The EMI Conundrum: A Middle-Class Trap

(Image used for illustrative purpose only)
He is about 30. Married. Father of a one-year old. Has a house in Mumbai. Has a well-paying job in a multinational firm. No shortage of self-confidence about doing well in career. Talented. Everything sorted. But he still wakes up in the middle of night shaken. The nightmare of losing his job keeps haunting. He cannot be out of his job even for two months. He has to pay an EMI every month.

The great Indian concept of sacrificing today’s comfort for a better tomorrow is at play here. The trap that a middle-class householder is often caught in. In this city of Mumbai, where people come to fulfil their dreams, feel throttled because the challenge of a settled life takes precedence over the very dream that made him successful so far. The physical embodiment of this challenge is EMI. The leveraging that one indulges to seek luxuries that are beyond one’s current means cause to seek loans. When you can afford a one bedroom apartment, you take a loan because you aspire to stay in two-bedroom apartment. The same applies on household goods, children’s education, vehicle, holidays and many other things.

The difference between your current aspiration and current reality is paid as EMIs.

Sure, it is good to aspire. The trap is in aspiring for immediate material comforts at the cost of your dreams. If dreams are sacrificed, then growth slows down. This 30-year old friend described earlier will now take a top-up loan for shifting to a bigger house, for a bigger car, for a better holiday, for his son’s overseas education, etc. By the time he completes paying his last loan, he will be on his last job too! The entire life was spent chasing an EMI deadline instead of chasing a dream. What he could have done, as an alternative, is to stay on course of his potential, entered into a business or gone abroad to make a living. For that, he had to postpone buying of house for 10 years and kept chasing his dream. I feel, EMIs limit your thinking and ability to take risks in general.

Leveraging yourself is good. But it should ideally help your dream. The loan for business is a better idea than loan for personal use. Household savings needs to be looked differently for India when compared to western societies. The members of those societies value their present happiness much more than in Indian society. Also, India is in a GDP growth rate of nearly 7.5% annually when compared to 1 -2 % in Western world. It makes much more sense to back the dreams in India than in anywhere else. Well almost.