IT all started when Amy (not her real name), 31, needed to buy a present for a friend’s baby shower. She visited online shopping sites to “look around”.
Three months after making her first purchase, online shopping had become an obsession. Amy was hooked.
Before she knew it, Amy was seeking help from the Counselling and Debt Management Agency (AKPK) because she had “maxed out” on her credit cards.
“It started off with that one purchase that I had to make,” she said.
“It seemed like a good idea as some of the items were much cheaper than they would be in stores. It was also so convenient.
“Since I have a nine-to-five job and am always at my computer, shopping online is time-saving.
“However, I found myself hooked. First, it was just one site, then it became two. Before I knew it, I was registered on six shopping sites.”
A survey on the spending habits of millennials (Generation Y) by United Overseas Bank Limited (UOB) Malaysia found there was a 38 per cent growth in online spending in the first six months of last year, with Gen-Y spending 1.4 times more than other age groups.
The survey also found that millennials, who grew up with the Internet, mainly used their credit cards to buy airline tickets and book hotel accommodation. They also used their credit cards to purchase products from fashion and retail outlets through the worldwide web.
Millennials’ increasing preference for online shopping also led to a 26 per cent rise in credit card spending among card members aged between 26 and 35.
A study conducted by the Asian Institute of Finance (AIF) revealed that the majority of Gen-Y respondents relied on high-cost borrowing, with 38 per cent taking personal loans and 47 per cent engaging in expensive credit card borrowing.
Not surprisingly, Amy’s friend, Sam, 35, was also hooked on online shopping.
“My obsession is with gadgets and there are tonnes of those online,” he said.
“My first purchase was a thumb drive. Later, it was a phone with accessories and, eventually, a laptop. It was so easy to key in my credit card number and have them delivered in a few days.”
Sam said he stepped on the brakes after two months when he realised how much he had spent on his credit cards.
“I had maxed out all three of my credit cards. I managed to stop myself from shopping more when I realised what I had done.
“I didn’t seek professional help, but I’m slowly but surely clearing my debts with the help of my parents. I feel embarrassed and guilty for putting them through this. I have learned my lesson for sure.”
As for Amy, she said she had terminated her online shopping memberships.
“I have yet to settle my debts, but I’m at a much better place now, financially,” she said.
UOB Malaysia managing director and country head of personal financial services Ronnie Lim said millennials’ spending habits would dictate and shape the consumer market as they would soon make up the largest consumer demographic.
“Millennial spending accounts for more than one-third of credit card spending across our customer base. Millennials are also spending at a faster rate than other age groups.
“The volume of credit card spending among millennials was five times higher than that of customers above the age of 35 in the first six months of last year, compared with 2015.”
Manulife Asset Management Services Bhd certified financial planner and securities commission-licensed financial planner Rajen Devadason said millennials faced a lot of temptation due to their peer group’s expenditure patterns.
“It’s always difficult for a young person just starting out in life to understand the importance and wisdom of exercising delayed gratification, instead of caving in to the cravings of instant gratification.
“A larger fraction of a typical millennial’s overall spending is done online, either through digital bank transfers or via debit or credit card transactions. Younger adults have a lower propensity than older ones to rely on cold, hard cash.”
He advised millennials who did not have credit card debts to protect themselves by preparing a list of items that they needed to buy before going online.
“Commit to comparative shopping to get the most ‘bang’ for your buck. And try to increase the amount of time spent in physical retail stores instead of in online malls and aim to make purchases with cash.
“Past studies on spending patterns among consumers of all ages suggest that when purchases are made in cash an average of 17 per cent less is spent.
“This is because the psychological barriers we have to spending cold, hard cash are much higher than those associated with spending electronic funds with no tactile, tangible feel and which often appear to be a rich and deep pool of wealth that can be tapped with no consequences until the dreaded credit card bills arrive.
“The quickest way to deal with credit card woes is to immediately stop all credit card purchases and embark on a disciplined programme of paying down one credit card at a time,” he said.
“Once the existing balance is paid off, you need to cut up the card and cancel it,” he advised, adding that cash or debit cards should then be used for normal expenses.
“This is because every time an individual racks up credit card purchases that are not part of a well-thought out budget, those additional expenses will either result in ballooning unpaid credit card balances or reduced surpluses available for more beneficial long-term saving and investing programmes.”
He cautioned against the danger of impulse shopping which could be triggered by manipulative marketing messages.
“Ask yourself, ‘Why am I buying this item? Do I need it? Do I truly want it? Does this purchase empower me to make more money in the months and years ahead or otherwise?” he said.
Kenanga Investors Bhd chief executive officer and Financial Planning Association of Malaysia (FPAM) president Ismitz Matthew De Alwis said online shopping had become a huge staple of the Malaysian lifestyle and would only grow stronger as more innovative online retailers emerge to cater to the growing trend.
“Online shopping has provided another reason for millennials to add to their growing debt problems, as compared with 15 to 20-years ago.
“Their purchasing decisions are influenced heavily by social media personalities on Facebook, Instagram, and YouTube, as well as family and friends.
“It can be said that millennials tend to spend beyond their means and often indulge in impulse-buying behaviour. Coupled with easy access to loan products such as credit cards or personal loans, they will eventually find themselves in the debt trap.”
He said Malaysian millennials, generally, earned higher incomes than the previous generation.
“Despite this, they lack sound financial knowledge and are ill-equipped in making investment or savings decisions. As a result, we see them adopting the ‘buy now, pay later’ mentality.”
Referring to the AIF study, he said only 28 per cent of respondents were aware of financial risks, 36 per cent had knowledge of financial products, 37 per cent sought financial advice from a professional planner and only 26 per cent dealt with a financial adviser.
“This draws a bleak picture of this segment’s overall financial literacy,” he said.
“Meanwhile, 70 per cent of those owning credit cards usually only pay the minimum monthly payment and 45 per cent did not pay on time at some point.”
He said the spending power of millennials and the easy availability of credit financing facilities could be a bigger problem in the future.
“The drive to engage in impulse-buying is perpetuated by their need to conform to a certain type of lifestyle or image often created by the power of social media.
“This is without factoring in other necessary big-ticket purchases such as houses or cars.”
He said the Insolvency Department had stated that the rising number of young bankrupts in the country was due to study loan debt.
“Once they begin their careers, they are often overwhelmed with transport and accommodation costs. Housing and car loans remain the main factors of bankruptcy,” he said.