1. 1) INTRODUCTION Most consumers have three alternatives in financing current purchases, whether they can draw on their saving, use their present earning, or borrow against their expected future income. Each of these alternatives has trade-offs. However, the use of credit is a fact of life in personal and family financial planning. 1.1 Credit Credit is an arrangement to receive cash, goods, or services now and pay for them in the future. The credit or funds borrowed are sometimes referred to as the principal, so we segment repayment of credit into interest and principal payments. Credit is frequently extended to borrowers such as loan with set terms such as the amount of credit provided and the maturity date when the credit will be repaid. 1.2 Consumer Credit Consumer credit refers to the use of credit for personal needs except a home mortgage by individuals and families, in contrast to credit used for business or agricultural purposes. Consumer credit granted to an individual especially to finance the purchase of consumer goods or for personal expenses. However, it can reduce the purchasing power as finance charges are paid for the credit service like interest and processing fees. Consumer credit have period of maturity, installment amount, repayment period and frequency of payment. The installment amount maybe fixed or varied depending on type of credit. Consumer credit is based on trust in people’s ability and willingness to pay bills when due. It works because people by and large are honest and responsible. 1.3 Advantages of Consumer Credit The wide acceptability of credit card makes using them much more convenient for card holders. Besides that, using credit instead of cash can make shopping much more convenient. They don’t need to withdraw funds from the bank, carry a check book, or apply for a loan each time they make a purchase. Credit is safe because the credit users don’t need to carry large amounts of cash. They can use credit card to shop and travel. Using credit can also reduce the risk of theft. The proof of purchase provided by a charge slip is usually more descriptive than a cash register receipt and help in making adjustment when merchandise is returned. Furthermore, there are several forms of protection such as requirement the identity password and signature. Credit users will receive the credit statement every month which provides a record of expenses to help with budgeting and income tax preparation. Credits also offer financial flexibility. Credit users can use credit on credit card limit to purchase instead of the necessary that require each approval of each purchase. Furthermore, they can only pay back in small percentage due to the total loan. Credits also provide flexibility when the individual face short term liquidity and the cash can use for more necessary terms. Credit can become a source of emergency funds. Having easy and quick access to credit gives funds that could be used in case of emergency if the available liquid assets were not adequate. Credit users will be able to take immediate action without dipping into savings or borrowing money from friends and relatives when in emergency situations. Consumer credit enables the users to have and enjoy goods and services now and to pay for them through payment plans based on future income. 1.4 Disadvantages of Consumer Credit Using credits too often or charging more than the users can afford to repay can create financial problems. Some people do not know how to manage their use of credit. They charge large balances, pay only the minimum amount due, and continue to charge even more. Stories about individuals who take cash advances on one card to pay the minimum balance due on another card have become commonplace. Credit purchase may cost more than cash purchases. Merchants must pay the credit card company for using the card in transactions, and they often pass this cost on to customers in the form of higher prices. In addition, an item purchased on credit and paid for over time costs more because of finance charges. The larger of the credit balance and the longer of the period to take for pay it off, the greater the finance charges. Buying on credit can lead to overspending. The users of credit can get into trouble if they buy more than they can pay back comfortably. Using too much can result in debt so high and may even lead to bankruptcy. When the individual use credit, the credit will tie up the user’s future income. They have committed to making payments, perhaps for several years. Over that time, those funds are not available to them for buying other products they may need. This situation can put strain on their budget. Failure to pay a loan may result in the loss of income, valuable property, and the user’s good reputation. Further difficulties could be court action, garnishment of salary, and bankruptcy. Misuse of credit can damage the family relationship, and a slowing of progress towards goals. 1.5 Types of Consumer Credit (Based On Method of Payments) 1.5.1 Closed-End Credit (Installment Credit) Closed-end credit is the one-time loan that the borrower pays back in a specified period of time and in payments of equal amount. Closed-end payments plans usually involve a written agreement for each credit purchase. An agreement or contract, list the repayment terms about the number and amount of payment, and how much the credit will cost. A down payment or trade-in may be required, with the balance to be repaid in equal weekly or monthly payments over a period of time. Mortgage loans involve property like house, land, and building, automobile loans, and installment loans for purchasing furniture or appliances about hire-purchase are examples of the closed-end credit. The three most common types of closed-end credit are installment sales credits, installment cash credit, and single lump-sum credit. 1.5.2 Open-End Credit (Non-Installment Credit or Revolving Credit) Open-end credit is a line of credit in which loans are made on a continuous basis and the borrower is billed periodically for at least partial payment. This credit is a form of credit that many retailers use. Customers can purchase goods or services up to a fixed dollar limit at any time. Usually, they have the option of paying the bill in full within 30 days without interest charges or of making stated monthly installments based on the account balance plus interest. Open-end credit involves bank credit card, departmental store credit card, and overdraft bank. Credit card is not used for single purchase, it can make any purchases and cash advance not exceeding the credit limit. Many banks extend revolving check credit, which is also call a bank line of credit. This is a prearranged loan for a specified amount that the credit users can use by writing a special check. Overdraft bank is a credit that granted is deposited in current account. 