FACULTY OF ECONOMICS AND BUSINESS

DEPARTMENT OF ACCOUNTING AND FINANCE

GROUP ASSIGNMENT 1

EBQ2054
RESEARCH METHODOLOGY ECONOMICS & BUSINESS

PROBLEM STATEMENT
THE EFFECTS OF FINANCIAL DISTRESS AMONG UNIMAS STUDENTS

SUBMITTED BY:
No. Group Members Name Matric No.
1 CHRISTINUS NG KA HING 40922
2 DALJEET KAUR A/P GAG JIT SINGH 40983
3 MOHD SYAFIQ BIN WAHID 42285
4 NUR DJUITA BINTI JAMALUDDIN 43089
5 NURUL NATASYA BINTI AZLY 43603
6 SULAIMAN BIN MOHD FAISAL 44274

LECTURER : MADAM SALAWATI BINTI SAHARI

DATE : 16 MARCH 2017
Table of Contents

1.0 Introduction ....................................................................................................................... 2

2.0 Factors of Financial Distress .............................................................................................. 2

2.1.1 Unavoidable Expenses ................................................................................................ 2

2.1.2 Lifestyle ..................................................................................................................... 4

2.1.3 Peer Pressure .............................................................................................................. 6

2.1.4 Tuition Fees................................................................................................................ 8

2.1.5 Debt Loans ................................................................................................................11

2.1.6 Financial Planning and Awareness.............................................................................13

3.0 References ........................................................................................................................15

4.0 Theoretical Framework .....................................................................................................16

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1.0 Introduction

Financial distress is referring to the stress that causes a financial situation from personal,
family and other various financial conditions. Financial distress occurs due to subjective
phenomena, for the purpose of study we specifically focus on the university students. The study
will involve students in UNIMAS. The population consists of whole university students and the
sample will be taken from students in every faculty, comprising of those from year 1 until the final
year. The sample will be taken to focus on the insight of students daily financial routine
throughout the semester that causes financial distress.

2.0 Factors of Financial Distress

2.1.1 Unavoidable Expenses

The main factor that contributes to the financial distress is unavoidable personal expenses.
There are three kinds of expenses: Fixed, Periodic and Variable. These categories can help the
students plan and track their expenditure, no matter how small or infrequent it is. The success of
the spending and savings plan depends on being thorough. According to Investopedia (2015),
fixed expenses occur every month and do not change much. For many students, these may be
fixed expenses: Rent, day care, savings, mobile reloads, internet, and foods & beverages. Periodic
expenses occur less frequently than once a month. For most students, these are usually periodic
expenses: Birthday gift, tuition, sports fees, and Internet subscription. Variable expenses change
from month to month. For many students these may be variable expenses: Meals out, medical
expenses, travel or vacation, groceries, academic books, laundry, entertainment, and
transportation.

These expenses directly affected the students financial especially in the personal utilities,
which some of the expenditures are unavoidable. As an example, day care, foods & beverages,
academic books, transportation, the Internet and so on. The difficulties indirectly lead the
students having distress on the daily spending. Perhaps, the students personal expenses greatly
covered the daily usage throughout the semester, even the prices of the goods and services are
high, students somehow need to figure out the priority items to avoid any nonessential

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transactions in daily spending either in short term or long term basis. Economic instability, for
instance, refers to a community or nation experiencing financial struggles due to inflation, and
rising prices. Unstable economic conditions have contributed to the social and personal issues
where university students are affected indirectly as well. Even though they are shielded by the
government funding or other financial aids, university students are inevitably exposed to this
distressful economic phenomenon. Giving their existing life and academic demanding
predicaments, university students now have to spend energy to cope with their financial distress
too.

Therefore, avoiding continuous financial distress, assessing the students financial

situation with determine source of income. Once the students calculated the net worth (after
deducted all the fees), it is now necessary to look into the sources and expenses. Identify what is
the best to determine whether the net worth is shrinking or growing throughout the semester. To
alleviate the financial distress, students need to have a good idea about where and how to spend
the money they receive either from government loan or scholarship, bank loan or scholarship,
private loan, savings or monthly allowances from parents. The best way to determine how much
money the students are spending is to review the bank account statement or personal records from
the last two months. Tracking the income, pinpointing the daily spending, and categorizing all of
them into a simple budget can be helpful for students financial management. Once students know
the money inflows and outflows, they can make any adjustments geared towards decreasing the
amount of money spend to get back on the field until the end of the semester.

