Bankruptcy Due To Credit Card Debts Finance Essayukessays.com /essays/finance/bankruptcy-due-to-credit-card-debts-finance-essay.php

Background of the studyThe raise of credit card ownership and usage has been devastating around the globe. A credit card is asystem of payment named after the small plastic card issued to users of the system and is differentfrom a debit card in that it does not remove money from the user's account after every transaction. Theincreasing of the credit card due to many reasons which one of it stated by Watkins (2000), which iscredit card becomes one of the main systems of transaction or payments that encourage domestic andpersonal spending even in many developing countries of the world (as cited in Ahmed, U.Z., Ismail I.,Sohail, M. S., Tabsh, I.,& Hasbalaila, A. 2010). In the case of credit cards, the issuer lends money to theconsumer or the user for the usage of the credit cards. Besides, a credit card allows the consumer torotate their balance, and having the interest charged at top of it.

A review of literature on credit card reveals that most studies have been undertaken in developedcountry. Credit cards were first issued in the USA in the early twentieth century. In Malaysia, the firstcard was introduced in the mid-1970s (Loke. 2007; as cited in Ahmed, U.Z & et al., 2010). At the earlyon period, credit cards were only issued to professionals or successful business persons by cardissuing companies. However, with the passage of time, eligibility criteria for obtaining credit cards havebeen changed because credit cards are now easily obtained by individuals regardless of their incomeor other measures of financial well being. As a result, the number of cardholders reached to about threemillion by the turn of the last century (Ahmed, U.Z & et al., 2010).The market for consumer credit hasundergone significant change over the past few decades. This because there is deregulation of thebanking industry and the need of lenders for more profit-making market instruments increased theavailability of consumer credit in the form of credit cards. Therefore, increasing in credit card ownershipmeans that the use of credit cards as short term loans has increased as well.

Besides that, the increase of credit card has brought many side effects to the users especially for theyoung executives. This is because credit card influence them in making the excessive spendingbecause it easier and convenient for user to pay with credit card rather than bring the cash with them.As a result, in the year March 2009, outstanding debts from credit card holders amounted to RM15.719billion were reported. Then, by the year 2009 outstanding credit card debts accounted for 1.35 percentof the total loans outstanding or 11.41 percent of the total consumer credit (Bank Negara Malaysia,2009; as cited in Ahmed, U.Z & et al., 2010). Thus, its shows that increase in the number of credit cardholders seeking bankruptcy records over the years were also reported. The people below 30 are theleading aged group that has been declared bankrupt because of credit card debts (Credit Card DebtAnd You: Under-30s Under Siege, Malay Mail Insight, 2009).

Problem statementAccording to Datuk Abdul Karim Abdul Jalil, Director-General of the Department of Insolvency Malaysiathere is total of 3,548 people declaring bankruptcy due to the credit card debt whereby 1,780 peoplebelong to those aged 30 and below (Credit Card Debt And You: Under-30s Under Siege ,Malay MailInsight, 2009).

Tables 1.1 and 1.2 indicate the number of bankruptcy due to credit card debts focused on the youngexecutives aged below 30. The researches found that from year 2005 until 2009, more than 46% of thebankruptcy was experienced by the people aged below 30. The above figure shows the seriousness ofthis bankruptcy problem due to credit card debts among the young executives happen within 5 years.Besides that, as stated by Datuk Abdul Karim, there are many reasons for the situation occurs but

there is no serious study of the matter has yet been done. (Credit Card Debt And You: Under-30sUnder Siege,Malay Mail Insight, 2009). Therefore, reserchers found the great base to conduct thisstudy.

1.2 Research ObjectivesTo identify the relationship between the factor of knowledge on credit

card and bankruptcy, financial management, and lifestyles towards the bankruptcy due to credit carddebts among young executives.

To identify which factor (knowledge on credit card and bankruptcy, financial management and lifestyles)that contributes most to the bankruptcy due to credit card debts among young executives.

1.3 Scope of research1.3.1 Territory

This research was conducted in Sungai Petani area, namely at Central

Square, Tesco (U), Tesco (S) and Giant Hypermarket.

