‘I don’t want to miss out’: Why India’s youth are choosing debt over savings

Digital credit may be reshaping how young Indians spend, save and borrow, even as rising costs, social media and financial illiteracy also push more of them into debt and leave the country facing a growing challenge, CNA’s Insight finds.

MUMBAI: Until quite recently, Vaishakh Sudhakaran was burdened with debts. Without any savings to fall back on after the company he was working for shut down, he was “stuck” when he could not find another job.

With rent and bills to pay and his family to take care of, he found himself drawn to advertisements on social media from loan apps offering speed and simplicity.

Eventually, he took multiple loans ranging from 5,000 to 30,000 rupees (US$52 to US$314) from different platforms. But his desperation did not end there. “(For) a few months, I lost hope. I was like, ‘How do I repay this?’ the 30-year-old recalled.

Business owner Purva Matkar, 28, knows what that pressure is like. She had also started taking loans a few years ago, when she “had nothing” and could not even afford basic necessities.

“I didn’t have any other option but those loans (via lending apps),” she said. “That was one of the easiest, and the quickest, way for me to get money.”

But she fretted whenever a due date for payment got closer.

“I used to be like, ‘How can I get work? What can I do? How (did) I get into this whole situation?’” she recounted. “Mentally, it was a big struggle. I’ve had major breakdowns.”

Borrowing among young Indians like these two Mumbai residents is on the rise, in tandem with a boom in fintech lending — digital lending on platforms using technology to assess credit and issue loans.

By June last year, the loan portfolio of fintech-driven non-banking financial companies hit 2.1 trillion rupees as the number of active loans grew by 25.6 per cent year on year, according to credit bureau CRIF High Mark.

As people took on more debt, loans overdue by more than 180 days climbed from 7.1 per cent of the fintech portfolio in 2024 to 8.6 per cent last year.

The borrowing goes beyond the fintech industry. Household debt stood at 47.8 per cent of the gross domestic product as at last December, up from 41.3 per cent nine months earlier.

“What we’re seeing is an explosion in middle-class indebtedness,” said Marcellus Investment Managers founder Saurabh Mukherjea.

“In the sub-30 age group, the incidence of indebtedness is remarkable: (Nearly) 70 per cent of Indians below the age of 30 have now taken (out) at least one loan.”

This figure was 53 per cent in 2023, a study by credit comparison platform Paisabazaar found then.

The kinds of loans they are taking out, however, are not only for necessities such as rent, groceries and utilities. According to Paisabazaar, travel was the top reason behind personal loans in the first half of last year.

This is a youth-driven phenomenon. Millennials and Generation Z accounted for nine in 10 overseas trips made by Indians last year, reported travel fintech platform Niyo.

So, the fastest-growing borrower groups are not only saving less but choosing to splurge, with some millennials and Gen Zers funding their lifestyles through debt.

WATCH: “I splurge what’s left” — Why India’s youth are choosing debt over savings (43:16)

“We’re also sort of coming face to face with how technology is such a double-edged sword,” said psychotherapist Ahla Matra, citing the convenience in applying for credit now.

These are among the reasons these young adults are spending money they do not have, CNA’s Insight finds out as the programme also examines whether bad debt will cripple the next generation.

WHY THEY VIEW MONEY DIFFERENTLY

In the world’s fastest-growing major economy, young Indians such as Matkar are developing a taste for the finer things in life.

At a time when she was struggling with her finances, she went to watch Coldplay in Ahmedabad, about 500km from Mumbai, after missing out on the band’s gig in her hometown last year.

“I have a friend who … has a house in Ahmedabad. He was like, ‘I got the tickets, so if you want to come, let me know,’” she recounted. She did so with no regrets.

“It’s one of the beautiful memories that I have,” she said. “I’ll never feel bad (about) spending on these concerts. … It motivates me to work more so I can make more money, and I can have more experiences like this.”

Although the 3,500 rupees she spent on her ticket and travel was not too much, she recognised that it was a sum she could have saved instead.

“I don’t think … the money that I’m making right now is enough to (support my) lifestyle,” said Matkar, who is still barely keeping up with her bills.

But for her, the concert was only “the start”; attending concerts overseas remains on her “bucket list”.

Another young Indian who decided a concert was worth spending on was Sharva Mane, 28.

She had stepped away from freelancing to focus on a creative business last year, and financial pressure followed because whatever the business earned went on necessities and taxes. So her mother questioned her decision to attend the concert.

“The way children are today, whatever money they make … they blow it all and then ask someone else for money the next day,” said Shailaja Janardan Mane.

“Our generation didn’t blow all the money we had. We’d keep a little in the bank and spend the rest.”

But her daughter rationalised: “My peers are going, so I just want to go, enjoy the night, be at my friend’s house, party till five o’clock and then sleep.”

Part of what sets these generations apart is the India they grew up in, whose GDP per capita 30 years ago was around US$400 and now exceeds US$2,800.