On the other hand, students can develop a recovery plan where it suited the students
needs. The exact nature of the recovery plan should remedy the problem that students got into the
financial distress in the first place. The simplest way to dig students out of debt and live
sustainably off the income is to reduce unnecessary expenses and increase the income, which can
be the source from a part-time job to get an extra earning to cover the students costs and
expenses. Moreover, students should firstly attempt to reduce the variable expenses. This are the
expenses that students want as opposed to the students need, and cutting them down can free up
significant room in the budget for debt repayments. It is to ensure students to not get caught up
with their prioritized needs and requirements. For example, a cell phone may be a need, but a 4GB
data plan with a cell phone is almost certainly a want. Cancel unnecessary membership to fitness

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centers, clubs, and other monthly recurring cost entertainment. Watch for small purchases that add
up, like buying coffee every day. Eliminating all these expenses can save significant amounts of
money each month and it would help the students to survive throughout the semester. In addition,
students should also strive to reduce the fixed expenses. Expenses like rental, food or
transportation are traditionally considered fixed, but that does not mean it cannot significantly
reduce the costs in these areas to free up space in the budget each month. As an example, if the
students renting the house is too expensive, consider relocating to a more affordable apartment or
to a different area of town and consider getting roommates if possible because it may help to
reduce the rental costs indirectly.

Regardless of the cause, the consequences are often similar: emotional stress, confusion,
perceived loss of control, and loss of confidence. While enduring a financial crisis may be
challenging, the students can regain the financial stability once again. The situation can be
remedied by regaining composure and taking concrete action. In other words, be realistic about
the life goals and calculate the costs of achieving those goals. Think about how just sitting back
and settling into the new financial situation will hurt people and those around in the long run. For
example, if you have children and want to one day give them the opportunity to go to college,
think about how you will be unable to do so unless you turn around your current situation.

2.1.2 Lifestyle

According to a survey conducted by Save the Student, (Butler, 2016) 80% students
worry about making ends meet. One of the factors that influence the university students and their
financial situation is the lifestyle a student leads. According to the Merriam-Webster dictionary,
the definition of lifestyle is, a particular way of living. One may choose to live lavishly or be
more frugal, it all depends on the individual. However, a trend can be seen whereby most of the
university students choose to live out of their means.

University is a time of transition whereby students learn to be more independent without

their parents guiding them on how to manage their finances. Some students take advantage of this
newly acquired freedom and decide to lead a lifestyle they always wanted. They wish to have a
great social life by making new friends, dating and even travelling. To be socially accepted
students may decide to purchase goods that they cant actually afford. For example, one may want

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to buy an I-Phone worth RM 1.5K which is out of their budget but decide to purchase it anyway
because owning and I-Phone portrays one to be more elite than they actually are. This habit of
spending lavishly without considering the consequences can cause the student to face financial
difficulties towards the end of the semester and become more stressed which is reflected in their
academic performance.

On top of that, some university students may be used to getting whatever they wanted
when they were still living with their parents as their parents used to compromise in order to
satisfy their children needs. Thus, students will bring this lifestyle habit of impulse buying to their
university student life. According to the Oxford Living Dictionaries, the definition of impulse
buying is the buying of goods without planning to do so in advance, as a result of sudden whim
or impulse. Impulse buying causes the students to go out of their budget and face financial
difficulties. For example, a student may already have enough clothes that can last him or her for
the whole semester but decide to purchase an expensive clothing item just because they like it
when they actually dont need it. Without prioritising their expenses wisely students will be more
tensed as they will not have enough money to spend on more important things such as books,
food, and transportation.

To overcome this problem, students should behave more maturely and realize future
financial planning is more important than short-term impulse buying. Students do not have a fixed
income. The money they have is either allowance they receive from their parents or from student
loans. This money is actually given to the students for survival and not to spend lavishly on things
they dont actually need. Thus, students should do proper financial planning by budgeting how
much money they would like to save and how much money they have to spend for their lifestyle.
They need to learn to sacrifice little things they dont actually need and spend on something they
truly want. By planning their finances properly, students will face less financial difficulties.

