70% of Filipinos stressed by debt

Seven out of every 10 Filipino consumers are struggling with debt, making the Philippines the “most stressed” nation when it comes to managing household finances compared with the rest of the Asia-Pacific (Apac) especially during this prolonged COVID-19 pandemic.

This is based on a research commissioned by Amsterdam-based fintech Backbase and conducted by Forrester Consulting, which looked at the state of banking and financial wellness in nine markets across the region.

Drawing insights from 900 retail banking consumers across the region, 100 of which were from the Philippines, the study revealed the top challenges faced by consumers, including debt and inability to meet savings goals.

Anxious, uncertain

“Compared with the rest of Apac consumers, Filipinos are the most stressed about their current financial situation. They also feel more anxious and uncertain. One source of this anxiety is debt,” the study noted.

“Managing debt is a struggle for 70 percent of consumers in the Philippines, and it is their top challenge when it comes to managing their finances,” it added.

The 70-percent share of Filipino consumers struggling with debt was the highest among nine surveyed markets in Apac, where the average ratio of debt-weary consumers stood at 49 percent.

Other markets where consumers indicated high debt management anxiety were Vietnam (62 percent) and Thailand (61 percent), whereas more advanced markets like Australia-New Zealand, Japan and Singapore only had shares of 25 percent, 36 percent and 33 percent of their consumers grappling with debt.

Talking about the main challenges Filipinos face when it comes to their finances, Backbase Apac regional vice president Iman Ghodosi said that 67 percent of banking customers in the Philippines expressed feeling “overwhelmed” by debt, while 60 percent said debt was constraining their ability to pay bills, leading to more debt.

Furthermore, 63 percent of Filipinos said debt was making it difficult for them to build savings.

Household debt in the Philippines is at a near-record of over P2 trillion, or the equivalent of about a 10th of the country’s prepandemic economic output. When the pandemic escalated last year, the Philippines suffered from the worst economic recession and job losses in history.

Digital vs traditional

According to Ghodosi, digital banking services could help manage debt. However, the Backbase research shows that trust in digital banks was still low, with only 18 percent of Filipino respondents saying they trusted digital banks compared to 60 percent who trusted traditional ones.

But the same research shows that 68 percent of Filipinos have resorted to doing their banking using smartphones as consumers migrate to digital platforms amid tough lockdown measures imposed by the government to curb surging COVID-19 infections.

Ghodosi said that lower trust in new ways of banking was expected, but that “the more information and control we can put into the hands of customers to make their own informed financial choices, the more they will trust the organizations providing them with this opportunity.”

By building the interface and offering more tools, digital banks can address the trust issues, and traditional banks can compete in the digital space, he added.

Help from new apps

The Bangko Sentral ng Pilipinas has started licensing a handful of digital banks now competing aggressively with traditional banks in launching digital offerings.

The research shows that the local retail banking sector is pressing forward with financial wellness and money management app development.

New apps are seen to increase levels of financial literacy, encourage customers to build better financial habits, help prevent vulnerable customers from making bad financial decisions, help manage debt, and identify risks of vulnerability and financial difficulty far earlier.