`The credit addiction is set to deepen, with Millennials, Baby Boomers, and Gen Z Filipinos planning to acquire more cards even while acknowledging concerns about payment.’
IT was America that introduced to the world in the 1940s the concept of “paying with plastic,” with the Air Travel and Diners Club cards.
The Philippines, a latecomer to the plastic money revolution, wholeheartedly embraced credit cards after it was first issued in 1982 by the Philippine Commercial Credit Card, Inc. (PCCCI), which was rebranded as Bankard under Rizal Commercial Banking Corp.
Since its local debut in the early 80s, the credit card has blossomed into a pervasive financial tool, with Filipinos now among Southeast Asia’s most active credit card users.
But this comes at a steep price. There’s now a credit card debt problem that threatens to overwhelm a new generation of Filipinos, the “Generation Card.”
Singapore-based fintech firm Roshi Pte Ltd. reports that Filipino credit card debt is at a “critical” risk level. The average Filipino card holder owes a staggering amount four times of his or her monthly income, with an average credit card debt of about P92,800 against an average monthly income of P21,900.
This puts the country’s debt-to-income ratio at a staggering 425 percent — the highest in Asia Pacific.
While our neighbors like Indonesia showcase impressive prudent card spending, the Philippines, alongside Vietnam, faces a mounting crisis.
Singapore, also flagged for its high credit card debt, is cushioned by significantly higher income that averages at P273,000 a month, which is enough to cover its average monthly card debt of P236,000.
From a mere 9 percent penetration in 2017, the number of credit card-bearing Filipinos swelled to 11.2 million by Q4 2024, representing a 20 percent penetration.
Credit card spending also surged by 39 percent to P853 billion in the first half of 2023 alone.
The Gen Z generation, born between 1997 and 2012, once a small fraction, now constitutes 22 percent of credit card users and an astounding 33 percent of new cardholders.
The credit addiction is set to deepen, with Millennials, Baby Boomers, and Gen Z Filipinos planning to acquire more cards even while acknowledging concerns about payment.
As credit think tank TransUnion warns, this is a “double-edged sword” offering immediate relief but potentially exacerbating long-term debt burdens.
While the law protects individuals from imprisonment for non-payment, the financial pressure will push Filipinos deeper into debt shock with every rejected card and overdue payment mounting.
Addressing this burgeoning crisis requires a multi-pronged approach involving the users, the card issuers, and the government.
First, financial literacy is paramount as many Filipinos, particularly the younger generation, lack a fundamental understanding of credit card interest, minimum payments, and the perils of accumulating debt.
Credit card holders must also cultivate disciplined spending habits.
The allure of instant gratification through online shopping, amplified by the pandemic, has also contributed significantly to the problem.
State regulator Bangko Sentral ng Pilipinas should consider implementing stricter regulations on credit card issuance.
The bar for headhunting a new card client should be set higher.
While financial inclusion is important, the current ease with which credit cards are issued, particularly to those with limited income or credit history, needs re-evaluation.
Banks and credit card companies can be persuaded to exercise transparency in sharing information like clearer disclosures on interest rates, fees, and the long-term cost of minimum payments.
Card companies should also rein in their rabid third-party credit collection agencies, which usually resort to unsavory tactics to extract payment.
The rise of a “Generation Card” hooked on credit cards that they cannot afford is a warning sign of a brewing financial malaise.
Credit cards should be a tool for convenience and financial empowerment and not a harbinger of insurmountable debt.
