Loans should not undermine financial security

K. ARAVIND

Most parents feel that their children will spend too much money when they grow up. The main reason for that seems to be that we are now spending more than the previous generation. It is a common allegation that the present generation doesn’t have the saving habits of the past generation. That may be true, but the savings and investment habits of different generations need to be looked at from a different angle.

Most of those who worked safely in the seventies and eighties used to stay in the same job until retirement and so they had a steady income. However, due to high inflation, it was not easy to earn a living in those days. Building a house before retirement was a daunting task. They had to rely on off-hand loans or gold loans to raise money for unforeseen needs. It was common to borrow from the Provident Fund when more money was needed.

Until the end of the last century, lending to individuals was not a business venture for banks. Credit cards were issued only to a very high income group. Personal loans, with the exception of education loans, were not common. Despite having a steady income and a risk-free job, individuals lacked facilities such as their own vehicle due to the difficulty of securing a loan.

Today, job security has declined, but there has been a significant increase in income. It is easier to get a loan from a bank because of the increase in income. In the past, it was unthinkable to get a loan at 9 per cent interest. We can’t imagine taking out a home loan at 20 per cent interest. Today, a person is eligible for loans and monthly installment products as soon as they start earning an income. As low inflation, a growing economy and better jobs provide higher incomes it also gives an opportunity for higher savings.

Today we can make many financial decisions on our own. Today’s high-income earners do not have to wait until a bank employee is ready for a loan. Banks calculate creditworthiness based on our income. But there is another side to this. It is natural to have a tendency to borrow more when you have access to credit.

Giving in to that tendency is likely to lead us into debt. So we have to fulfil the responsibility of careful financial planning. We need to keep in mind that using the opportunities that the new age presents to us can lead to faults in financial security.