Besides, university students who have just started dating may choose to impress their
partners by buying them material things such as clothing and bags. This problem is usually faced
by the males. They would like to portray themselves as a responsible partner by paying the bills
and buying things for their partner during a date. This habit can cause the students to spend more
and go out of their budget as they are spending for not only themselves but their partner as well.

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Students should not get carried away by the whole idea of dating and should allow their partners
to pay for their share so that one partner would not be a burden to the other.

Therefore, students should prioritize their spending. They shouldnt follow their feelings
and pay for everything their partner wants. Instead, they should plan their expenses wisely. They
can give their partner a treat when they have become financially stable when they started working
but while they are still students they should understand their financial constraints and not focus
too much on the short-term feeling of satisfaction and feeling miserable in the long run when they
face financial difficulties.

Furthermore, universities should arrange for more financial planning workshops so that
students who do not know how to plan their finances can benefit from it. Through this
workshops, students will realize the importance of financial planning and the basics of how to do
it. They should know how to budget for their expenses and have a small saving as well just in case
they incur unforeseen expenses. This is crucial because life in the university is very unpredictable
and sometimes students need to fork out a huge sum of money at the last minute for assignments
and social gatherings. Therefore, its one of the universities responsibilities to cultivate good
habits into their students to ensure that the students wont face unnecessary anxiety due to
financial problems.

In a nutshell, the habits students have when they are still in the university will be brought
along when they enter the workforce. Hence, it is important for the students to understand their
responsibilities and to be able to plan their finances wisely. If they are unable to do so they might
suffer from always being in debt and having difficulties in making ends meet. To prevent this
student should learn how to manage their finances well while spending frugally on their lifestyle.

2.1.3 Peer Pressure

Financial distress is not just a common problem among students but it is a matter that
needs to be overcome so that students can focus solely on their studies and improve various kind
of skills during their years in college. For this reason, peer pressure may add fire to the flame if it
is not handled and managed properly. In accordance to American Academy of Child &
Adolescent Psychiatry (2012), peer pressure is the phenomenon wherein people tend to be

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influenced by the conducts and contemplative ways of their close acquaintances. Peers pressure
begins in the early age but it can change in flow of time and respective of the surrounding
environment. It can bring both positive and negative influence to a person regardless of the
situation. As a matter of fact, peer pressure is viewed as something both helpful and terrifying to
the problem. Peer pressure can be caused by people in the students surrounding such as friends,
juniors, and seniors.

Peers play a large role in the development of the society. Hence, when peers are positive
and supportive towards each other, they will help to develop better habits, overcome various
problems and reduce the tendency of students giving up in hard times. On the contrary, when peer
pressure is giving out negative influence towards students, they will encourage students to skip
classes, spend more money on unnecessary stuff and entertainment, just to name a few. As much
as everyone wants the peers to give out positive influence to them, it actually goes back to the way
the students manage the pressure themselves. Peer pressure differs for every people depending on
their ability to counter negative environment and adaptation to new surroundings. As peers play
an important role in the society, it affects the outcome of our youth in case things go out of hand
in this matter. Peer pressure is equally important to the students family members as it is to the
society because when students are affected with peer pressure in a negative way, their parents will
worry and some might go to the extent of torturing their child as to make them be the version
which their parents will approve. This will also affect the impression of the younger siblings
towards them as brother or sister.

Under the peer pressure circumstances, the matter can be perceived like an equation in
mathematics, complex but has an end to it. It is certainly not going to be a walk in the park for
students to overcome this matter but it is also not impossible. Before discussing deeper into the
solving method, it is important to realize that peers are friends who might have been with the
students in their hard times in college and the negative influence was done to counter the students
problem, only in the wrong way. With this in mind, some students might have been forced to
follow their peers because of their friendship. Thereupon, the students themselves have to turn the
downside of their peers influence into something positive and helpful for their growth without
destroying their friendship. However, in reality, most of the students are not aware that their peers

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are bringing them negative influence. In this case, someone else must come to the rescue and help
them realize the right thing.