1.6 Sources of Consumer Credit The six major sources of consumer credit are commercial bank, consumer finance companies, credit unions, savings and loans association, life insurance, and pawn-shop. Commercial bank offers a wider variety of services to borrowers. Larger amount will be lend if the borrowers meets the bank’s credit standards. Consumer finance companies like Amfinance, which is no longer existed following the merge practice in Malaysia recently, is absorbed under the commercial banks as units or departments. Credit union is a mutually owned, non-profit financial institution that provides savings and lending services to members only. To be a member, the individual must be part of the common group that formed the credit unions. Credit unions also offered unsecured cash loan while the secured loans are for members with credit record that does not meet the standards. Savings and loans association offer cash loan secured by a depositor’s savings account. It can range from 90 to 100% of the depositors savings account balance. The interest rate is slightly higher than the earning from the savings account’s interest, so the loan’s effective cost is low. Life insurance offered cash loan for customers purchasing their life-insurance policies. It is means that the cash loan offered is secured with their life-insurance policies. Pawn-shop offer loan to a borrower who use personal property as security. To make it more secure, the pawnshop takes possession of the property and returns it to the borrower only when the loan is repaid. If the borrowers fail to repay the loan, the item can be sold. 2) PAST RESEARCH 2.1) Journal Of Family And Consumer Science (1999), Volume 91: Characteristics Of Bankruptcy Filers: Implications For Educators Southern Ohio Federal District Bankruptcy Court was make a survey of those filing bankruptcy and investigated the reasons for filing bankruptcy in 1997 year. First, the attorneys who work frequently with bankruptcy clients were contacted by agents via telephone and asked if they would cooperate by having their client voluntary complete surveys with other bankruptcy paperwork. Finally, 60 surveys were returned over a 10 month period. Those respondents represented all level of education, different range of age, types of employment, status, level of income, and members in the household. Since the variables were primary nominal, the Davis Convention was used to describe measure of association (relationship) between cross-tabulated variables. On this survey, respondents could choose as many as the listed reasons for filing bankruptcy they believed applied to them. From the table 1, over use of credit was the higher reason that respondents choose for filing bankruptcy, which is 72.9% over the 60 respondent’s choice. Second higher reason is lack of money skills which is 33.9% over the 60 respondents, and third is medical expenses which indicated 32.2%. The reason of divorce indicated percent of respondents was 30.5%, job loss 27.1%, housing costs 20.3%, compulsive shopping 10.2%, gambling 3.4%, and drug or alcohol abuse 1.7%. Of the “other” reasons which the percent of respondents were 15.3% included lack of self-control, death of a spouse, work hours cut, high in interest rates, back taxed owed, automobile accident, and health problems. No one reason was indicated more than any other. Based on this survey, I am agreed about the reasons for filing bankruptcy was significantly related to the characteristics of demographic. However, I am not agreed about the reasons for filing bankruptcy indicated both medical expenses and divorce were significantly related to level of education. Based on the survey, those who did not complete high school or who completed a General Equivalency Diplomas (GED) were more likely to list medical expenses as a reason for bankruptcy. On the other hand, divorce was a factor for those who had completed a GED and those with a Master’s degree or more. In my opinion, reasons for filing bankruptcy about divorce was not necessary related to the level of education, it is more likely related to the individual characteristics. Medical expenses is something we cannot predict about, and it indicated person whether the person is wealthy or out of the money. 2.2) The Journal of Socio-Economics (2008), Volume 37: Family Finances, Individualization, Spending Patterns And Access To Credit The easiest way to establish credit is to apply for a credit card. International Social Survey Programme (ISSP) showed that income, employment status, marital status and ideologies of breadwinning were all significant predictors of systems of money management. Although a married couple may have a card which both use, but there will always be a main card holder, who is responsible for paying the bill and a second holder. An interviews was took place in 1996 and based on the Family Expenditure Survey (FES), about 7000 households which contained 3676 married couples were taking part. The overall response rate was 70% (Office of National Statistics, 1996). Respondents were asked to note in the diary every single item which they have bought, and to record if a credit card was used to make the purchase over a 2 week period. . In order to examine the effects of the employment status of women and the employment status of the household, a variable was created which combined the employment situations of both the man and the woman. The sample was divided between six different household employment categories. The statistical significance of each line of the table was tested using a Chi-squared test, with N being the total number of households with expenditure on the item in the 2 week period. Based on the data, percentage of using credit card in purchases in the household employment categories of both full time is men indicated 42% (N=350), and women is 41% (N=349). In the categories