Friday, 10 June 2016

Why There is a need to make the youth of our country Credit Literate?



We have all heard our elders and teachers say it is best to pick good habits when we are young as then these become a part of our personality and are likely to stick a life time. Thus whether it physical health or financial health the sooner you start the better it is. Youth are the future of any country and especially so for a country like India where 40% of the population is below 20 years of age. Thus this gives tremendous edge to the country with a lot of energy and drive but it also puts an onus on the teachers, parents and all and sundry to make sure this energy is harnessed and guided in the right direction.
Changing Attitude towards Credit over Decades:
A few decades back credit or loan was a not so popular and not so common word. That generation believed in waiting for the right time to fulfill their dreams and was willing to wait for years and sometimes decades to save enough to buy their first house or first car. Getting loans was not so easy and was also frowned upon unlike today where the youth and the newly employed cannot wait to borrow to buy the wheels of their choice.  Low interest home loans, along with fast and easy processing of loans by so many available lenders in the market has made buying a house a dream that can be fulfilled easy and fast. Whether one is seeking an education loan or a personal loan to fulfill the dream of higher education or an exotic holiday nothing is beyond reach due to easy availability of credit.
Not only loans for special reason everyday shopping and monthly payments also heavily rely on credit; here we are talking about the now ubiquitous credit card. Again getting a credit card is also easy; one can apply credit card online also if one chooses to do so and often credit card companies approach prospective users rather than the other way. Thus the use of credit, the attitude towards it and its availability has changed drastically over years.
So Why is It Necessary for Youth to Be Credit Literate?
Till about a decade and a half back, sanctioning of a loan was a process that involved a lot of subjective analysis. It left too much on the discretion of the person sanctioning the loan and to an extent was also dependent on how well known the person seeking the loan was. There was no statistical tool available to screen the prospective applicants; this changed with the setting up of CIBIL to an extent. However still almost 70% of the Indian population (as per a survey) is still unaware about what credit rating is all about. Now with four credit rating agencies lenders can sift risky borrowers and lend to those who display credible borrowing behavior in the past as indicated by their CIBIL score. The CIBIL score or CIBIL rating as known popularly plays a very important role not only in loan request processing but also impacts the rate of interest being charged. Since a small change in the interest can lead to lot of savings, it becomes important to be aware of the value of CIBIL report.
Easy availability of credit and growing consumerism are a temptation that can easily lead to overdependence on credit and its misuse too. Since the youth are the future of the country they need to know what is responsible credit behavior and how irresponsible credit behavior not only impacts their chances of getting future credit but could also impact their job opportunities and insurance premiums in future. Not being able to take a loan (due to bad credit behavior in the past) could hinder your dreams of starting a new business or buying a new car and so on.
Misuse is especially possible when it comes to personal loans (they can be taken for any reason and are not secured) and credit cards which can encourage impulsive spending. The youth need to be aware that any type of borrowing should be made with responsibility after considering its absolute need and the ability of the borrower to repay. Credit card spending should always be done with a careful eye on the budgeted monthly expenditure and whether you will be able to pay the dues at the end of the cycle. Paying only the minimum amount due or rollover credit are pitfalls that must ideally be avoided.
Another factor that needs to emphasized here is that one cannot get away with bad credit behavior or defaults on payments. All delays and defaults are now reported to rating agencies and are reflected in the credit report up to 5 to 7 years. Thus being fully aware of what the credit rating is, how it is calculated and how it impacts future borrowing is a must.
No credit history is also not an ideal situation; some kind of a credit trail is required for a score to be generated. So the youth need to know that should borrow with full awareness and full responsibility.  The easy credit facilities should be used for personal and national development and should not become a cause for worry.

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