This can be done by educating the parents about the negative effects that peer pressure can
bring, the symptoms of students who are in financial distress and then teach them the right way to
monitor their children. It is suggested that the parents are given a brief talk on the matter the day
they register their children in the university, or for a better outcome, parents need to be informed
through various medium such as e-mail and letters, generally informing and reminding them of
the importance of the students to manage their financial situation properly. Parents need to
encourage an honest and open communication with their children so they can monitor and help
them grow positively without controlling them too much. This has to be a two-way street
involving the students and their parents, but the start and the most part have to come from the
parents. As the saying goes, the best education starts from home. The study will involve students
in UNIMAS. The population consists of whole university students and the sample will be taken
from students in every faculty, comprising of those from year 1 until the final year. The sample
will be taken to focus on the insight of students regarding peer pressure to them and the
consequences if it is not solved.

In the final analysis, there have been a few consequences identified if peer pressure is not
solved or turned into a positive influence. One of the consequences is students may experience the
downfall in studies because their mind is not focused on subjects they are supposed to score.
Consequently, this may lead to mental disturbance such as depression, insomnia, suicidal thought
and low self-esteem. It may also cause the family members to carry more burden especially the
parents as they have to provide additional financial assistance to their children than they normally
do.

2.1.4 Tuition Fees

Tuition fees play an important role in the economics of public higher education. It is
essentially the education prices. Malaysia tuition fee levels do not change with a familys income
level, but eligibility for financial aid does change and tuition fee costs are offset by means-tested
grants and/or government subsidized loans. Large increases in grant aid and education tax credits
cushioned the growth in published prices for a few years, but net prices have risen as financial aid

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fails to keep pace with rising published prices. Given that the increases in tuition fees and
increases in financial assistance are not always proportionate and that not every student hit by
higher tuition fees also receives more financial aid, there is no significant change in the policies
and society started fueling concerns about higher education affordability.

The major explanation for rapidly increased tuition fee costs is connected to a theory
called cost disease. This theory says that industries reliant on labor will tend to see their costs
rise because they cannot easily replace labor with technology. However, the workers need to be
paid more lest they go to work in areas where more pay which enabled by greater productivity is
available. Some researchers argued that the cost disease depicts much of rising university
prices. University is staffed with employees with high education and skill levels which make them
cannot be easily replaced with technology to increase productivity. Faculty salaries vary by sector,
field, and rank. For example, average salaries for full professors ranged differently in
communications technologies, visual and performing arts, legal profession and studies, as well as
business, management, and marketing. Thus, the university has to spend more just to keep
remuneration on pace with other industries.

A significant drawback is that we have no clear measure of quality in higher education.

Any suggestions or actions that seem to be increasing class sizes, decreasing lecture time, or
preventing professors from acquiring the latest technology, can be said to damage quality. As a
matter of fact, inflated tuition fee costs suggest lower quality, not better. Essentially, the university
does not have to pay professors or lecturers more, or hire as many administrators, or raise prices.
They could choose to not grow hastily or to make cuts. What eventually drives all of this is that
university feels there is always something useful they can do with money and that they will grab
every penny they can.

To justify this problem, middle-low-income students would beneficial the most from lower
tuition fees if the government can increase public investment in higher education and reduce the
burden impose on the students themselves and their families. Minimizing the tuition fee costs can
make university education more affordable and allow more Malaysians to access for social
mobility. Evidently, university education is a route to considerably higher lifetime earnings
whereby university-level education is often deemed a standard job requirement in any fields. It is
also the most reliable path to social mobility in a modern society with a knowledge-based

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economy. Government consistent funding in higher education through public money and making
it available to all is a healthier, better-educated and creates more equitable society. Middle-low-
income students will also be able to keep the record of their financial benefits as they can start
savings and investments, as well as affording their own house. The financial benefits received are
valuable because students need these resources to turn to when they are in need in order to live
pleasantly.

On the contrary, the main consequence of high tuition fees will greatly increase students
existing debt which has especially grabbed the attention of the country over the last few years due.
Instead of improving access to education, student loans result in high debt loans for those from
lower and modest income families who manage to make it to university against the odds. This is
basically inequitable because students who take out loans end up paying substantially more for the
same education than their peers whose parents can afford the tuition fees up front. Furthermore,
students debt will continue to affect the borrowers after they graduated where they are less likely
to have savings and investments or own their homes.