of both retired, men indicated 21% (N=174), and women is 14% (N=119). On the other hand, in the categories of both unemployed, men indicated 6% (N=9), and women is 7% (N=12). In the categories of husband employed full time, wife employed part time, the percentage of using credit card for men is 42% (N=356), and women is 35% (N=304). Based on this survey, I am agreed with man and the woman were equally likely to have used a credit card when both in full time employment. I am also agreed with unemployed people being less likely to used credit card in purchases. Beside that, low income households believed that it was hard to obtain credit and they tend to be forced to contact more expensive sources of money than the typical credit card company. However, I am less agreed with men being more likely than women to have used a card. In my opinion, women like to shop with credit especially during sales. On the other hand, I am agreed with the retired people were less using credit may partly due to low income, lack of credit worthiness, and lack of financial confidence in new forms of money . 2.3) Journal Of Economic Psychology (1995), Volume 16: Student Attitudes To Student Debt Debt is an increasing social problem in most developed countries at present. Borrowing at all levels increased and many borrowers have experienced great difficulty in repaying their loans. Levels of debt and attitudes towards debt were investigated in a sample of undergraduate students. A pseudo-longitudinal design was used to examine the relationship between attitudes and debt, while cohort (year of study) was taken as a proxy for time. In this survey, the participants consisted of 49 persons in 1st year, 40 in 2nd year and 51 in 3rd year undergraduate students at the University of Exeter. The three groups were approximately matched for gender. The questionnaires were distributed and collected over a 2 week period, and this method ensured a 100% return rate from those who agreed to participate. In the entire sample, about 43% of students’ mean who reported some debt. The percentages of debtors in each year were the 1st years indicated 22.4% (n = 11), 2nd years 39% (n = 16), and 3rd years 67.3% (n = 33). Data that show in Table 2 confirms the expected relationships between cohort and both tolerance of debt and levels of indebtedness which is both increased with year group and the significance of these trends were tested by a one-way analysis of variance. The significant about both total debt and attitude showed differences between cohorts (F (2,120)= 7.54 and F(2,120) = 16.10 respectively, p < 0.001 in both cases). Thus, the effects of the covariates were not significant. The attitude scale ran from 1 (strongly anti-debt) to 7 (strongly pro-debt). The development of the different kinds of debt across the years of the course was rather different. It is showed that for 1st years students’ mean extent of debt reported indicated £53 (n = 11) with attitude score toward debt is 3.98, 2nd years is £341(n = 16) with 4.17 score, and 3rd years is £527(n = 33) with 4.81score. It was showed in relation year of study that the level of debt is increased year by year while the attitude score toward debt also increased. Based on this survey, level of debt and attitude to debt develop differently across the three years, with most of the change in level of debt between years 1 and 2, and most of the change in attitude between years 2 and 3. I am agree about the result of the relationship between levels of debt and attitudes towards debt which significant that the more high of the level of study, the more high of acceptance or degree of attitude score toward debt. I am believe that for attitudes, the variables retained in the equation as associated with more tolerant attitudes to debt were being in year 3 of the course which being older and having a more external locus of control. 2.4) Journal Of Retailing And Consumer Services (1997), Volume 4, Retailers And Their Relationships With Their Financial Services Suppliers: The Case Of Debit Card Charges In The United Kingdom Debit card is a card transaction that immediately debits the account of the card holder. The mid 1990s has seen a very rapid growth in both the holding and use of debit cards in the UK. This survey was commissioned to undertake a research programmed into retailer attitudes to card payment systems. The research was centered on two different groups; the large and mid-size corporates, and the small, independent retailers. The large and mid-sized corporates were approached via a postal questionnaire addressed and 98 questionnaires were returned. To study the attitudes of the small, independent retailers, a sample was taken from a wide geographical area. An individually administered questionnaire was completed in a face to face situation with the owner or manager of the independent retail outlet. A total of 466 face to face interviews were carried out in this nation-wide study. The first question asked by the researcher was
Which debit card do you accept?”. The replies from the small, independent retailers were Switch 68% and Visa Delta 94%. Most of the small, independent retailers (61%) found making a debit card transaction easier than taking a cheque while large majority of the small, independent retailers perceived a debit card transaction (78%) as being as easy as a credit card transaction. 50% of the small independent retailers show that between 11 and 40% of their transactions by volume were carried out on debit cards. On the question of what the fixed fee is, the answer from the respondents varied between 10 p and 80 p per transaction, with the majority being between 30 and 40 p. For the corporates the banks did provide value for money, with 50% either agreeing or strongly agreeing with the proposition, whilst for the independents they did not, with 42% either disagreeing or strongly disagreeing. Some corporate (27%) either agree or strongly agree that they would prefer an ad valorem charge for debit card transactions, the majority either disagrees or strongly disagree (49%). In contrast the majority of the small, independent retailers would either strongly agree or agree (62%) with this proposition. The final key question posed to both groups was
If percentage charges were introduced on all debit card transactions, would you refuse to accept payments by debit card?
