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FIN657 Assignment 1 - Covid-19 is the new disease that has
shaken the whole world. It is first infected
Social, Ethics and Professional Issues (Universiti Teknologi MARA)
StuDocu is not sponsored or endorsed by any college or university
FIN657 Assignment 1 - Covid-19 is the new disease that has
shaken the whole world. It is first infected
Social, Ethics and Professional Issues (Universiti Teknologi MARA)
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2. FIN657
ISSUES AND ETHICS IN FINANCE
The Impact of Income Shock on Consumption Spending
Among Young Malaysian Household with Credit Usage in
Post Covid-19
PREPARED BY:
NUURUL FARHAANAH BINTI ZULKAFLI
STUDENT ID:
2018261384
PREPARED FOR:
ZAHARIAH BINTI SAHUDIN
SUBMISSION DATE: 23RD
OCTOBER 2020
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3. 2
ACKNOWLEDGMENT
First of all, praises and thanks to the Almighty, for his showers of blessing
throughout my assignment and complete the work successfully.
I would like to express my deep and sincere gratitude to my lecturer Dr.
Zahariah Binti Sahudin for giving me the opportunity to de research and providing invaluable
guidance throughout this research. Her vision, sincerity and motivation have deeply inspired
me. It was a great privilege and honor to work and study under her guidance. I am extremely
grateful for the offered me.
I would also like to thank you to my fellow classmate for the love and support
to finish this assignment. they were always be patience and acceptance during the discussion
on the assignment preparation. I wouldn’t be able to finish this without their help.
Furthermore, I am extremely grateful to my parents and family for their love,
prayers, caring and sacrifices for the educating and preparing me for my future. They were
always there for me during my difficult time complete this work. It is delightful to actually
have people who always support me during my studies.
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5. 4
INTRODUCTION
Covid-19 is the new disease that has shaken the whole world. It is first infected
at Wuhan, China on December 2019 and starts spreading at the whole country that causes a
million of death. On 24th
January 2020, the first cases at Malaysia has been detected, ever since
then the government has been working in respond to this outbreak. According to the article,
Malaysian Institution of Economic research has predicted there will be a drop of the real GDP
from 4.0 to -2.9% with more than 2.4 million job losses. During the MCO phase, the workers
has reported to be out of work while some of them said their salary reduce by 90%. Since all
citizen need to keep social distance throughout the effective period of the MCO, all of the
individuals have been urged to stay home, minimize unnecessary travel to avoid the disease
from spreading. The action causes many people were afraid to go outside and lead to fall in
economic growth.
As concern, Bank Negara Malaysia highlights that there should be a stimulus
measure to increase the economic growth during the pandemic such as the continued progress
of public projects and higher public sector expenditure. The government also announced
economic stimulus package for RM250 billion to reduce the impact from covid-19 as well as
restore the growth of Malaysian economic. Even so, the income receives through “Pakej
Prihatin” was not enough for a couple months after the covid-19 crisis considering for the
current state expenditure.
ISSUE
During Covid-19 pandemic, the expectation for income shock is degenerate due
to the loss of job. Income shock is an uncertain event that will change the customer spending
and economic growth. It is mainly caused by the loss of job, unemployment and salary cutting.
This will cause to increasing in household debt and reducing the consumer spending. Since the
MCO, there are many companies cannot operate since the profit is low considering the people
is now rather stay at home than going outside. Meanwhile, the central bank said, in the
manufacturing sector, prolonged plant closures in major industrial centers in COVlD-19-
affected countries disrupted production activities across the global supply chain. The country's
economy will have a significant impact following global economic and financial conditions,
which began to decline in the first quarter as the spread of the COVID-19 pandemic increased.
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The article state that there is 34% of reduction in consumption spending due to
the job losses is equivalent to the income shock. Those who lose their job during the pandemic
do not have enough saving for a month based on MUTC (Kongres Kesatuan Sekerja Malaysia).
This is because more than 50% people in Malaysian does not plan for their emergency fund.
This is known by the statement from institution such as PERKESO, which assigned to monitor
the cases of layoffs for all country during the pandemic.
