Last weekend, I had some free time and decided to take my family to the nearby mall. While they got busy shopping, I wandered into a gadget store. Inside, I noticed two friends, in their early 20s, excitedly discussing their options to buy a new gadget. One talked about gaming features with the excitement of a developer, and the other focused on the gadget’s performance. Suddenly, one of them exclaimed, “Wow! This phone is amazing! It has good gaming speed and excellent performance. Plus, there is a sale, and it’s only sixty-five thousand !”
The salesperson was quick enough to add, “Sir, this special price is only for today. Tomorrow, the price will go up to eighty-five thousand!” The boys exchanged glances and started whispering to each other.
I didn’t catch the rest of their conversation but watching them consider sixty-five thousand as a small amount took me back to my younger days—when resources were scarce, and the means to afford things were even fewer.
I remembered my parents’ generation who often faced resource scarcity. They also had limited means to earn basic resources. This made them clearly differentiate between needs, wants, and luxuries. They spent only on their needs and saved for difficult times. People in older generations had the highest degree of respect for money (I can’t think of any other thing in the household that was as precious as money), looked at money as a special gift from God, and gaining wealth was a great achievement. My father used to open the file with all the FD receipts every month, just to feel that comforting sense of security and peace. Can you relate to this?
But, the generations that followed developed a very different way of thinking about money and resources. The younger generations’ perspective on money is entirely different. Money is more of a tool to accomplish whatever they desire! The reasons are many.
This also made me think on how the changed family structure has influenced this thought process. As family sizes have become smaller, the importance given to each child has grown immensely. Along with this, they are also blessed with more resources that has built a different image of money and wealth in the young minds. A major part of the expenses of a family now goes towards the needs and wants of their children. While many parents may struggle to fulfill their own wants, children are growing up with a sense of abundance around them. This has influenced the children’s thoughts toward money. Children growing up in a world of artificial abundance often see their “wants” as “needs” and desire to fulfill them immediately. “If I like a product or an experience, I should have it in the next minute no matter how expensive it is” is the core thought among many of the younger generations.
If you observe the Western countries, the per-person debt has been generally high and in the last decade it has seen a significant rise (about USD 105.12K as of Sept 2024 in the USA*). Their need for instant gratification, the urge to experience and buy stuff irrespective of the price, has built this huge mountain of debt in their personal capacity. This burden of debt can be too risky at certain times. It is so surprising that the same mindset has quietly entered Indian houses creating a cultural shift in how young generations think about money.
India is a developing country where it is common for people to move from villages to towns. Most of us have moved to big cities from our little villages/towns in search of better lives. Isn’t it? Also, we see a huge gap between the “haves” and the “have-nots.” Observing, comparing, and improving are natural traits of every human. One section of the society that observes the other section enjoying their lives with luxuries feels that they also deserve similar experiences. This section may want a lifestyle like the other section and is ready to work hard to fulfill their wants. This mindset leads them into debt or a loan or huge credit card bill or “buy now pay later” schemes membership or EMI payment cycles (the only way to make this dream a reality in short term). These options allow them to enjoy things today and pay for them later. This also creates an illusion of having a life of abundance and easy affordability of expensive things (as long as the EMI is affordable).
As I reflected further, my thoughts turned to the trending mantra, YOLO—You Only Live Once. Most of Gen Y and Gen Z often prioritize the present over the future. This mindset has also normalized the concept of debt. The thoughts of enjoying material or experiences right now by taking a loan and not worrying about the means to repay the loan have become normal. EMI schedules and EMIs to pay off credit card bills with hefty interests are becoming a common part of young people’s lives.
Debt often begins at a young age, starting with education loans, buying a much-desired gadget, or a dream vehicle or a high-end laptop with latest AI features. As we grow older and start working, the desire for an aspirational lifestyle, luxurious vacations, etc. can push us deeper into debt (because we feel this is quite normal). This can also turn us into an impulsive buyer. Impulsive buying often goes hand in hand with debt, if not supported by a strong source of income, either by self-earning or support from the family (that may end anytime).
Today, debt has become less intimidating and is easy to access. A big loan is just a click away, and even small purchases can be paid off in installments. But this convenience often makes us overlook the long-term impact of interest payouts.
So, are loans are bad? Should we avoid debt altogether? Not necessarily.
But, how can I decide if a particular debt is my friend or an enemy? Based on what factors can I make my decision about the debt? The challenge lies in distinguishing between good and bad debt.
Let me share how I decide on my debts –
- Good debt: A good debt helps us acquire a real asset that builds value. To name a few, a debt taken for education, to own a house are good debts. Investing in education or skills will enhance earning potential or debt taken for buying a real asset that will grow in the long term is not a bad idea.
- Bad debt: A bad debt is a debt that does not build any value or give any long-term benefits. Financing a luxurious vacation due to FOMO or for the sake of status on social media or buying new stuff for self-gratification without any real utility. Such debts might often lead us to taking a new loan again and again to maintain that self-worth.
Good debt is an investment for the future which, if managed responsibly, can pave the way for long-term financial growth and stability. Bad debt can often lead to financial strain, making it harder to achieve stability and future goals. Considering whether we are using debt responsibly to enhance our future or if we are relying on it for unnecessary expenses clarifies the distinction.
The next question that popped into my mind – So, is it worth taking a bad debt?
In these uncertain times when the global job market is fluctuating, which is the new normal, and Artificial Intelligence is taking over a huge number of jobs, I feel having the stress of bad debt is not good for our financial well-being. The burden of repaying debt in case of a job loss or loss of income puts immense pressure on our overall life and health. I am sure you too will agree with the fact that such a burden is unnecessary and should be avoided.
Sustained success and wealth are best achieved by avoiding extremes. Whether in debt management or lifestyle choices, striking a balance supports resilience during downturns. To ensure a beautiful and financially independent life leading to peace of mind, a careful approach towards debt and a healthy investment habit are essential.
Financial stability, financial independence, and a good quality future (in terms of family needs and retired life) should be a priority in everyone’s life. Rather than enjoying today by spending our future salary (in the form of debt), it’s smart to start investing early for the future. Debt should be an option only when it creates a meaningful value.
I am thankful to be a part of the “bridge” generation between the extremes. On one side the generation with scarcity that taught me to save and shaped me up to make prudent financial decisions and on the other side a generation that gives me lessons on what not to do. I hope Gen Y and Gen Z (that is smarter than the previous generations) will pick up the resource management skills from the history and learn to differentiate between needs, wants and luxuries which will help them make smarter financial decisions in a world full of distractions.
I wish I could somehow have had a conversation with those friends in the mall about the true value of “just” ₹65,000 and guide them to make more logical decisions.
* Source: https://ycharts.com/indicators/us_per_capita_public_debt
Shreedhara is the Founder & Director of Ara Financial Services Pvt. Ltd. He has an experience of over 2 decades in Financial Service Industry with majority of it in guiding individuals and institutions on their investments requirements.
