The socioeconomic effect of household debt on urban individual well-being in Klang Valley

Abstract

Debt is beneficiary to individuals and households when their consumption can be extended with credit. However, the benefits gained from availability of credit have negative implications, and research on indebtedness has become a focus of many scholars from different fields of study. Nevertheless, most of the research limit their analysis within the scope of economics. In addition, the multi-aspect implications of debt have never been investigated for a single group of individuals. Therefore, this research sought to explore the implications of household debt on individuals’ social and economic well-being by using 407 sample data collected from the urban households in Klang Valley, Malaysia. Several regression models were applied to investigate the impact of household debt on individual’s wellbeing from various aspects such as economic, psychological, physical health and family relationships. The principle finding was that the impact of household debt extended beyond the economic aspect to all the other three dimensions as well. However, the analysis shows that there are differences with regard to the extent of the impact across the four aspects. The highest impact is on the psychological wellbeing, compared to other dimensions of wellbeing. Furthermore, the research also found there is a clear difference between the effect of the type of household debt on the social and economic wellbeing. Unsecured debts have more severe impact on individual’s wellbeing compared to secured debts in all aspects considered in this study. Therefore, although an individual’s overall household debt may not indicate a strong impact on certain aspects of wellbeing, however, the evidence on the impact of unsecured debt tend to be more obvious. This study also found no evidence that shows the impact of household debt differing across ethnic groups in Malaysia.