The majority of the corporate either disagree or strongly disagree (58%) with this proposition, whilst a majority of the independents also either disagree or strongly disagree (62%) with this proposition. Based on this survey, I am agreed with that not all retailers would have the same attitudes to the acceptance of plastic cards payments and that the retailer's size and ownership structure would be the key moderating factors in determining attitudes. The reasons for this are that there are major differences in management structures and decision making practices between the large and mid-sized corporate retailers and the small, independent retailers. 2.5) Journal Economics Of Education Review (1988), Volume 7 Student Debt Crisis: Are Students Incurring Excessive Debt? Heightened concern about rising levels of student indebtedness has prompted the federal government, higher education officials, and the financial aid community to renew their examination of student loans and the impact of these loans. Every several years the California Scholarship Commission undertakes a comprehensive survey, the Student Expenses and Resources Survey (SEARS). The target population is students in the various segments -public, private, and proprietary- of post-secondary education. The 1982-1983 survey universes included 568,000 students, of whom 66,000 were surveyed. Responses came from 23,000, a 35% response rate. This survey is to determine what percentage of student borrowers and of all students have excessive debt as they complete college and begin their careers. The California data indicate that 59% of full-time college seniors have accumulated debt. By status, 67% of independent students as compared to 51% of dependent students have incurred debt. By type of institution, 67% of students at private institutions have incurred debt as contrasted to 51% of students at public institutions. Average accumulated debt for dependent students with debt is $4900 (column 1, line 1, Table 4). This total can be contrasted with average college costs which summed over 4 year’s amount to $34,300 (column 2). Thus, accumulated debt represents about 14% of total costs (column 3). The average total debt is greater for seniors at private than at public institutions, which is $6800 and $4000 for public institution. Average total costs at private colleges are also higher and it indicated $44,000 compared to $25,000 at public institutions. Debt as a percent of costs is slightly lower (13-14%) for independent as compared to dependent students. The results indicate that 10% of dependent students with debt have accumulated debts of $10,000 or more and the percentage is 13% for independent students. The percentage with debts of $10,000 or more was higher (21 and 38%) is among both dependent and independent students attending private institutions. However, the percentages are somewhat lower (8% for dependents and 9% for independents) among dependents and independents attending public institutions. In this survey, about 7% of freshman with debts of $2000 or more, 35% of sophomores with debts of $4000 or more, but only 11% of juniors with debts of $6000 or more, and only 6% of seniors with debts of $8000 or more. The percentage of all dependent students who show as having unmanageable debts is at most 5% because only 51% of all dependent students borrow. Other than that, among independent students the percentage is 8% since one-third of all independents do not borrow. Based on this survey, I am agreed with this result of independent college seniors might experience repayment problems because their student loans reached unmanageable levels. This is because the college seniors’ fees are very high and they forced to take a loan to pay for it. I am also believed that they will face troubles when needed to repay back the loan because of uncertainly employment after their graduated. Anyway, education is indeed important to be able to competitive in this world. CONCLUSION The flexibility of the basic types of consumer credit and of the terms of repayment makes credit available to most consumers. There are, however, dangers inherent in easy access to credit. Credit may obscure the need for financial planning, and there is a mush higher risk of overspending. Easy credit also encourages impulse buying. However, credit is a fact of modern life. The proper use of credit requires knowledge of the types of credit available, the sources of credit, and the features and services provided by the various credit plans. Based on the survey in Journal Of Family And Consumer Science (1999), Volume 91 with the title of “Characteristics Of Bankruptcy Filers: Implications For Educators”, the reasons for filing bankruptcy