaysians already have more than one — try to recollect how you felt when you received your very first one? Allow me to make it easy for you to answer that question:
a. Were you excited?
b. Did you feel validated as an adult?
c. Did your newly minted status of bona fide credit-card-holder make you feel extra special, especially among your peers who hadn't yet been inducted into our vast plastic-wielding set?
d. All of the above?
My answer is "d"; about 40 years ago in England as a student, my answers to "a", "b" and "c" were yes, yes, and YES.
CREDIT CARD WOES
Those of you who know disjointed bits of my story, perhaps because I've drip-fed them to you in articles, books and columns over the 33 years of my professional writing career — beginning on June 1 1990 as a business journalist for Malaysian Business magazine at Berita Publishing of the New Straits Times Press (NSTP) group in Bangsar, Kuala Lumpur — will know that I have been monumentally stupid in how I've used credit cards.
My stupidity, compounded by innate stubbornness and an occasional slow-as-molasses learning capacity, led me into credit card-related woes twice:
First, in England in the 1980s, and, second, during part of the '90s in Malaysia before the Asian Financial Crisis of 1997 and 1998.
Both times I learnt lessons associated with credit cards from books, articles, and audio programmes, which I gradually applied with increasing levels of success.
HEED THE LESSONS
So, trust me when I say that I know more than just a few things about those enticing chip-enhanced plastic rectangles issued with regularity because of their massive profit potential for companies like MasterCard and Visa, and for financial institutions everywhere, which issue them to qualified applicants.
Bear in mind, not everyone makes the cut to be issued a new credit card. But many do. Of those many, some use credit cards for convenience only. I believe that is perfectly OK.
But there are also many who depend upon their lines of credit. That is unwise.
In case you're a credit card newbie, please heed my warning: If your credit balance is not paid in full each month on the due date, the unpaid portion is charged interest. But even though the interest rates quoted are "per month", the method of compounding is daily.
This means for a nominal interest charge of, say, 1.50 per cent each month or 18 per cent each year, the daily compounding effects result in an annualised percentage rate or APR of 19.7 per cent. And that's high. But now let me shift from objective arithmetic to subjective history...
In my opinion, a move by Anwar Ibrahim in the '90s when he was finance minister (FM) for the first time was sheer genius: Increasing the minimum monthly repayment on credit cards from five per cent of the outstanding balance to a whopping 15 per cent.
Today's environment is vastly different, though, largely because of the personal finance-crippling effects of the 2020-2022 pandemic. Plus, although Anwar is once again finance minister, he's also prime minister (PM)!
As he attempts to steer our entire beleaguered nation to better times, he and his team must simultaneously battle stubborn inflation, pockets of retail activity contractions, and reduced purchasing power of the RM because of adverse forex moves.
USE WISELY
Times are tough for most of us. And they may get worse. But what we can do for ourselves is wake up to the truth that academic research has repeatedly proven most people worldwide spend more when using credit cards than when they restrict themselves to purchases with physical cash. So, know thyself.
If you're able to use your credit cards wisely, meaning solely for convenience, and NEVER for their associated lines of credit, then continue doing so even as you manage the other interconnected parts of your financial life.
But if you overuse your lines of credit and end up paying credit card interest sometimes or, worse yet, always, then just stop making fresh charges on your cards. Instead, go full cash for your future expenses, spend less than you earn, save a little, but pay down your existing balances as fast as possible.
And as you clear each credit card balance, go ahead — have a blowout celebration. Just pay cash for it.
© 2023 Rajen Devadason
Rajen Devadason, CFP, is a securities commission-licensed Financial Planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on YouTube (Rajen Devadason).