Rising living costs and a relentless appetite for credit have left more Indians in debt than ever before. The 2024 BankBazaar Aspiration Index report shows that fewer Indians are debt-free, and many rely on loans to cover basic needs, from education to medical emergencies. The proportion of people borrowing for day-to-day expenses has gone up, driven by stagnant incomes in an inflationary environment. While aspirations around homeownership and a comfortable lifestyle are on the rise, the challenge remains balancing dreams with financial discipline. Here's what the report found.


Fewer Debt-Free Households


The Aspiration Index 2024 indicates a sharp fall in debt-free households. Only 13.4 per cent of respondents report having no open credit, down from 19 per cent in 2022. Loans under Rs 25 lakh constitute over 90 per cent of credit, with a considerable increase in these smaller loans. Many Indians now see credit not as a luxury but as a necessity. This trend suggests that borrowing is up even for routine expenses. Borrowing is especially high among non-metro residents who rely on credit for essentials like education (28 per cent) and medical emergencies. While these small-ticket loans may appear manageable, they reflect that Indians are turning to credit sometimes simply to make ends meet. Curbing this trend requires a cultural shift toward savings and mindful spending, particularly for discretionary purchases.


Rising Costs and Income Stagnation


With 54 per cent of Indians witnessing a monthly cost increase between Rs 10,000 and Rs 50,000, there's a significant strain on households, particularly as only 43 per cent of incomes have seen proportional growth. Essential expenses like food, education, and utilities are hitting wallets hard. Even non-metro areas have reported sharp rises in food prices. Saving rates have dropped, particularly in non-metros, where 35 per cent saw their savings decline compared to 31 per cent in metros. The persistent imbalance between rising expenses and stagnating incomes has forced more people to use credit for daily needs, from groceries to transport. Without corrective measures, this imbalance could deepen financial dependency on credit. Building a reliable emergency fund and prioritising essential expenses can provide a safety net against such financial turbulence.


The Debt Trap of Easy Credit


The allure of easy-to-access credit products like Buy Now, Pay Later (BNPL) has increased indebtedness. The report notes that 40 per cent of Indians use credit cards and short-term loans for monthly expenses, with a higher reliance (45 per cent) among non-metro respondents. This increased reliance on credit poses risks, as only a quarter of users have managed to reduce or avoid such dependency in the past year. Easy credit may solve immediate cash-flow problems but can trap individuals in a debt cycle that may be hard to get out of. There’s a need for financial education on managing debt and understanding the long-term consequences of frequent borrowing. For those already relying on credit, a focus on budgeting and prioritising debt repayment is critical to avoid escalating debt.


Regional Borrowing Trends


The report shows regional variations in borrowing habits, showing that different priorities drive debt. For instance, while the South borrows predominantly for vehicles, the East focuses on educational loans. The North and West regions have high borrowing for housing and holidays. These variations reflect unique financial priorities but also underline the common challenge of using debt to achieve aspirations. As loan needs vary by region, so too should the strategies for managing debt. In regions where education or health expenses dominate borrowing, targeted saving schemes and government assistance can alleviate some burden. Additionally, promoting affordable healthcare and education options in these areas could reduce the need for high-interest loans.


Managing Aspirations within Budget


The aspirations of Indians continue to evolve, with homeownership, children’s education, and health being top priorities. However, realising these goals often comes at a cost, leading many to rely on credit. The report reveals that nearly half of all respondents aspire to be debt-free within the next year. Yet, without a realistic approach, this goal may remain elusive. To avoid debt, individuals must align their aspirations with financial readiness. Creating a financial roadmap, setting achievable goals, and evaluating long-term financial impacts can help manage desires sustainably. For example, while a lavish wedding might be an aspiration, considering a smaller ceremony can save significant costs, freeing up funds for more essential goals.


Financial Literacy: The Need of the Hour


The data underscores a crucial gap: lack of financial knowledge. Over a third of Indians cite limited guidance as a top barrier to achieving financial goals. This gap is more pronounced in non-metros, where financial literacy levels lag behind metros. Financial education, tailored to address specific needs like debt management, saving, and investing, could empower Indians to make informed decisions and reduce reliance on debt. It’s essential to foster a culture where managing money is as crucial as earning it. While regulators and institutions will do their bit to bridge this gap, the onus is also on individuals to seek financial knowledge actively.


As aspirations rise, so does the burden of debt. India’s challenge is to balance ambitions with financial discipline. With sound financial planning, debt awareness, and greater literacy, Indians can pursue their dreams without falling into the debt trap.


The author is the CEO of BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar.