walknote.eu.org - The expenditure of households in paying off loans or debts has been on the rise, leading to a contraction in consumer spending. According to data from the Consumer Survey by the Bank of Indonesia (BI), the proportion of debt repayment against the income of the population reached 10 percent in December 2023. This continues the upward trend observed in the past few months, reaching 9.3 percent in November.
On the flip side, the expenditure on consumption is dwindling. The ratio of expenditure on consumption to the income of the population has decreased to 74.3 percent, down from the previous month's 75.3 percent.
Analysis by Economic Center of Reform on Economic (CORE), Yusuf Rendy Manilet, suggests that a debt repayment ratio of 10 percent against income is still considered healthy. He asserts that the "common limit" for expenditure on debt payment is in the range of 30-40 percent.
"However, it's essential to note that this ratio represents the national average," he stated to Kompas.com on Tuesday (9/1/2024).
Manilet emphasizes that the 10 percent ratio of debt repayment may be burdensome for lower-income groups, potentially weakening their purchasing power. This proportion is deemed a significant burden, impacting the ability of these households to meet other essential needs.
Contributing Factors:
Yusuf Manilet further evaluates the increasing allocation of debt payments by the public due to a combination of two factors: the high benchmark interest rate and the ease of access to online lending services (fintech).
He explains that the rise in BI's benchmark interest rate in 2022 and 2023 has led to an increase in the interest rates of bank loans. According to BI's data, the interest rate on bank loans was at 9.29 percent in November 2023.
With higher loan interest rates, there is an adjustment to the installment costs that households need to bear.
"As a result, the burden of debt repayment becomes more substantial," he says.
In addition, the public is finding it increasingly easier to access financing from non-banking financial service providers. Beyond fintech, services like "buy now, pay later" or pay-later options are gaining popularity among the population.
Unlike banks, non-banking financial service providers offer financing services with much simpler requirements. Consequently, many individuals opt for these services.
"This makes it easier for people to incur debts, whether for urgent needs or for non-urgent consumption items," he remarks.
Impact on Consumer Spending:
The repercussions of the rising debt repayment burden are significant, particularly for the lower-income segments of society. As the debt-to-income ratio increases, households are forced to allocate a more substantial portion of their earnings to repayments, leaving less for discretionary spending.
Yusuf Manilet expresses concern over the potential weakening of purchasing power among lower-income groups, which could have broader implications for the overall economy. A decrease in consumer spending may lead to reduced demand for goods and services, affecting businesses and employment.
Furthermore, the trend of relying on non-banking financial services and online lending platforms poses challenges to financial stability. While these services offer convenient access to funds, they also come with higher interest rates and may contribute to a cycle of debt for some individuals.
Policy Implications:
In light of these developments, policymakers may need to consider measures to address the growing burden of debt repayment on households. This could involve a combination of monetary policy adjustments, financial education initiatives, and regulatory measures to ensure responsible lending practices.
Additionally, promoting financial literacy among the public, especially regarding the risks associated with online lending and non-banking financial services, becomes crucial. Authorities may need to work closely with financial institutions to establish guidelines that protect consumers from predatory lending practices.
Conclusion:
The increasing trend of household debt repayment and its impact on consumer spending underscore the need for a comprehensive and balanced approach to financial management. As households navigate the challenges of debt repayment, policymakers, financial institutions, and the public alike must collaborate to promote responsible financial practices, ensuring sustainable economic growth and stability.
Impact on Consumer Spending:
The repercussions of the rising debt repayment burden are significant, particularly for the lower-income segments of society. As the debt-to-income ratio increases, households are forced to allocate a more substantial portion of their earnings to repayments, leaving less for discretionary spending.
Yusuf Manilet expresses concern over the potential weakening of purchasing power among lower-income groups, which could have broader implications for the overall economy. A decrease in consumer spending may lead to reduced demand for goods and services, affecting businesses and employment.
Furthermore, the trend of relying on non-banking financial services and online lending platforms poses challenges to financial stability. While these services offer convenient access to funds, they also come with higher interest rates and may contribute to a cycle of debt for some individuals.
Policy Implications:
In light of these developments, policymakers may need to consider measures to address the growing burden of debt repayment on households. This could involve a combination of monetary policy adjustments, financial education initiatives, and regulatory measures to ensure responsible lending practices.
Additionally, promoting financial literacy among the public, especially regarding the risks associated with online lending and non-banking financial services, becomes crucial. Authorities may need to work closely with financial institutions to establish guidelines that protect consumers from predatory lending practices.
Conclusion:
The increasing trend of household debt repayment and its impact on consumer spending underscore the need for a comprehensive and balanced approach to financial management. As households navigate the challenges of debt repayment, policymakers, financial institutions, and the public alike must collaborate to promote responsible financial practices, ensuring sustainable economic growth and stability.
Tags: #debt, #people's purchasing power, #debt payments, #public debt