Why the psychology of ‘utang’ matters for the economy

Debt or “utang” is not just a financial tool anymore. It is the lifeline that keeps many Filipino families afloat. With consumer spending making up about 70 percent of the economy, every peso that is spent keeps the economy moving.

When households keep buying, businesses do well but when they cut back, growth slows down. The tougher reality is that a lot of this spending is sustained by utang, drawn from savings, credit cards or loans simply to keep everyday life moving.

Behavioral finance explains that this behavior is rooted in a concept called present bias, which is the tendency to put more weight on immediate rewards than on future costs.

In the late 1990s, psychologists David Laibson of Harvard University and Ted O’Donoghue of Cornell University published an influential study that revealed how people often choose short-term satisfaction, such as spending or borrowing today, even when it leads to bigger problems later.

This bias explains why households continue to spend, even when incomes fall short, interest rates rise or debt levels grow. The pleasure of maintaining a lifestyle today feels more tangible than the burden of repaying loans tomorrow.

Extension of income

Combined with easy access to credit cards, installment plans and digital lending apps, present bias makes utang feel less like a burden and more like a convenient extension of income.

Recent data on the marginal propensity to consume (MPC) highlight this behavior. Before the pandemic, Filipino households typically spent 58.6 percent of their income in the first quarter, then pulled back midyear, before a sharp surge to nearly 70 percent during the Christmas season. Spending followed a familiar rhythm: spend, save, then splurge at year-end.

Since 2022, however, the pattern has changed dramatically. The first quarter spending rate has dropped to 54.4 percent, while the second and third quarters turned negative at -16 percent and -141.2 percent, respectively.

This means households are not only cutting back but also financing spending by dipping into savings or accumulating debt. Even the usual year-end rebound is weaker, with spending in the fourth quarter at just 61 percent, below prepandemic highs.

A negative MPC is a red flag. It signals that many households are keeping up their spending not with income, but with credit. This is present bias at work. Rather than cutting back, families choose to borrow so they can maintain the same lifestyle, even if it means pushing the real cost further into the future.

When incomes stagnate…

There is only so much households can borrow to keep spending at the same pace. Families stretch themselves to maintain their lifestyles, even when incomes stagnate and inflation eats into budgets. When borrowing fills the gap, the economy may still look steady but once the financial pressure builds, momentum may eventually weaken.

This slowdown is already showing in the data. In the first quarter of 2024, household spending grew by 8.3 percent compared to 2023, but in the first quarter of 2025 the pace slowed to 7.7 percent.

The second quarter tells the same story. Spending grew by 8.9 percent in 2024, but slipped to 6.8 percent in 2025. Taken together, total household spending in the first half of 2025 grew by 7.2 percent, down from 8.6 percent in the same period of 2024. The trend is clear. Growth is losing steam, and with much of consumption propped up by debt, the risks of a sharper slowdown ahead are rising.

Why does borrowing feel so normal? Because it has become part of everyday life. Taking on debt is seen as a practical choice. Credit cards, “buy now, pay later” apps and installment plans make it easy, while social pressures make it hard to say no.

Present bias then blinds households to the consequences. A family that borrows P20,000 at 3-percent monthly interest may end up repaying almost P30,000 in a year.

That money could have gone into savings or investments, but instead it locks them into repayment cycles.

Break the bad cycle

Breaking free from the psychology of utang takes both awareness and discipline.

Families need to recognize that spending habits are not just cultural but also behavioral.

One way to break the cycle is to reframe the question. Instead of asking, “Can I afford the monthly payment?” ask, “What will this really cost me a year from now?” That small shift can turn the focus from short-term comfort to long-term impact.

Debt can keep the economy afloat for a while, but over time it leaves households and businesses weaker. Real resilience comes when families move away from utang-driven spending and focus instead on saving and sustainable consumption.

In the end, stability doesn’t come from borrowing just to look secure, but from building financial strength that lasts.