During the pandemic, many people are left unemployed according to the DOSM
2020. It is recorded rising from 3.3% to 3.9% since February and the following month 2020.
Thus, the household debt is also increasing since the unemployment and household debt is
positively related. Moreover, during the MCO, consumer spending is high since people need
to buy household needs for their children and family. It is important to provide enough goods
since people need to stay at home during the MCO phase. People who are unemployed basically
have different strategies to fulfill consumption which for example delays in make a payment
such as credit card balance and mortgage. Therefore, unemployment will lead to income shock
during the pandemic.
Besides that, the problem occur due to the crisis is salary cutting. Since the non-
operating business were struggled to pay the rent and utility bills, they need to cut their
employees’ salary and reduce the workforce to maintain their financial planning. This causes
a huge impact in on the household debt, income and spending. They will be having a difficulty
in paying expenses such as loans, that need to be settled.
IMPACT
According to the article, studies shows that there is a huge increase in debt
among Malaysian household since the MCO started in early March 2020. This lead to negative
impact and build financial crisis due to the high level of household debt. The article stated that
the Malaysia’s household debt reaches 82.2% of GDP at the end of June 2019. Based on the
article, many of the Malaysia’s bankruptcy cases is high due to the lack in managing debt such
as hire purchase transaction, personal loans, credit card debt, mortgage, etc.
Official Portal Economic Planning Unit recorded that there’s about 34% of
young adult in Malaysia aged around 15 to 34 years and above. Purchasing decisions made by
youngster are often influenced by their social network such as family members, friends and
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social media. It has been the choice of consumptions in the generation determined by the social
pressure. It is developed to boost their self-esteem, image and to be social accepted by others.
The compulsive spending and too many debts among the youngest these days
are because of the social pressure and materialism. They are tempted with the modern world,
shopping, special package that is given by the credit card companies. Their needs for self-
satisfaction cause the impact of over indebtedness that lead to high in interest charges and
bankruptcy. The pandemic has changed the individual’s consumption pattern to mobility
restriction that has been minimized due to the effect in income and economic. Compared to
overall population, young household has greater impact with this outbreak. They have to face
risk of unemployment, decrease in job opportunities due to the close operation in the MCO by
the government.
According to the article, the impact of Covid-19 on unemployment among the
employees around 40 years and below. This study reported that the teenagers and young
household will not bear the income loss due to the excess level of debt and drop in financial
cost. Furthermore, the young household claimed have the lowest income between the other
group. It is more concern when the young household have to take care of their children which
give them higher monthly expenses.
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CONCLUSION
The covid-19 disease spread rapidly that has changed the movement around the
globe. The impact of the virus clearly reminds us to always stay gentle in facing any disaster.
It is ripping all the fancy illusion of ours and display the value things of human life. Not
everyone is ready for the test of this pandemic. The crisis had spill over impact that increase
the downside risk of income shock on the household spending particularly on indebtedness. In
return, the article is encouraged people to explore the conceptual framework of income shock
related with young household indebtedness. Furthermore, the variables are measure and it is
reported that income shock in Malaysia such as loss of job, high unemployment can be the
factor to change the household spending in Malaysia. Moreover, the level of credit is concerned
to avoid any losses that will affect the income shock. This situation is hoping that Bank Negara
Malaysia Moratorium to decrease the burden and balance the household consumption
spending.
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REFERENCES
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household consumption and household debt composition in Malaysia. International Journal of
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Andersen, A. L., Duus, C., & Jensen, T. L. (2016). Household debt and spending
during the financial crisis: Evidence from Danish micro data. European Economic Review,
89, 96-115.
Ando, A., & Modigliani, F. (1963). The" life cycle" hypothesis of saving: Aggregate
implications and tests. The American Economic Review, 53(1), 55-84.
Azmin, N. A. M., Zaidi, W. N. W., & Mohamad, Z. (2019). The Determinants that
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Been, J., Suari-Andreu, E., Knoef, M., & Alessie, R. (2020). Consumption responses
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