Inflating tuition fees will intensify students reluctance to borrow leading to higher dropout
rates of the university. The increasing number of university dropouts can be focused into two
group of students which are the switchers and stop outs. Stop-outs are students who interrupt
their study usually for one academic year for various reasons, but subsequently re-engage with
their original degree programme, or change to another programme at a different institution, to
some of whom then drop out before graduating. The switchers are students who change their
degree programme, perhaps because of revised expectations of success on the initial programme
of study or changes in career aspiration. Based on these two groups of students, those who pause
their studies (stop-outs) are at a higher risk to drop out of a university than those who do not do
so, putting the switchers in between the line.

Higher tuition fees may not be dissuading people from going to university, but it may alter
the choices poorer students make. It means that students from the poorer background are likely to
stick between choosing to attend less expensive institutions, or ones close to their families in order
to reduce living costs or to take on more work during term time to support their other unavoidable
expenses. Driven by financial concerns, these students may not be able to perform well because

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they are choosing courses they do not really want to do and are spending more time working
rather than studying.

To resolve the uncontrolled tuition fee prices problem and bringing higher education in
line with all the other things on which people might spend money is ultimate to phase out the
eligibility of financial assistance. The process could initiate by ending tax incentives which tend to
favor wealthier students, then phasing out student loan programs that have no maximum income
level for qualification, followed by phasing out subsidized loans, and finally phasing out grants.
However, the major issue concerned is that this would reduce higher education access for middle-
low-income students. It would be tolerable for middle-low-income students to be able to access
private loans or other funding if they demonstrated an ability to handle university-level work and
were to pursue a degree in an in-demand field. This will give them a handful of open choices to
decide what makes is best for them. Estimates vary depending on how one prices such things as
opportunity costs to pursuing higher education. As an average person with a bachelors degree
earns more over their lifetime, that gives both the student and lender a good chance of strong
profits thus lenders would probably consider to working with middle-low-income students that
show solid academic ability.

2.1.5 Debt Loans

According to College Board (2011), the cost of pursuing higher education continues to out
space inflation with the published total cost of fees, hostel, food and other related costs for an in
state public institution and private institutions. One of the factors that can be the effect for the
university student and their financial situation is exploring debt. The definition of exploring debt
is the debt of an amount owed for funds borrowed. The lender agrees to lend funds to the
borrower upon a promise by the borrower to pay interest on the debt, usually with the interest to
be paid at regular intervals.

In university life is the crucial time where students manage their financial properly and
learn to be more independent in handling every situations and difficulties in life to cope in a long-
term basis. Students nowadays mostly take on loans as their sources of financial assistance to pay
university fees and they bear the risk for their future because once they finished their study, they
are burden with huge amount of loan to be repaid. Thus, they must build up a plan that can

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effectively help them create savings to pay back the loan. According to (Goetz, Cude, Nielsen,
Chatterjee & Mimura, 2011), university students encounter a series of complex financial decision
as they determine how to fund their university education. This happened because nowadays the
living cost inside or off-campus are much likely the same and the loan received usually just
enough for 1 semester only and it is still insufficient for them to make up with their day-to-day
expenses. At times, it becomes the reason that drives students to go for other extreme resolutions
such as using credit card, borrowing from friends, or even convicting thievery.

When students are obsessively thinking about their debt loan, it will consequentially affect
their academic performance, the mental and psychological state as well as their healthy lifestyle.
Survey found that 64 percent of university students used loans to help pay for college, which
appears similarly to what other studies have found. Students also indicated a willingness to
borrow more to finance their higher education if they expected higher starting salaries upon
graduation. Paying back the loans is already difficult when borrowers are unable to complete their
study or graduating.

The outcome for this problem is the student must manage properly the financial and must
realize that in the future financial planning is more important because when student plan nicely for
the future, it can reduce the debt as planned. As the same time, students are not emotional or
distress about financial because by planning their finances properly, student will face less
financial difficulties. Other than that, this problem is usually faced by student do the loan and
student to the scholarship because as like we know that the living cost always increase and both
student whether take loan or scholarship must manage the financial properly to avoid them to take
more loan to bear them for long term period. Therefore, students should know more about the risk
for debt. In term of knowledge is important because it make easy to manage and understand about
financial issued.