was significantly related to the characteristics of demographic. In this survey also suggest that personal money management education would be an integral component of bankruptcy process. But unfortunately for some debtors, bankruptcy has become an acceptable tool of credit management. Credit should be use in wisely to be avoiding in any default. In the survey from The Journal of Socio-Economics (2008), Volume 37 with the title of “Family Finances, Individualization, Spending Patterns And Access To Credit”, International Social Survey Programme (ISSP) showed that income, employment status, marital status and ideologies of breadwinning were all significant predictors of systems of money management. At the same time demographic changes mean that households in the UK and elsewhere are becoming more complex, and that they are becoming more permeable in terms of flows of money. Every couple has to find a balance between being a financial unit and being two separate, financially autonomous individuals. Based on the Journal Of Economic Psychology (1995), Volume 16 with the title of “Student Attitudes To Student Debt”, levels of debt and attitudes towards debt are related to the level of education. The students in the sample were individuals from a prosperous background in a period of low income, which they could reasonably expect to be below their
permanent income
(cf. Friedman, 1957). Although they were not at first in favors of debt, but to sustain an acceptable lifestyle, they found they had to go into debt. Once they had incurred debt, their attitudes to debt changed, so that they became more tolerant. In the survey from Journal Of Retailing And Consumer Services (1997), Volume 4 with the title of “Retailers And Their Relationships With Their Financial Services Suppliers: The Case Of Debit Card Charges In The United Kingdom”, not all retailers would have the same attitudes to the acceptance of plastic cards payments and that the retailer's size and ownership structure would be the key moderating factors in determining attitudes. Ironically this successful introduction of the debit card payment facility has now left the corporate retailers as hostages to fortune, for as the research results reveal, it would be very difficult for them to begin to refuse to accept payment by debit card if the charging regime was altered to their disadvantage. The survey in Journal Economics Of Education Review (1988), Volume 7 with the title of “Student Debt Crisis: Are Students Incurring Excessive Debt?”, undergraduate students are incurring excessively high levels of debt to finance college attendance. The seriousness of the excessive debt problem appears to have been exaggerated both by the frequent handwriting of college officials and other higher education commentators, and also by occasional horror stories about students with exceptionally large debts. BIBLIOGRAPHY Book 1) Kapoor J.R., Dlabay L.R., Hughes R.J., (2004). Personal Finance, 7th ed., Managing Your Personal Finance, (pp. 166-193), New York: McGraw-Hill, INC. 2) Madura J., (2007). Personal Finance, 3th ed., Assessing and Securing Your Credit, (pp. 174-189), New York: Pearson Education, INC. 3) Rosefsky R.S. , (1993). Personal Finance, 5th ed., Credit and Borrowing, (pp. 334-365), New York: John Wiley & Sons, INC. 4) Ward D.J., Niendorf R.M., (1978). Consumer Finance: The Consumer Experience, Credit and the Consumer, (pp. 217-250), Georgetown: Richard D. Irwin, INC. 5) Winger B.J., Frasca R.R., (1989). Personal Finance: An Integrated Planning Approach, 2nd ed., Consumer Credit: Buying Now and Paying Later, (pp. 200-233), Columbus: Bell & Howell Company. Journal 1) Clements, J., Johnson, D., Michelich, K., Olinsky, C.F. (1999). Characteristics of Bankruptcy Filers: Implication For Educators. Journal of Family and Consumer Science, 91(4), 71-75. 2) Davies, E., Lea, S.E.G. (1995). Student attitudes to student debt. Journal of Economic Psychology, 16, 663-679. Retrieved October 10, 2008 from http://ezproxy.upm.edu.my. 3) Hansen, W.L., Rhodes, M.S. (1988). Student Debt Crisis: Are Students Incurring Excessive Debt?*. Journal Economics of Education Review, 7 (1), lOl-112. Retrieved October 10, 2008 from http://ezproxy.upm.edu.my. 4) Pahl, J. (2008). Family finances, individualisation, spending patterns and access to credit. The Journal of Socio-Economics, 37, 577–591. Retrieved October 10, 2008 from http://ezproxy.upm.edu.my. 5) Worthington, S., Harbisher, A. (1997). Retailers and their relationships with their financial services suppliers: the case of debit card charges in the United Kingdom. Journal of Retailing and Consumer Services, 4 (4), 269-274. Retrieved October 10, 2008 from http://ezproxy.upm.edu.my.