Debt Trap for today’s youth

Today’s Times of India has reported that the youth in modern India are falling into a debt trap. There are examples of youngsters who have borrowed heavily to invest / trade in the stock market. Some people would have borrowed using their credit card, some would have borrowed based on their salary and some against existing securities. But the end object of most of these guys seems to be to trade in the stock markets or commodities markets and make some money. There is no harm in trading in the stock markets – but the whole ball game changes when the “GREED” factor comes into the human psyche – that is when people start over-extending themselves to try and beat the stock markets. This is encouraged in all probability by one or two instances of making some good amount in the initial trades on the stock exchange. I have seen a lot of people being sucked into the market like this – making some money initially and then getting burnt to exit the markets with only debts left to pay off!

There is absolutely no way to make more money than you can be reasonably expected to earn. My experience in my profession has always been that there is no easy money, in fact, even hard earned money is difficult to come by, as you have to constantly follow up with your clients for your payments. For salary earners, it is easier as you get the salary credit into your account at the end of the month. Cash flows can be planned based on what you expect to be credited into your account. This is what the banks look for while giving unsecured loans to “credit worthy” salary earners. In fact all banks are supposed to take an undertaking that the personal loans taken will not be used for trading on the stock markets. The banks know full well that the loan is going to be used for trading in stocks but by taking the undertaking from the borrowers they think they have done their duty. It just requires one really bad phase in the market for everybody to be exposed and made vulnerable. This is exactly what has happened to the youth today with a little help from the banks who lend recklessly with the end objective of increasing their business. The markets have crashed, real estate has crashed, prices have gone up and suddenly you don’t have money to feed your family after trying to pay the loans.

The retail banking system needs to be totally re-vamped when it comes to borrowing. You have direct selling agents of various banks promising you free credit cards and unsecured loans which encourage immature people to go in for this kind of easy credit. Initially every thing is always hunky dory as you have to pay off your credit card dues and loan dues at the end of the month. So you use the credit to splurge or to gamble on the markets. One economic downturn and you are left with a whole bunch of people requiring psychiatric help or debt counseling. People always think and spend like there is no tomorrow – specially today’s youth. This is the result of optimism which is not a bad thing, but one should always put aside something for a rainy day. Today thousands of people are losing their jobs – I know people who have borrowed heavily to buy houses and with no jobs, pressure to pay of loans, re-structure loans or sell off the house just leaves people mental wrecks.

Reckless lending has not left the banks free of problems. Citibank and ICICI Bank have a huge problem with the retail portfolio. Easy credit has resulted in huge losses in these segments for these two banks as they have been so aggressive in lending and racking up the numbers that they have not bothered for the quality of their loans. This has left them with a huge defaulters list. How do you cope with that. You have them hiring collection agents – who are nothing but a bunch of goons who end up using strong arm tactics. It is only recently with the intervention of the courts and RBI that some kind of sanity and control has been brought to bear on the operations of the collection agent.

In conclusion I would reiterate that there really is no easy money. One needs to forget the past, live wisely today and invest for a secure future. In life you have to learn to take the good with the bad. Once you learn to tide over the bad times with a smile, the good times will not really matter because you have come out smiling after hitting the bottom - thus finding the climb up the ladder of success easy to handle. Just remember success should not go to your head and make you arrogant – you need to be balanced through good times and bad – this will make you a good human being liked by one and all. It’s a matter of mind over matter – control your mind then nothing else matters. Conversely if you don’t have a mind again it does not matter!