We know, we are rubbing the wrong side of the readers. But we will be failing with our duty if we don't. Actually, looking at the growth in loans taken by Individuals (as shared in the next section) we felt remorse by knowing that market forces have been successful off late to convert Indians especially younger generation into their "bait" to exploit them financially and get away with their hard earned money.
Therefore, in this article we will discuss about the facts & reasons why Indians are falling into Debt-Trap for so called Artificial Social Status and Social Media Flex also termed loosely as Social Media Show off where People have intent to showcase their luxury among their peers without having proportionate Financial Background.
Moreover, marketing of Financial Institutions along with new age Fintech's are also playing key role here who are inducing the citizens for taking loans for un-necessary expenditure apart from easy availability of loans.
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This article will covers:
Some Hard Core facts
Growth in Various kind of Personal Loans
House Hold Savings
Credit Card Usage
*Source: RBI monthly data
From above, it is amply clear that expenditure on Credit Cards are increasing exponentially which many not be necessarily in the proportion of rise in Income.
SBI Cards Financial Data (used as Representative of Credit Card Industry)
It is the only listed dedicated Credit Card Company which has significant business in Credit Cards, therefore, reliable Financial Data related to Credit Cards is easily available in public domain.
From above, it can easily be inferred that citizens are spending much more on Credit Cards that is also not from their own source rather by taking Loans from Credit Card Companies may be in the form of EMI or otherwise and may be paying higher interest rates which is not a healthy sign.
Above all data points suggests that there is exponential growth in various kind of Personal Loans much beyond the growth in income level of the Indians. It may creates Risk not only for the individuals but also for the Economy as a whole as also being cautioned by the RBI.
Further, increase in Home Loans may be one of the reasons for shoot up in Property Prices or vice-versa.
Time Tested Principles of Taking Loans
We and especially our young friends have forgotten time and tested principles of taking loan:
Rule Number-1: Loan should only be taken for financing Productive Assets/Investment like Home, Education etc. that is also subject to Rule No. 2. It should never be taken to fund our expenses more so luxuries like costly vacations, extravagant marriage spending, Luxury Cars, costly mobile phones etc. However, in today time, we are taking loans to fund our luxuries.
Rule Number-2: Loan should be taken as per the Income and Repayment capacity not as per the intended expenses of us. For instance, if we have repayment capacity (income-expenses-savings-emergency fund) is lets say Rs.10,000 per month, we should never be in any case exceeds the loan where repayment is more than Rs. 10,000. Caution: it does not mean you increase the tenor of the loan to bring the loan repayment amount with in repayment capacity to an extent that interest cost increased exponentially.
Rule Number-3: For Emergency, one should plan for emergency like taking appropriate Health Insurance, Emergency Fund for at-least six month running expenses. Moreover, if one is required to take loan for some emergency, he needs to examine various options available and take loan from the source where it is cost-efficient. Loan from Credit Card Companies is the most expensive way of taking loans.
Enemy of our Financial Independence
As we discussed earlier one should take loan only to fund productive assets not the expenses (expenses here include consumable assets like costly phones, cars etc). In this line, we feel following are the enemies of our Financial Independence.
Costly Vacations: We here want to clarify that we are not suggesting that one should not travel or go for vacations. We just want to advise that one should go for vacation as per his financial condition not under artificial peer pressure created by the social media or just to show-off to the friends/family under some kind of artificial psychological competition (Mob-mentality) created by the market using social media as an instrument.
Here, we want to say with much conviction that :
"Social Media is a trap laid down by the Market to induce you to spend much beyond your financial capability where your friends and family are just an instrument of that trap in the hand of the market forces. If you think rationally, you will find ultimate financial beneficiary of the social media is the market not you". "It is also a common say in a financial world that where some thing is provided free of cost to you, it means you are the product because nothing is free in this world". |
Extended Marriage Events: Today again fuelled by Social Media and Peer Pressure, Marriages are being extended to spread over many days and have many events which is creating lot of dent over the financial situation of a person. Therefore, we suggest, one should spend on Marriages as per his own financial condition not to showoff. One Day Event should not become reason for life time financial embarrassment for you.
In Old times, there was a say:
"जितनी चादर हो उतना ही पैर फैलाना चाहिये" i.e. One should spend as per his income. But today what is happening is just reverse of it : " Lets First Fix the Expense, then find out the source to fund it". |
Luxury Purchases: Third biggest enemy is luxury purchases like costly cars, phones, Parties etc. beyond the financial capacity of the individuals.
Exorbitant spending on other social events: Now there is also trend created as a mob mentality to celebrate the other social events like birthdays (Self, Spouse, Kids), Annual Marriage Ceremonies etc. in a big way and throw the parties at large scale. They are nothing but a tool to extract the hard earned money from your pocket put it in the pocket of market forces.
Sending Kids to Foreign Countries for Education: Again we are not against sending kids to foreign countries for higher education in Universities/Institutes of repute and history of good placements. One must analyse that whether after completion of Education, child will be able to earns at least what is being spent on the education in that university.
But off late, it has been observed that many are sending their children to foreign countries and spending exorbitant money by often taking Education Loans just to show case in the society with out even looking at the attributes of the universities.
Tips to save our self from Debt-Trap
Always pay Credit Card Dues on time, as interests rate on Credit Cards are very high. Please do not fall in trap of Paying minimum due. In case, you don't have money for full discharge of credit card dues, either convert them into Credit Card EMI or take personal loan and pay it.
Golden Rule, always compare interest rates in percentage form not in absolute form. For instance, if some one says for Rs. 10,000 loan you needs to pay just Rs. 300 per month. Many especially young generation may feel it is a small interest amount, but if you calculate it in percentage form, interest rate here come to more than 36% P.A which is much higher than market rates. Therefore, always analyse the various options of loans available and take only informed decision.
One should create savings for " Rainy Day".
Always take Health Insurance and a Term Insurance of appropriate amount to meet with any exigencies.
As discussed above, there should be clear NO-NO for taking loans for vacations, extended marriages, luxury purchases etc. Rather, one should not empty out his life long hard earned savings on these items.
I know, even after reading this article, many will still fall in to the trap of the Market created in the form of social media and ruin their financial peace.
However, it was my utmost responsibility to make my fellow citizens especially young friends aware of this trap and even if one of my dear friend is being saved from Debt-Trap after reading this, my hard core effort of two days is served.
Thanks for Reading !!!
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Disclaimer: We have used data sources from many sources available in public domain just for academic/informational purpose. we advise you to please consult with your financial adviser before taking any financial decision. We have taken due care to the best of our knowledge while explaining the data surrounding the issue purely for informational/academic purpose. It should not be considered as professional advice or consultancy to be relied upon. While due care has been taken by Fab Gyan in preparing this article, certain mistakes and omissions may creep in. The Fab Gyan or its Author does not accept any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any actions taken in reliance thereon.