Should you lend money to someone who cannot pay Rs.1500?

Strange as it may sound to the average Indian, but now you can actually buy a pair of jeans on installments- and yes they will even give you the whole garment at the time of the purchase (ha ha) !

Read an article this morning that talks of a partnership between Levi Strauss and a leading bank in India offering a plan whereby you can buy jeans over Rs.1500 and pay only one third upfront and the rest in equal monthly installments. My first reaction was “These Americans- here they come barging into our economy and infecting it with their ideas!” I was irked, but not sure why I was irked. After all if some young bloke out there can now dress well, improve his self-esteem and eventually become a better person for it then why not?

But after thinking through this I realize what bothers me about this. There is nothing wrong with borrowing money per se (because that is what this scheme really is (they are lending you the money you don’t have and will take it from you later). But when it is for non-essential purchases it straddles the dangerous line between consumption to up your standard of living and pure indulgence. Once acquired, the habit of spending before you earn, is a hard one to break.

Having lived in the US for sometime I have seen such schemes. People will pay deceptively small sums of money to stores to “hold” garments for them till such a time as they can buy the garment. Many will never purchase the garment and simply have sunk money to feel like something is within their reach and those who will eventually buy will land up paying much more than they should have and then too when they obviously have a shortage of money.

Ironically, the smaller the ticket price of the item being purchased on an EMI basis the more the danger of the default and of it being a bad financial choice for the individual. After all if you can not afford to shell out Rs.1500 at one time how sound is your cash flow situation? And also the seller is not likely to do a real credit check on you for such a small amount. A car or a home loan is another matter altogether.

So my grouse with EMIs for a pair of Rs.1500 jeans is that it is obviously a scheme to cash in on the desires of the young and the restless who are not yet mature enough to fully plan their finances and are at a risk of becoming a new population of defaulters.