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Published: 01:39, August 03, 2022 | Updated: 09:48, August 03, 2022
Effective solutions needed to curb young people’s overborrowing
By Paul Yip and Sunny Liu Kwong-sun
Published:01:39, August 03, 2022 Updated:09:48, August 03, 2022 By Paul Yip and Sunny Liu Kwong-sun

Whether from a bank’s credit card or a financial company, loan interest rates in Hong Kong tend to be higher than  those in other economies. Locally, actual interest fees for overdue payment on a credit card are about 30 to 40 percent per year, compared to 20 to 30 percent elsewhere. As well as that, Hong Kong’s financial companies charge 60 percent of the legal maximum amount of actual annual interest. The Financial Services and Treasury Bureau recently suggested revising the statutory loan interest rate for financial companies from the current 60 percent to 48 percent, and changing the threshold for “presumably extortionate” from 48 percent to 36 percent. This is undoubtedly the right approach — in fact, it should be made even lower. Sales from advertising media should also be more closely regulated in the same way as cigarette advertisements, especially where they target vulnerable demographics.

For banks that aim credit cards at the general public, the most lucrative, targeted customers are not those who pay off their balance in full each month, but those who make only the minimum payment — they are an important source of profit for these institutions. Some banks use big data to identify such customers and continually encourage them to borrow more, further increasing their profits while ignoring the existential risk they have created for their users. Although some borrowers are never able to repay their debts and will go bankrupt, this is all controlled for when these banks calculate their profits. These institutions may turn a profit on the surface, but only at the cost of the harm that promoting overconsumption does to society.

Businesspeople need to take responsibility for their impact on the community, and not milk every last cent from disadvantaged people. We all need to take this step forward together, and build a healthy, normal and reasonable loaning system for Hong Kong

Nowadays, TV advertisements show all kinds of products made by financial companies, all encouraging a “buy now, pay later” mentality. Add to that easily accessible online loan services, and the fact that some companies will offer cash rebates and other lending services to attract pathological addicts and inexperienced young people, and financial temptation is the result. Many financially illiterate people, because of the imbalance between their abilities to borrow and to repay, will fall into this insidious trap of debt. Not only does this severely affect their quality of life, it may cost them their professional and family relationships, or even lead to such tragic consequences such as depression or suicide. Suicides among young people have been increasing in recent years, some of which are caused by the tragic effects of overborrowing and inescapable debt.

In their ads, financial companies disclaim at the end that “borrowing money means that you have to return it” and “don’t pay a middleman”. This may just be in order to comply with legal requirements, and could have no real effect on borrowers, just like the rest of the advertisement’s contents. Put simply — nonsense. Recently, financial regulators on the Chinese mainland have also begun to control online lending and the problem of overborrowing by young people. They are of the opinion that young people need to be taught strategies for, and the correct attitude toward, money management and consumption.

It’s the authors’ understanding that most financial difficulty among young people can be roughly divided into a few categories:

1) Uncontrolled impulse buying. Online shopping is extremely popular these days. Through paying online, buying things is made easy, and getting into the habit of buying impulsively is made even easier. Without the right money management skills and financial knowledge framework, and with access to convenient online loans in less than 30 seconds, it is easy for young people with poor self-control to overspend and fall into financial traps.

2) “Start small, win big” mentality. Many people have gotten into cryptocurrencies and other trading these days, including those who lack the knowledge and experience they need to participate. Because of the variety of trading sites online, and the misconception that it is easy to win money, it does not matter if the interest rate is as high as 60 percent. They are hoping to be lucky, knowing that in a few weeks, some cryptocurrencies can go up several hundred times in value, thinking that they can pay back their loans and win big. A few weeks ago, cryptocurrencies plummeted in value. We do not know how many young people have been hurt.

3) Uncontrollable mental illness. Many young people do not understand the need to control their impulses and overconsumption habits. In fact, according to psychiatrists, gambling, internet addiction, pathological shopping, alcoholism, drug addiction, speculation and other activities may all activate the reward system in a person’s brain. The reward system then releases dopamine, which gives the person happiness, excitement and satisfaction. If such behavior becomes a habit, especially among inexperienced young people who have not yet entered society, they will start to do it more and more and lose self-control, and slowly become unable to even recognize the seriousness of their own situation. If someone’s family members do not recognize this early on and intervene or warn them effectively, the situation may escalate and end up much more complicated. Counseling, or medication that can regulate their neurotransmitter levels (such as antidepressants that regulate both serotonin and dopamine) can improve their self-control and allow them to better regulate their emotions. Restabilizing one’s emotions and promptly restoring self-control and self-confidence, are necessary to break out of this vicious cycle. However, there are not nearly enough medical services in Hong Kong that can help with this. While it is important for young people to be wary, it is also important for them to be willing to receive treatment, and for their family to support them and participate in said treatment.

Every person in this society needs to help solve the problem of overborrowing by young people. The government needs to intervene from many angles: particularly to improve knowledge, cultivate the right attitude and advocate for responsible consumption in practice, or the KAP (Knowledge, Attitudes and Practices) model of behavioral psychology. Financial education should also be added to the curriculum of primary schools, secondary schools and universities. Of course, good life education is also important, to help young people understand the relationship between money and the meaning of life. We need to improve service packages and, when young people face emotional problems that they cannot handle themselves, provide them with timely treatment opportunities. Parents also need to care for their children’s financial activity and teach them good financial management habits. Some people, especially young people who have been uncontrollably addicted before, are vulnerable to advertisements and other methods of influence by the media, which may even lead them to relapse. Because of this, we suggest that the government regulate and restrict the audience of advertisements for lending and high-risk investment. The irrationally high interest rates of some financial companies need to be closely regulated. Why do so many different kinds of these financial companies come into being? Because they make money — nothing more. This profit is made from the hard-earned money of people from disadvantaged communities, not just normal loaning activities. Businesspeople need to take responsibility for their impact on the community, and not milk every last cent from disadvantaged people. We all need to take this step forward together, and build a healthy, normal and reasonable loaning system for Hong Kong.

Paul Yip is chair professor of the Department of Social Work and Social Administration at the University of Hong Kong. 

Sunny Liu Kwong-sun is an honorary clinical associate professor in the Department of Psychiatry of the Li Ka Shing Faculty of Medicine of the University of Hong Kong. 

The views do not necessarily reflect those of China Daily.

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