New app helps with short-term loans for end-of-month expenses

Aug 06, 2017, 08:26 IST | Gitanjali Chandrasekharan

A new app that offers short-term loans for end-of-the-month expenditures makes you wonder where have we failed the new generation

The company has been approached by 6,50,000 people
The company has been approached by 6,50,000 people

It's the phrase that launched a thousand trolls: Urban Poor. But, while it's easy to shush it out and pretend that the latest generation to join the workforce has got its economics right, evidence suggests otherwise.

In a perfect case of demand creating supply, a Pune start-up was launched last year to help the workforce get over that very difficult period of the month — the last week, the one week in the month when suddenly all birthdays fall and sales are announced. EarlySalary, which now has presence in eight cities, including Mumbai, fills the gap by providing quick loans (you can get one in 10 minutes) at flexible sums (ranging from Rs 8,000–Rs 1 lakh) and low interest rates (R9 per month for every Rs 10,000 taken). The catch however, is that the loan has to be repaid the second you get your salary and that you don't get an early salary if you are 40 years old or above. "If you are 40 and you need R10,000 to get by, you are in trouble," says Akshay Mehrotra, CEO and co-founder of EarlySalary.

He says the company has been approached by 6,50,000 people till date. The average customer around 25-year-old. And, what do they want to spend on?
"Well, we don't ask those questions, but someone did check for a media organisation and one person wanted money for a party for her dog," he laughs. It does beg the question: why is it that the young workforce is unable to save money unlike, well, the earlier generation, which managed to save for a house, retirement, weddings and even school fees?

Certified Financial Planner and Practitioner, Gaurav Mashruwala says it's not fair to paint an entire generation with one brush. But, who saves and who doesn't rests on upbringing. "If parents shielded them saying don't think about money, focus on education, they will be struggling right now. The payscale is high and the money they are handling is much greater than the earlier generation. Because they weren't forced to do budgeting, the concept of prioritising is quite alien to them," he adds. But, he points out, that someone might be saving for an iPhone 7 instead of say a religious pilgrimage. And, who is to say that one goal is better than the other?

There's also a culture of instant gratification that didn't exist a few decades ago. Nisreen Mamaji, CEO at MoneyWorks Financial Advisors, says spending habits depend on socio economic background. Those who live on their own are forced to budget their expenses, because they won't have someone to bail them out unlike those who live with their parents who will have someone to fall back on.

"Credit card spending is also greater now. It's so easy to swipe. You can see what's happening in the west. We are following what happened there 20 years ago. Fiscal prudence is not being followed," she adds. The older generation was taught to manage its money, a skill that is not being taught. "When the salary came in, we were taught to deduct fixed expenses, variables and you saved the rest. Now, the newer lot has the choice of borrowing in the short term, so you take it. We didn't have the choice so we jolly well managed."

And, that choices to spend your money have multiplied manifold doesn't help either. How else do you spend a Friday night after all? Single screens have given way to multiplexes and there's a new restaurant opening every week. The tendency to spend, says Jinay Savla, a partner at Circle Wealth Advisors, is higher because most people are no longer doing the jobs they love. "They get into courses because it's a fad or it assures a high paying salary, even though their passion lies elsewhere. So, spending becomes a way of venting," he adds.

Savla recalls going to a car showroom recently, paying the entire amount at a go and being told how he was unlike the other 20-year-olds who walk in. Salva, 27, says he was told that some people take the cars on loan and, unable to pay the rather high EMIs after a couple of months, return them having run out of money and quite shamelessly at that.

He puts high expenses down to keeping up with Facebook. It's no longer just the Joneses. You have to keep up with everyone on your Facebook account and everyone seems to be buying — clothes, shoes or a trip to Vegas — all the time. And, they keep posting pictures of a short vacations through the year. "I even know people whose parents have given them R5 lakh for a vacation," he adds.

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