Recent surveys find an increase in the number of youngsters who take loans to keep up appearances
Amount of money Divya earns = Rs 36,000
Amount of money she spent on car EMI = Rs 17,000
Amount of money she spent on bike EMI = Rs 5,000
Amount of money she spent on TV EMI = Rs 2,000
Amount of money she was left with for the rest of the month = Rs 6,000
On 5 May 2016, Buzzfeed published an article on the “urban poor”. It defined urban poor as people who “Objectively and relative to a vast majority of Indians, they aren’t “poor” at all. But they are certainly hungry and broke a lot.
These are the metro-dwelling twenty somethings who have internalised the pressures surrounding them, and spend a majority of their salaries on keeping up the lifestyles and appearances that they believe are essential to earning those salaries.”
The next day, Livemint churned out a piece claiming that “Urban poor” in the Buzzfeed article were anything but poor”. It refused to term individuals who took bad financial decisions as “urban poor” and preferred to call their troubles as “first world problems in a third world country”.
Irrespective of what experts choose to call it, there is no escaping the fact that there are millennials who choose to spend major chunks of their salary on luxury items to keep up appearances, even if they had to starve later.
According to a recent survey conducted by Home Credit India, highlighting the borrowing patterns and behaviour of consumers, 47% of the people in Chennai are willing to take a loan to fulfil the needs of their family. It also found that 85% of Chennai has never taken a loan before and their willingness to take one, highlights a big shift in behavioural patterns.
Take the case of Divya (name changed on request). The 25-year-old content writer from Chennai earns Rs 35,000 and lives with her family. This is important here as unlike a number of her colleagues, she does not have to pay rent or take care of a number of other financial responsibilities that come with living independently.
She, however, spent months eating barely anything because she did not have the money. She bought a car and a bike for herself and a high-end television for her parents on their anniversary — all on loan. As her EMIs collectively amounted to Rs 29,000 per month, she was left with only Rs 6000 to get through the month.
Divya did not want her parents to know about the situation, so she kept her problems to herself and starved. Literally.
She lost weight, hair and had to be eventually rushed to a doctor with multiple health problems. That’s when her parents had to step in. It took her half a year to recover, but despite her troubles, Divya is proud that she managed to buy all that she wanted and managed to pay everything off within two years.
“It’s true that it was difficult to manage with so little money every month, but at the end of it all, I own a car and a bike and managed to gift a good television to my parents all with my own money,” she says.
Gaurav Chopra, the founder-CEO of IndiaLends, an online lending platform, said millennials are increasingly leveraging their financial resources for their lifestyle. “This is probably why the personal e-loan space has shown substantial growth, from Rs 9,924 billion as on March 31st, 2017 to Rs 19,085 billion on March 30, 2018,” he writes.
From using loyalty programmes to taking up personal loans from fin-tech firms and peer-to-peer lending, millennials are financing their trips in many ways. Those within the age group of 25-35 take up loans between Rs 1 lakh to Rs 5 lakh to fund their holiday expenses.
“And it’s not just for travel. More and more millennials are taking up personal loans to purchase a gadget of their choice. With growing inflation, additional taxes and the changing lifestyle of people, there is a constant need for finance to keep up,” Chopra claims.
Dheeraj B was 28 when he took two personal loans worth Rs 3 lakh each in 2017 – one was to fund his sister’s marriage and the other to furnish a house they had just moved into.
The software team leader from a multi-national company in Alwarpet takes home Rs 65,000 every month but has to give away Rs 22,000 as EMI for his loans. Dheeraj lives with his family comprising his parents – his father owns a pharmacy – and his wife and their five-month-old boy.
“With Rs 43,000 in hand, the first two weeks sail smoothly,” says Dheeraj, “But right around the 15th, we begin to feel the need to cut back on our expenses.”
The first half of the month is characterised with cab rides to work, in case Dheeraj runs late, frequent outings which sets him back by almost Rs 2,000 per day. From the third week onwards, however, the couple prefers to stay in during weekends and Dheeraj prefers to take a shared bike ride to work instead of hiring cabs.
The 30-year-old is also on the lookout for jobs which will allow him to earn extra on the sides. “It is tough to get such jobs now and to connect to genuine sources for a side hustle,” he says.
This August, IndiaLends conducted a survey and found that 20% of all loans taken by young Indians in 2018-19 were to fund their own wedding. Chennai lead the trend with 24% of its youth borrowing money to meet wedding expenses, followed by Mumbai and Delhi. The survey included responses from 5200 people between 20 and 30 years across six metro cities.
Travel is the next big reason why millennials borrow, shows the report, with Hyderabad leading the way. 22% of the youth from Hyderabad borrowed to fund their travel expenses.
Also, here are some of the important takeaways from the survey by Home Credit India:
44% of the respondents were willing to take a loan to upgrade their lifestyle.
35% of the respondents showed willingness to take a loan if they don’t have enough money to buy things that they want.
Amongst other reasons, 32% of the respondents also said that they would not hesitate to take a loan to have enough money in hand.
31% people would take loan to buy things immediately without waiting for money to come from some other source.
22% would take a loan if they ever mismanage their income.
Speaking about how millennials choose to spend their money, psychotherapist and psychological counsellor R Rajesh Kumar chose to highlight two quotes by American businessman and philanthropist Warren Buffett.
“If you don’t find a way to make money while you sleep, you will work until you die.”
“Don’t save what is left after spending, but spend what is left after saving.”
Rajesh says that youngsters must realise that buying products on EMI is not an achievement. “It’s true that EMIs allow us to buy the products we want immediately without having to wait to save the money for it, but this is only a short-term pleasure. As the interests build, the transaction may not seem as profitable later,” he says.
“Millennials should focus on long term pleasure and delayed gratification. If they want something expensive, they should try to save money for it, unless of course it’s an emergency. This is not to say that they should not enjoy life, but that they should give more emphasis on smaller pleasures,” Rajesh adds.
Commenting on the products that most youngsters choose to spend on, the counsellor says that buying cars on EMI may not work out well in favour of the youngsters as they are paying interest for something which has depreciating value, unlike Public Provident Fund, recurring deposit or other forms of investment.
In between the millennials and pure savings generation, around 2008, the country also witnessed a credit card boom.
CRISIL, a ratings agency found that outstanding loans on credit cards reached $6 billion at the end of 2008, up 85% from the previous year.
Here is an account from The Christian Science Monitor which sheds light on how youngsters fell into debt trying to figure out how credit cards should be handled:
Three years ago, no sooner had “Ankur Jaiswal,” a young man who spoke on the condition that his real name not be used, taken a job at an outsourcing firm in Pune than he was flooded with offers from “pesky” credit card marketing agents.
Over the years, as he splurged on a motorcycle, plasma TV, and touch-screen cellphone, among other items, his debt rose to Rs 2,50,000, which he is currently struggling to pay back at a monthly interest rate of 3.5 percent.
“Credit card is a devil that tempts you to spend even on an empty pocket,” he says. “I keep paying off interest every month and the principle sum doesn’t budge.”
Commenting on this, Rajesh says, “Youngsters should also realise that if they get into a debt trap, they may face difficulty if they need money in cases of emergency. As such, my advice to them would be to find a way to turn their finances around and focus more on saving and investment than spending on luxury items.”