The persistent increase in household indebtedness is an alarming issue that is becoming a major concern for economists and governments in developing nations. Although household consumption is an essential source of economic growth, households’ failure to meet their financial obligations will be one of the causes of economic problems if the increase in consumption is largely financed by household borrowing. Therefore, this study aims to analyse the nexus between households’ indebtedness and consumption and the roles of household characteristics.
This study uses a microdata set of the Household Expenditure and Income Survey in 2019, which contained a simple random sampling of 4,730 households.
Using a simultaneous equations model, our results show a negative nexus between households’ consumption and their indebtedness. We find that household savings and size have an indirect impact on the debt service ratio, while the assets and total debt repayment instalments indirectly influence household consumption. We also identify differences in the relationship between the gender of the household head, rural and urban locations and income groups in consumption and indebtedness.
The implication of this study is that governments should adopt several programmes to increase the awareness of household financial and debt management, especially for those in the low-income group.
This study contributes to the empirical literature by establishing a microeconomic perspective of consumption and an indebtedness model focusing on the differences in household characteristics in explaining consumption and indebtedness.
The authors thank the Department of Statistics Malaysia (DOSM) for providing data of household expenditure and Income Survey 2019.
Funding: The author did not receive financial support for the research, and/or publication of this article.
Authors’ contributions: All authors contributed to the study conception and designed the research. All authors developed the research question and objective of the manuscript. Data collection and analysis were performed by Wong Zun Yuan and Suhal Kusairi. The first draft of the manuscript was written by Wong Zun Yuan and all authors commented on previous versions of the manuscript. Suhal Kusairi and Zarihan Adbul Halim read, supervised research progress and approved the final version of the manuscript.
Competing interests: The authors agree that the manuscript was conducted without any self-interested, commercial or financial conflicts and declare that there is no conflict of interest with the data providers.
Wong, Z.Y., Kusairi, S. and Abdul Halim, Z. (2022), "The nexus between households’ indebtedness and consumption: the role of gender, geographical area and income groups", International Journal of Development Issues, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJDI-07-2022-0155
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