High levels of personal debt among investors in Asia debunk the conventional wisdom that Asians are prudent savers, according to new research from Manulife. The research findings support wider trends that suggest household debt levels in Asia are approaching - or even surpassing - US household debt levels.
The Manulife survey also showed that while millennials (aged below 35) across the region have debt, they are no worse at tracking their finances than their elders, and even outperform them in some markets.
Highlights from the Manulife Investor Sentiment Index (MISI) research for Asia:
A third of Asian investors (33%) have personal debts (excluding mortgage)
The new MISI findings also show that the proportion of investors with debt is on the high side in some Asian markets. The proportion is highest in Malaysia (68%) and lowest in Japan (15%). Singapore, China and Taiwan come in at around a third and Hong Kong at 22%.
China has the severest debt issue with average debt at US$21,650, or 14.3 times monthly income; followed by Taiwan (11.5x) and Malaysia (9.7x). In Hong Kong (4.8x), Singapore (5.6x) and Japan (4.2x) it was more moderate, while the Philippines was the lowest (0.88x).
Asian investors on average spend about 60% of their monthly income, with Indonesia and Japan being the big spenders that spend two-thirds of their income.
The MISI findings are reinforced by other data showing some Asian countries' debt levels (household debt to GDP ratio, including mortgage) are approaching or even higher than in the US. At the end of 2014, household debt in Malaysia and Taiwan exceeded that of the US (80%), with Singapore just below.
The main causes of debt are daily living and discretionary expenses, suggesting people may be living beyond their means
The impact of daily living expenses on debt was most noticeable in Philippines, Malaysia and Singapore, while discretionary expenses hit hardest in Singapore and China.
Medical expenses and children's education costs were also significant factors, particularly in the Philippines and Indonesia.
In Hong Kong, a relatively high percentage cited investment losses as a cause of debt.
Although just a fraction compared to other causes, gambling was a factor too, particularly in Singapore, Hong Kong, Japan and China.
The MISI findings dovetail with other data showing credit-card debt to be on the rise in parts of Asia, most noticeably in Hong Kong, Singapore and China[2]. At the end of 2014, credit card debt in Hong Kong (just over 5%) was above the US (4%). More startling was the huge jump in such debt in China to more than 3.5% from about 1% in 2010, reflecting perhaps the increase in credit card ownership and opportunities to spend through e-commerce. In Singapore, it was about 2.5%.
While millennials have some good financial planning habits, similar to their elders, they still need to improve their financial management:
37% of Asia's millennials hold debt compared to 31% of those aged 35 and above, with Malaysia having the highest proportion (74%), followed by the Philippines (50%).
Millennials' debt-income ratio on average is higher than their elders. China's milliennials in particular have a very high ratio of 18.5 times their income, which is above the overall average (14.3x) and much higher than their elders (10.3x). Next comes Malaysia (10.2x). The ratio of their peers in Hong Kong, Japan and Singapore is moderate.
Millennials spend a similar proportion of their monthly income as their elders (56% vs 59%). But in some countries, such as Japan and Indonesia, this group spends nearly two-thirds of their income which is on the high side.
Key sources of debt for Asia's millennials are similar to their elders, with "own education" also being one of the top three in some countries.
They expect to take 17 months to pay off debt which is slightly shorter than the overall average. Those in Malaysia and China, countries with the highest debt ratio, expect to take longer to pay off.
Millennials (76%) are more likely to keep track of their expenses than those aged 35 and above (72%).
Across Asia, 60% of millennials have a target saving amount, compared to only 44% of the older group. The average saving target of millennials is about US$126,000.
They allocated nearly 40% of their savings to cash/time deposits or investments with no specific purpose. The no-purpose allocation may slow progress towards achieving their saving goals.
Overall, an overwhelming proportion of investors in Asia regret their lack of effective financial planning.
Most investors rely on themselves (74%) or their family for financial advice, (53% spouse; 41% parents), rather than a professional (25%).
However, nearly three quarters of investors (72%) surveyed regret not doing a better job with investment planning. This was particularly so in China, where investors regretted holding so much money in cash, not doing more research before making investment decisions and not being more proactive in reviewing their portfolios.
Geoff Lewis, Market Strategist, Asia, Capital Markets Group, added: "People from the Asia Pacific region have a reputation for thriftiness, but Manulife's latest MISI survey questions that and indicates Asian investors have higher-than-expected levels of personal debt. In Malaysia and Taiwan, household debt levels are approaching or even higher than in the US. That calls for a better, comprehensive financial plan. In view of the anticipated economic slowdown this year, investors with debt should be even more alert to their situation and plan accordingly."
Bruno Lee, Senior Managing Director, Head of Partnership, Product and Platform Development, said: "It's encouraging to see higher percentage of millennials across most markets have target savings than older group, indicating higher awareness of the need for financial planning and they can certainly benefit from having more investment advice to help them to achieve their savings target. Amid today's current volatile market where investors may be worried about how to get their expected return, we would suggest them to look into a yield enhancement with diversification strategy. Diversification across asset classes and geographies, along with discipline in rebalancing equity assets with a long-term view, are some ways to help investors grasp opportunities across different markets and manage downside risk."