Source: Inquirer

PHL consumer-driven growth fueled by borrowing

Philippine private consumption sets it apart in a region where such spending is more muted, ANZ Research reported, warning that credit card debt and salary loans are fueling the growth more than asset-creating loans like mortgages.

In its fourth quarter report, ANZ Research said household consumption accounts for over 70% of gross domestic product (GDP), but “growth in borrowings for asset creation (that is, mortgages) has been relatively muted, underscoring household concerns over income prospects. This pattern of spending is unhealthy.”

ANZ said domestic demand across Asian economies has softened, holding back growth, but the Philippines stands out as an exception.

“Except the Philippines, the private consumption impulse or the flow of new consumption relative to GDP, has either moderated or remained static in most economies,” it said.

Philippine GDP grew 5.5% in the second quarter, supported by a rebound in agricultural production and an acceleration in household spending.

Household final consumption expenditure rose 5.5% during the period.

ANZ Research flagged sluggish retail and auto sales as “frequency indicators” of weaker domestic demand in the region.

“As we have stressed in the past, the post-pandemic nature of job creation has been concentrated in low-paying jobs in segments like food and accommodation, which in turn has impacted consumption,” ANZ Research added.

The Bangko Sentral ng Pilipinas, citing preliminary data, reported that consumer loans grew 11.8% in July, slowing from 12.1% a month earlier.

Meanwhile, credit card loans rose 29.2% year on year in July from 29.9% in June.

Source: Business World

Pag-IBIG rolls out special 3 percent loan rate under 4PH

Pag-IBIG Fund is offering a special subsidized interest rate of three percent per annum for the first five years of housing loans under the Expanded Pambansang Pabahay para sa Pilipino (Expanded 4PH) Program.

The special rate is available to eligible members and overseas Filipino workers for the purchase of socialized housing units – which now include house-and-lot units, condominium units and Pag-IBIG acquired assets.

The initiative supports President Marcos’ directive to expand access to affordable and dignified housing, in line with the administration’s Bagong Pilipinas vision.

“We are pleased to report that Pag-IBIG Fund has once again stepped forward in its commitment to helping more Filipinos secure dignified homes,” said Jose Ramon Aliling, Secretary of the Department of Human Settlements and Urban Development (DHSUD) and chairperson of the Pag-IBIG Fund board of trustees.

“Together with the enhancements under the Expanded 4PH Program – which now covers both vertical and horizontal housing developments – Pag-IBIG Fund’s wider home financing options ensure that more Filipinos can finally achieve homeownership.

This is our solid commitment to President Marcos’ vision of providing decent shelter through a sustainable housing program under the Bagong Pilipinas banner,” Aliling said.

Aliling also cited the support from the private sector, noting that developers have committed to building more than 250,000 socialized housing units nationwide under the Expanded 4PH Program, significantly accelerating the government’s housing efforts.

Under the Pag-IBIG Housing Loan for the Expanded 4PH Program, first-time homebuyers – particularly those earning less than P47,856 per month in the National Capital Region and less than P34,686  outside NCR – may avail of the subsidized three percent interest rate for the first five years of the loan. All overseas Filipino workers, regardless of income, also qualify for the special rate.

The loan may be used to purchase quality socialized house-and-lot units and condominium units under accredited Expanded 4PH projects, priced up to P850,000  and P1.8 million, respectively.

It may also be used to purchase Pag-IBIG acquired assets with net selling prices that fall within these ceilings.

The program further offers additional financing of up to P100,000 for home improvements, such as utility connections and home fixtures, and provides a 100-percent loan-to-value ratio, meaning borrowers are not required to provide cash equity.

Pag-IBIG Fund chief executive officer Marilene Acosta said the agency’s ability to offer low interest rates stems from its strong collection efficiency, eliminating the need for external borrowing.

She added that the initiative aligns with Pag-IBIG Fund’s 10-year plan to deliver double-digit dividends on members’ savings while allocating half of its housing portfolio to loans with a three-percent interest rate through efficient asset management.

Source: Philstar