Starting life in a better financial position than their parents has shaped the expectations and aspirations of many young Indians. And in Maslow’s hierarchy of needs, experiences and luxury goods can be seen as fulfilling their self-esteem or self-actualisation needs.

There is also the need to feel a connection and a sense of belonging. By the same token, there will be peer pressure.

“Peer pressure is a thing. I feel I’m getting old, I don’t want to miss out on things,” said Sudhakaran. “What’s more important? Should I have fun, or should I save up because I don’t have money?”

The answer is clear for Sharva Mane. “If I could just afford a coffee or some drinks with my friends,” she said, “I’d splurge the 1,000 (rupees) that’s left in my bank account.”

Some experts argue that social media amplify these trends, especially when Indians spend an estimated five hours a day on their smartphones. “The younger you are, the more impactful social media is,” Mukherjea said.

Someone earning 500,000 rupees a year — US$5,000 a year — wants to live much the same life as the billionaires of South Bombay live because (of) very cleverly curated images on social media.”

Younger Indians also have a more positive attitude towards debt compared with their predecessors. In a survey done by digital lending platform mPokket, 63 per cent of young respondents said they felt more in control of their finances with credit.

Driven in large part by young consumers, outstanding credit card balances have grown to their highest: 3.1 trillion rupees. About 70 per cent of iPhone purchases, for example, are financed through credit.

That’s not to say young Indians are only taking on debt to splurge. According to surveys, they are also more willing to invest and take out education loans than previous generations.

That is what Sreenanda Ganguli did when she decided to pursue an 18-month Master of Business Administration at the Indian School of Business while working. She needed to borrow from the State Bank of India and now pays monthly instalments.

Her father made an upfront payment of 800,000 rupees. She is paying off about 2.5 million to 2.7 million rupees with interest included — for which the “biggest trade-off” is her lack of travel.

“I’ve not taken a fun trip,” said the ad sales manager, 28, who hopes that her “massive” loan pays off.

“These are simply risks you take. Maybe (my) next 10 years are going to be spent in corporate (life), and … to (move) up here, I need a credible degree.”

OTHER PIECES OF THE DEBT PUZZLE

Rising costs are another piece of the debt puzzle. Inflation has been moderately high over the past decade, hovering between 4 and 6 per cent.

Taking account of this, ratings agency India Ratings and Research found that real wage growth was 0.01 per cent between 2019 and 2024.

For the middle class, annual incomes have been “roughly stable” at 1.05 million rupees for a decade, whereas the cost of living for this group has risen at an estimated 8 per cent a year, Mukherjea highlighted.

Annual medical inflation is reported to be 14 per cent. “Even more remarkably, the cost of entry-level bikes (and) entry-level cars (went) up 50 per cent in five years,” he cited.

Then there is the question of who is doing the lending. According to reports, Indians under the age of 35 account for nearly two-thirds of fintech borrowers. They are the primary targets for these lending platforms.

“(Loan apps) would just (require) you to take a selfie. They (did) not even verify your address,” said Sudhakaran, recalling his experience.

“Within 24 hours, you have money in your bank. So if I needed something urgently, apps were much easier (to turn to than banks).”

Even now, loan adverts show up on his Instagram. One of them mentioned that no proof of income was required for a loan of up to 500,000 rupees. “Instant disbursal, zero paperwork,” he highlighted. “Anyone can just take a loan.”

Another common offering in fintech lending is Buy Now, Pay Later (BNPL), which lets customers buy goods without paying the full price upfront. They pay in interest-free instalments over weeks or months.

Research suggests, however, that BNPL users are more likely to spend beyond their means, buy more frequently and buy on impulse. There may also be processing costs, and even a single default could incur charges.

“It doesn’t feel like you’re spending too much. (But) you don’t realise you’re spending more money eventually,” Sudhakaran reflected, adding that even now he is “illiterate when it comes to finance”.

“No one really taught me … how to handle my finances better.”

This is a problem Kunal Shah, the founder of fintech platform Cred, recognises. The 47-year-old described India as “a developing nation where most people don’t really understand money”.

“Most people have … just started to (have) some money,” he said. “Money is a subject that we learn through experiences and therefore a lot of us go through bad experiences before we learn anything good about it.”

But he thinks there is “a long way to go” before fintech and non-banking financial companies are to blame for pushing people into debt. Banks still service the majority of credit, he highlighted. That includes credit card debt.

“Ninety per cent of people who have credit cards today are probably the first members in their family to get a credit card,” he said.

“So there’s nobody to guide them on how to use them correctly, make sure (they) don’t spend beyond (their) means and so on.”

The company he founded tries to help consumers with that. Through rewards, gift cards and upgrades, Cred encourages its users to make their credit payments on time.

But the problem is not only about lending or credit. A survey done by Expert Panel, a firm providing legal and financial support to borrowers, found that 35 per cent of them faced harassment from recovery agents.

This happened to Sudhakaran when he was unable to repay his loans. Debt collectors came to his home, asked his mother where he was and even called his number — and his father’s number — 500 to 600 times in a day.