Time

The research conducted from March 2011 until April 2011.

Level

The research focused on public opinion on factors contributes to the young

executives bankruptcy due to credit card debts around Sungai Petani area.

Research was conducted among respondents age 18 years until 30 years old.

Significance of research1.4.1 Young executives

The result of the research can provide the information to young

executives about the factor that lead to the increase number of bankruptcy due to credit card debtswithin their aged. Besides, it can educate them in order to make a greater planning by using the creditcard in their daily lives.

Public

The result of the research can help public to know about the right way of using the credit card so thatthey can be more careful in using the credit card. Thus, it can avoid them from being stated ofbankruptcy because of credit card debts.

LimitationLimited literature review because there is not much study done on this issue. Therefore it quite difficultfor the researches in order to finds the appropriate article to review and support the research.

The result of this research will not represent the whole public opinion on this issue because theresearch only done at Sungai Petani area and not throughout Malaysia.

1.6 Definition terms and conceptCredit card bankruptcy

According to Datuk Haji Mohamad bin Haji Aziz stated in copies of the Third Meeting of the TwelfthBoard of the Parliament (2010), he stated that the Malaysian young executives declaring bankruptcybecause of unable to pay the credit cards debts .This can be concluded that, bankruptcy due to creditcard debts is mostly because of inability to pay back their debts. Therefore, the same definition used inthe research.

Knowledge on credit card

The Association of Banks in Singapore (2010) stated that credit card holders should read andunderstand terms and conditions for the use of credit card before signing the card agreement and usethe credit card, as it is a binding contractual document between card holders and the card issuer. Theterms and condition would cover items such as cash advance charges, finance charges for purchases,loss or stolen card liability, minimum payment, late payment charges, annual membership fees,transaction in foreign currencies and others. Thus, mandatory disclosure of information itself whichleads to awareness does not help consumers make effective credit decisions unless they understandthe information provided. Thus, in the perspective of this research, the knowledge on credit card refersto the level of knowledge about nature of credit card such as terms card condition of that particular cardhold by the card holder.

Knowledge on credit card bankruptcy

DisputeDebts.com (2010) stated that knowledge on cases or nature of credit card usage that can leadto bankruptcy such as frequent default payment, excessive use of credit limit and not pay at all.

Financial management

Worthington (2006 stated that financial literacy has been defined as the competence to undertakerational, informed judgments pertaining to money management (as cited in Joyce K.H. Nga, Lisa H.L.Yong and Rathakrishnan D. Sellappan, 2009). This includes the general understanding on budgeting,conceptual knowledge of financial products offerings by financial institutions and ability to makeresponsible investments to facilitate the achievement of ones financial goal (Macy, 2001; Beal andDelpachtra, 2003; as cited in Worthington, 2006). General financial awareness concepts surveyed inthis study. Hence, this research will go through the same definition in term of the financial managementamong the young executives.

Lifestyle

Halil Tunali and Ferda Yerdelen Tatoglu (2010) stated that there are some consumers seeing creditcards as a lifestyle choice rather than a method of payment. These people generally hold more thanone credit card. There are many reasons why credit card can be seen as a lifestyle and trendy. One ofthe main reasons for holding credit cards not used is prestige and social status. On the other hand,active credit card users hold and use credit cards because they provide security, comfort, financialsource etc. for the users (Chang and Hanna, 1992 as cited in Halil Tunal and Ferda Yerdelen Tatoglu,2010).

1.6.6 Young executives

G.M. Mirchandani (2000), President of Arvind Brands Limited segmented and targeted his customerinto categories which are teenagers and young executives. He defined that the young executive is theyoung people that aged below 30.In this research, the researcher defined the young executive just likeG.M. Mirchandani, which are people below aged 30.

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Bankruptcy Due To Credit Card Debts Finance EssayBackground of the studyProblem statement1.2 Research Objectives1.3 Scope of researchSignificance of researchLimitation1.6 Definition terms and conceptShare This EssayRequest RemovalMore from UK Essays