What is Consumer Debt?
It is the sum total of all the debt that is incurred to fund individual or household needs. These include credit card loans, student loans, auto loans, etc,
What are the current trends in Global Consumer Debt?
We see there is a surge in the rise of consumer debt over the decades. This could be measured by the ever increasing level in the global debt level,debt to GDP Ratio, and other macro- economic debt metrics as there is no appropriate measure for measuring the global consumer debt level.
What contributes to consumer Debt?
Emergencies: Medical Emergencies, accidents and Lay-Offs are a few emergencies that cannot be anticipated and force a person to take a debt to handle the emergencies
Consumerism: Consumerism encourages the ideology that material possesion is directly linked to the amount of happiness and fulfillment and encourages all possible ways to buy Goods/Services. Consumer debt supports consumerism by funding consumers, while they don’t have the required money.
Unemployment: Consumers either driven by wants or needs are forced to purchase utilities, accordingly. They are forced to take up on debt, to fulfil them.
Inflation: In many geographical regions, industries, countries we see how inflation and income rise do not go hand in hand and this results in a gap, which is funded by consumer debt.
Social Stature: People tend to build a social Stature, within their friends, family and peer group. They tend to exhibit an incremental growth, which is practically not possible. To compensate for the hurdles faced, people fall into consumer debt.
As discussed above debt is not a negative concept, always as there are a lot of benefits as well. Debt could constructive if it is to fund an asset.
Ex: A student loan acquired for higher education or up-skilling would pay of its initial loan amount as well as bring in more money. This is one, of the many examples where consumer debt is useful.
Conclusively, it could be stated that debt acquired for asset building should be encouraged while any debt acquired for lifestyle upgradation and other liabilities should be below the income level, after investments and savings.