There were days when Sudhakaran took his father’s phone “just to make sure that he isn’t picking up any calls”.

Many borrowers do not come forward even when they face harassment. “Culturally in India, … money is such a taboo topic,” said Matra the psychotherapist. “If you’re struggling to sort of manage your finances, there is … guilt.

“Usually, people isolate (themselves). They don’t want to talk to their family members about it.”

In the village of Aryanad, Kerala, 21-year-old Anand was hounded by creditors after he could not pay a debt of 30,000 rupees to a loan app, which he had accrued unbeknown to his family and friends.

“‘Your countdown has started’, and ‘Your end will be at our hands’ — such were the messages we found that he’d received on his phone,” said his mother, Anjana.

“They were also blackmailing him … (with) digitally altered images. These were all the things we came to know later.”

Unable to bear the stress, he took his own life in March. But the harassment did not stop; the images were sent to his sister’s phone too.

“We’re still receiving several calls,” Anjana lamented. “We’ve been completely shattered, mentally. He was … our hope. He took care of everything.”

Her husband, Suresh Kumar, added: “We don’t want any child to go through this again.”

THE LONG-TERM IMPACT, AND WHAT NEEDS FIXING

While it is Anand’s family who must now live with the tragic cost of debt, some others who start out in life having bad debt have seen for themselves that it can have long-lasting consequences.

Initially, when Sudhakaran was keeping up with his loan repayments, he never saw his credit rating go up even an inch, he said. “Eventually, (there was) one failed payment, and then (it) dropped by 10 points.”

One’s credit rating will affect one’s mortgage rates and other interest rates on future loans. And the signs are not good.

Last December’s Reserve Bank of India (RBI) financial stability report showed a high probability of a downshift in credit ratings, cited Mukherjea, “which suggests that borrowers are getting more and more indebted”.

Globally, studies suggest that rising debt burdens among young people can affect their long-term financial stability in other ways.

“Accruing debt so early on in their life can impact the decisions that they might be making, financially or otherwise, … going forward,” said Matra.

“Because then you’re coming from that space of insecurity (when) you’re making all of these decisions. … And financial trauma is a real thing.”

With household debt rising more than twice as fast as household financial assets — as more than half of these loans are linked to consumption rather than asset creation — economists also warn of broader risks.

In a scenario where “you dramatically extend credit for a decade or so, everybody goes into party mode (and) you have a giant stock market rally”, said Mukherjea, “when that bursts, the aftermath is extended, it’s ugly, it’s painful”.

After numerous complaints about fintech lending, regulation has started to catch up.

Following the introduction of digital lending guidelines in 2022, which specified that only RBI-regulated entities can lend money, the central bank recently tightened lending rules, for example covering data privacy, recovery practices and the redressal of customer grievances.

Authorities have also had thousands of illegal loan apps removed from app stores.

The net result is that the regulatory framework is strong enough, thinks Shah, with “enough guardrails” to ensure that “more and more companies (are) getting licensed, … getting kind of reviewed (and) penalised for any bad behaviour”.

Apart from calls for more regulations, what also matters is where young Indians are turning to for financial advice.

Studies have found that about half of Gen Z investors rely on financial influencers, or finfluencers, for guidance. These content creators provide advice on money management and investing.

The Chartered Financial Analyst Institute has raised some concerns, however. For example, it found last year that 63 per cent of finfluencers failed to adequately disclose sponsorships or financial affiliations.

Only 6.3 per cent of finfluencers are registered advisers as required by the Securities and Exchange Board of India. And as at this March, the board had more than 120,000 misleading social media posts taken down.

“There’s a very big difference between people who are here to sell you financial products and … people who are genuinely giving you advice,” said 1 Finance head of strategic alliances Preeti Jha, who stressed the importance of financial literacy.

India’s 2020 National Education Policy encourages financial awareness as part of schools’ curricula. But implementation is uneven, and surveys have found that Indian students have a low understanding of subjects such as interest rates, loans and repayment.

Only 27 per cent of Indian adults are financially literate, according to the National Centre for Financial Education, compared with an average of 52 per cent of adults with secondary education in major advanced economies.

“It’s really hard not to participate in capitalism,” said Matra.

One of the ways to approach it, definitely, is to create (consumption) awareness, … to create awareness about what’s healthy and what’s harmful and to talk about that not just on social media but also in institutions, right from schools.”

For some youths, their experience with debt has got them rethinking how they spend and what it means to borrow.

Matkar said she “always made sure” to repay her “small loans” on time to build her credit rating. “To do business, I’ll have to show that credit score if I want to take (out) a bigger loan,” she noted.

“But yes, it did make me learn a lot of things about finances — that I have to be more particular and careful.”

As for Sudhakaran, he is now a fraud supervisor at an American credit card company. He paid off all his debts a month before he spoke to Insight.

“Now is the time for me to start saving up,” he said. “Not having (savings) really messed with a lot of things.” He added that he can also prioritise investing. “I’m looking forward to getting into something like that.”

Watch this episode of Insight here. The programme airs on Thursdays at 9pm.