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2.1.6 Financial Planning and Awareness

Awareness of financial management does not effectively lead to students experiencing

financial difficulties during the study. Financial problems exist when the desire is always to
influence spending decisions. Financial planning skills are essential in planning and controlling
expenses to achieve goals in life. Most students do not receive basic personnel financial education
and lack of knowledge in financial management itself. Generally, the level of knowledge and
opinions can influence a persons decision regarding financial matters.

Recently, the country shocked by the death of a student with Bachelor of Psychology in a
public university had to endure hunger and causing his intestines being hurt due to the financial
situation. Then there was the issue of the student who fainted from hunger willing to cut spending.
It is just a few incidents featured in portraying the difficulties faced by students in the era of a
post-GST economy, but ironically, the students who do not have strong financial resources and
rely on the education loan or money from their parents had to resolve some of the daily expenses.
Failure to manage the money from the amount they received every semester will definitely cause
distress. No doubt there is some group of students who like to shop at the beginning of the
semester and had to suffer from hunger at the end of the semester. This mostly occurs among
students in the first year of study. They cannot manage their finances better because they cannot
predict what will happen during their studies.

Problems of financial planning and awareness are very important for the students to make
sure they can live in peace without the shackles of financial problems could result in a negative
impact on themselves and their studies. In addition, it must be nurtured so that each individual
student can plan and manage their sources of income effectively. It also can help in making the
distribution of expenditure by their levels of financial and objectives of financial management to
be achieved clearly. In addition, this can be used as the guideline to act in any financial activity in
a study. Students should be given monthly allowance instead of one lump sum amount at the
beginning of the semester the scholarship or education loan. Through the provision of consistent
monthly allowances, it may help to solve the problem of students difficulty to control their daily
expenses. It can reduce the risk of students to purchase items according to their desires and also
invites students to bring awareness to the importance of financial management among them.

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 Next, it is necessary for university to make a requirement for students to attend personnel
financial planning course before they can graduate. This subject can be used as the subject of soft
skills to give a clear knowledge and better financial management, this can be practiced even when
they have completed their studies and in the workplace. This approach is a step that can be taken
by the university to tighten the problems in managing their finances. The study conducted at
UNIMAS. Sample comprised students from various faculties comprising on year one students
until the final year study. It aims to look at from every perspective students on financial planning
and awareness with the impact that this issue if not solved.

If the student fail to plan their finances wisely and it will give pressure that encourages
students to depression and bad behavior of students like a thief, skipping class, drop out students
and etc. Highlighted from this study is levels of daily financial stress were associated with
individuals perceptions of manageability and internal control regarding their financial situation.
These factors, in turn, directly influenced the students levels of psychological well-being. In
contrast, the chronic financial strain will lead to influence students psychological well-being by
negatively affecting the degree of comprehensibility regarding their situation as well as their
senses of control and self-esteem.

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3.0 References

American Academy of Child & Adolescent Psychiatry (2012). Retrieved from

https://www.aacap.org/

Board, C. (2011). Trends in College Pricing 2011. Trends in Higher Education Serier.

Butler, J. (2016). Save The Student. Retrieved from http://www.savethestudent.org/

Goetz, J., Cude, B., Nielsen, R., Chatterjee, S., & Mimura, Y. (2011). College-Based Personal
Finance Education: Student Interest in Three Delivery Methods. Association for Financial
Counseling and Planning Education.

Investopedia (2015). What are the different types of costs in cost accounting? Retrieved from
http://www.investopedia.com/ask/answers/041415/what-are-different-types-costs-cost-
accounting.asp#ixzz4bMMQiLf9

Negative and Positive Effects of Peer Pressure. (2010). Retrieved from http://testfunda.com/

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 4.0 Theoretical Framework

The Effects of Financial Distress among UNIMAS Students

Independent Variable Intervening Dependent Variable

(IV) Variable (DV)
"UNIMAS Students" (IIV) "Financial Distress"

Unavoidable Expenses

Lifestyle

Financial Planning & Awareness

Peer Pressure

Tuition Fees

Debts

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