Survival tips for people falling into debt during Covid
Salaried workers can usually be confident of regular income, allowing them to plan ahead and pay their monthly debts on time. But not during Covid.
According to Siam Commercial Bank’s Economic Intelligence Centre, the average monthly household debt in Thailand is Bt30,262.50. More than two-thirds of that debt (34 per cent) is from credit cards or personal loans, says the Bank of Thailand (BOT).
Life-cycle theory states that people borrow more in times of low income and save when their income is high. Hence, young people beginning careers tend to have large personal loan and credit card bills. Those debts rise in middle age from auto and home loans, before declining as they approach retirement.
However, that smooth picture has been disrupted by Covid-19, as people's plummeting income brings the risk of defaults and ultimately bad debts. Supachai Chanpaibul, a certified financial planner at the Thai Financial Planners Association, said the pandemic has shown us that to survive an uncertain future we need financial discipline – including a long-term retirement plan.
The key to that discipline, he said, is to divide our salary into three parts:
70 per cent on living costs – this money is to pay for everyday necessities such as food, water, electricity, gas, etc. Resist the consumerist temptation to spend it on that “must-have item".
20 per cent for savings – the portion needed for career education/training, or for a long-term retirement plan. This money for saving or investing is important as it will have a long-term impact. It can be invested in bonds, debentures, GPF Fund, provident fund, RMF Fund, SSF Fund, life insurance, etc, said Supachai, with individual investors deciding which risk/return strategy is best for them.
10 per cent emergency money – invested to protect against economic uncertainty. Options here include health insurance, deposits, and savings accounts. Money market funds or short-term bond funds will also help, he said.
Supachai added that people who manage their finances skilfully are likely to survive even bad economic downturns without going broke or getting trapped in a cycle of credit card or personal debt.