Why do domestic helpers borrow money?

On average, 4 out of 5 domestic helpers in Hong Kong are in debt. According to a 2019 study by Frost & Sullivan, the average size of debt among domestic helpers interviewed in Hong Kong, Malaysia and Singapore is 4.5 times their monthly salaries.

When hiring a domestic helper, employers would do well to empathize and try to understand the reasons behind why so many domestic helpers are inclined to borrow money.

Reason #1: Domestic helpers may borrow money due to cultural and social expectations.

Many domestic helpers are under heavy cultural pressure to support their families financially. This expectation isn’t just for immediate family but extends to distant relatives and neighborly obligations. The intense pressure can drain their finances, leaving little for personal savings, and urge them to borrow money for time-sensitive needs.

In a country like the Philippines where the collectivist culture is strong, there is a focus on communal support within extended families and social networks. This often leads the domestic helper to share a large part of their income, or borrow money to send home, as the breadwinner working overseas, which makes it hard to save money and maintain their financial independence.

In addition, a valued cultural trait in the Filipino culture is ‘utang na loob’ (debt of gratitude). Even if not imposed, some domestic helpers may consider it their obligation to return any favor that they or their children have received from their relatives and friends. This debt of gratitude is a widely accepted pattern of behavior and has the potential to be misunderstood and abused.

Reason #2: Domestic helpers may borrow money to pay exorbitant recruitment and placement fees.

An employment agency in Hong Kong can only legally charge a domestic helper up to 10% of their monthly salary as a placement fee. However, domestic helpers may borrow money in the situation that unscrupulous agencies charge excessively high placement fees disguised as reasonable expenses to cover the agency costs of “expediting” the helper’s application and “guaranteeing” an employer within their expected timeline.

In reality, these placement fees are used to cover administrative fees and increase agency profits. When a domestic helper is unable to pay the placement fees, they are vulnerable to an agency’s suggestion of salary deductions or prone to borrow money from loan sharks. This financial challenge may look different among returning domestic helpers and first timer domestic helpers who subsequently struggle with an adjustment period of living in Hong Kong. Unbeknownst to employers, this industry practice may result to domestic helpers starting their employment in Hong Kong burdened with debt, emphasizing the need for both employers and domestic helpers to work with ethical agencies.

Reason #3: Domestic helpers may borrow money to cover emergency expenses.

A crucial first step to financial independence is building an emergency fund. Without this financial safety net, domestic helpers may be expected to fork out huge sums to cover medical bills or daily expenses due to a family member’s job loss. These unforeseen expenses can relate to why a domestic helper borrows money, especially if they are the major source of household income back home.

In addition, the Philippines and parts of Indonesia are included in the “Pacific Ring of Fire”, a geographical belt of volcanoes where 90% of the world’s earthquakes occur. Tropical cyclones are also a fundamental feature of Southeast Asia where most foreign domestic helpers to Hong Kong migrate from. When faced with natural disasters such as these, the domestic helper may borrow money to send home to help their family through the aftermath of the disaster.

Reason #4: Domestic helpers may borrow money due to a lack of financial literacy.

A major barrier to a domestic helper’s financial stability is the lack of financial education. Oftentimes, they have limited understanding of how financial products, interest rates, and loan terms work. Without this knowledge, domestic helpers may struggle to make wise financial decisions that can leave them more vulnerable to debt traps and high-interest loans when looking to borrow money.

Additionally, domestic helpers often have long work shifts and a busy schedule, making it impossible to set aside time and learn about managing money instead of borrowing money to address needs. According to Hong Kong charity Uplifters, most of the domestic helpers who enroll as students in Fair Agency’s Intro to Money Management Course have debts they are unable to repay, and thus they hope that financial education can redirect them to the right path and use better tools to manage their money.

Reason #5: Domestic helpers may borrow money to support regular and major family expenses.

With places like Hong Kong offering higher wages compared to local jobs in their home country, domestic helpers can easily become the primary source of income for their families back home. Most remittances go to paying for children’s education and covering family healthcare costs. Some might invest in projects like home improvements, property purchase or starting a small business.

Domestic helpers also have the same dreams of  enhancing their family’s living conditions, which is why they work overseas to generate a stable income. Investments add to the financial pressures mainly because they do not see the benefits right away, and so domestic helpers often borrow money to balance these expenses with their daily living costs.

Reason #6: Domestic helpers may borrow money due to lifestyle changes.

Moving to a wealthy city like Hong Kong can have an impact on the spending habits of domestic helpers. Surrounded by exciting city life and higher living standards, they are vulnerable to spending money on non-essential items like fashionable clothes, new gadgets, or dining out. These purchases are often influenced by the desire to fit in with peers as well as what they see in their environment.

Without a clear financial goal, anyone can spend beyond their budget and end up in more debt than they realize. While value is subjective, service costs and product prices are real amounts that can stretch a budget and lead domestic helpers to borrow money. Overspending can affect everyone differently, but domestic helpers may be put in a larger risk if they do not have the resources to manage their finances.

What is the employer’s responsibility when a domestic helper borrows money?

A loan is a transaction between the borrower (in this case, a domestic helper) and the lender. An employer is not responsible for paying back any amount when their domestic helper borrows money. An employer may choose to (but is not obligated to) provide their domestic helper with a loan if requested. If the employer chooses to offer their domestic helper a loan, they must remember that this should be an interest free loan. Additionally, to safeguard both parties, it is recommended to have the terms of the loan noted in writing clearly laying out the amount lent, the amount that will be deducted from the domestic helper’s salary and over how many months this will be done. It is important to get the helper’s signature on this document before garnishing her wages.

Since studies have shown that 4 out of 5 domestic workers in Hong Kong are in debt, employers would do well to realize that the chances of their employed domestic helper borrowing money is high. 

To improve financial literacy and lower the chances of your domestic helper borrowing money irresponsibly, you may consider these courses from the following organizations.

1. Preventative Education Workshop on Loans

HELP for Domestic Workers runs a 2 hour program on Loans. This program teaches participants how loans work in Hong Kong and shows them what clauses to look out for in their loans. 

Besides this, HELP for Domestic Workers also provides legal assistance on cases relating to loans and debt collectors.

Languages: English, Tagalog, Bahasa

Email: help@helpfordomesticworkers.org

Website: helpfordomesticworkers.org/

2. Financial Literacy Programs

Enrich – They offer financial literacy programs designed to help migrant workers in Hong Kong learn about personal finance and investments.

Language(s): Bahasa, English, Tagalog

Email: info@enrichhk.org

Website: https://enrichhk.org

3. Online Education for Migrant Domestic Workers

Uplifters – They provide online education for migrant domestic workers through online money management and personal development programs, making it flexible to fit the schedules of migrant workers.

Language: English

Email: hello@uplifters-edu.org

Website: https://uplifters-edu.org/

4. In person workshops and training

EmpowerU – They provide workshops and training in a variety of subjects like personal health and wellness, law, business and finance, public speaking, science and nature appreciation, arts and literature.

Email: info@empoweru.io

Website: https://www.empoweru.io/