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Overspending in India

posted by Bob Lawless

Check out this story in the New York Times about free-wheeling consumer credit in India. Much of the article focuses on how Indians are using consumer credit to pay for cosmetic surgery. At one point, I had a collection of online advertisements offering Americans easy credit for different types of cosmetic surgery, but that was several universities ago. One of today's disappointments was discovering that file has disappeared.

What especially caught my attention from the news story was the conventional wisdom from the middle of the article:

Many older Indians see the trend as young India’s rush headlong toward a financial precipice. In a country of savers, middle- and upper middle-class Indians of the preceding generations paid up front for everything except life’s biggest purchase, a home. Then, about a decade ago, buying a car, a washing machine or a refrigerator on credit became common.

These days, India’s in-a-hurry generation is pushing the boundaries of what can be purchased on credit.

Many a country's financial reporters have retold this story. Financial attitudes suddenly change, and a country of savers becomes a country of borrowers.

My hypothesis, however, is that the story has the causality all wrong. It is not cultural attitudes but institutions that are doing the changing. When consumer credit becomes widely available, people borrow, and societies experience overindebtedness. A perfect example of my hypothesis is South Korea where, a generation ago, you likely would have been given stereotypical cultural attitudes about the need to save and an aversion to debt. After the Asian debt crisis of the 1990s, South Korean banks needed new profit opportunities and turned to the consumer credit markets. Now, South Korea has a substantial consumer overindebtedness problem. A different example is the United States where we tell stories about how our parents (or our grandparents, depending on your age) would never have borrowed for the new consumer good in our neighbor's driveway or living room.

As to the role attitudes play, one possibility is that attitudes toward debt change easily once widespread lending makes consumer credit widely available. Perhaps a more likely possibility is that, when consumer credit is not available, expressed attitudes will be negative toward consumer indebtedness because it is a rationalization strategy -- "It does not matter we don't have access to consumer debt because it is a bad thing anyway." Under this explanation, the expressed attitude in a world of restricted credit does not reflect the person's belief about borrowing but just their reaction to not being able to borrow.

Although I am skeptical that shifting societal attitudes play a causal role in creating overindebtedness problems, attitudinal shifts will continue to be a popular explanation. When we are able to blame a flaw in character for another person's problems, it makes it easier for us to believe the problems will not happen to us.


When you market a product for sale at "just $199 per month" it certainly helps with the attitude adjustment. Makes it sound like everyone buys on credit. The Adam Curtis "Century of the Self" documentary provides a nice explanation of how Edward Bernays marketing, public relations and propaganda efforts have created quick mass shifts in attitudes about all facets of modern society - including debt. If you've not seen it be prepared with an antidote to a devastating view of today's society.


Handling personal finance is seldom taught in schools. We learn it by example. The shift came when numerous credit cards offering flush in. Without strong foundation on personal finance management, we tend to follow our emotions that dictate us to have this and that.

The solution is to educate our young generations about finances not just on sex education.

Best regards,

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