Deloitte's survey: How Indians are living paycheque to paycheque

New-generation private sector banks, established during the 1990s financial sector reforms, transformed India's retail banking landscape. Starting with fully computerised operations, they expanded access to retail credit, including personal loans for both asset creation and consumption. Their success intensified competition, prompting the entire banking industry to rapidly expand retail lending.

Deloitte's Global 2025 Gen Z and Millennial Survey

Three decades later, it is worth examining whether easier access to consumer credit has also influenced household financial behaviour. While retail credit has undoubtedly improved financial inclusion and enabled households to meet genuine needs, it has also made borrowing for discretionary consumption far more accessible than in the past. Against this backdrop, Deloitte's Global 2025 Gen Z and Millennial Survey provides an opportunity to examine whether changing borrowing and spending patterns are affecting the financial resilience of young Indian wage earners.

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Economic prosperity does not occur automatically. It depends on productive utilisation of natural and human resources, sustained employment, rising productivity, sound public policy, and a stable regulatory framework. Equally important is the financial behaviour of households. Long-term economic growth is supported when households are able to save, invest and accumulate productive assets rather than remain financially vulnerable.

The Deloitte Global 2025 Gen Z and Millennial Survey covered 23,482 respondents across 44 countries. The India report was based on responses from 505 Gen Zs and 304 millennials.

The India findings reveal:

• 55 per cent of Indian Gen Z respondents live paycheque to paycheque

• 62 per cent of Indian millennials live paycheque to paycheque

• Both figures are higher than the global average of around 52 per cent

• 20 per cent of Indian Gen Z respondents struggle to meet all their monthly living expenses, compared with 15 per cent of Indian millennials

Sample size

The India sample consists of 809 respondents, which is relatively small when compared with India's vast workforce. However, Deloitte follows internationally accepted survey methodologies. While the findings should not be interpreted as representing the entire Indian population, they provide useful insights into the financial behaviour and perceptions of young working adults. If these trends broadly reflect reality, they deserve serious attention.

Why these findings deserve attention?

A fundamental principle of personal finance is that income should first meet essential needs, followed by regular savings and investments. Discretionary spending should ideally be financed only from the surplus available after these priorities are met. Such an approach builds financial resilience, creates wealth over time, and reduces dependence on debt.

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Borrowing to finance routine lifestyle consumption—such as vacations, dining out, luxury purchases or other discretionary expenditure—can become financially burdensome, particularly when financed through high-cost credit such as personal loans or credit cards. Such borrowing does not generate future income to repay the debt. Instead, future earnings are committed to financing past consumption, reducing future financial flexibility.

However, borrowing is not inherently undesirable. There are several situations where it is both rational and economically beneficial.

Examples include:

• Emergency medical expenses where treatment cannot be postponed

• Temporary income disruptions, such as job loss, where short-term borrowing may prevent distress sale of assets

• Education loans, which represent investment in human capital by enhancing future earning capacity

• Housing loans, which finance an essential need while simultaneously creating ownership of a long-term appreciating asset

Thus, borrowing should ordinarily be undertaken when it creates or preserves long-term value, enhances future earning capacity, or addresses genuine emergencies. Routine lifestyle consumption is generally better financed from current income rather than debt.

An important principle of financial prudence

A simple sequence of financial discipline remains relevant for most wage earners:

• Earn

• Meet essential expenses

• Save and invest regularly

• Spend discretionary income only from the available surplus

• Avoid borrowing merely to sustain or elevate one's lifestyle

The objective is not to eliminate debt altogether but to ensure that borrowing serves a constructive purpose rather than financing recurring discretionary consumption.

What does empirical research show?

A substantial body of international and Indian research broadly supports the proposition that persistent borrowing for discretionary consumption weakens household financial resilience. At the same time, the evidence also shows that borrowing can improve welfare when it enables households to manage temporary income shocks or finance productive investments.

Several important findings emerge from the literature.

Household debt eventually suppresses future consumption

Studies using Spanish household data (2002-2017) found that highly leveraged households reduced consumption much more sharply during economic downturns, particularly when the debt consisted of consumer loans rather than mortgages. Similar evidence from Estonia shows that higher debt-to-income and debt-service ratios significantly reduce household consumption, especially during recessions.

The implication is straightforward: borrowing for current consumption often results in lower future consumption because repayment obligations reduce disposable income.

Borrowing is valuable when it smooths temporary shocks

Research by the Federal Reserve on payday lending found that access to short-term credit helped financially distressed households avoid severe reductions in essential expenditure such as food and mortgage payments. However, during normal times, easy access to high-cost consumer credit reduced overall household welfare.

This supports the long-established economic principle that borrowing is most beneficial when it bridges temporary income gaps rather than finances permanent lifestyle upgrades.

Indian evidence

Research by Ashoka University's Centre for Economic Data and Analysis, using CMIE household data, found that nearly one-third of Indian households borrowed for consumption expenditure. Poorer households were significantly more likely to borrow for consumption, whereas wealthier households borrowed predominantly for housing, business and vehicle purchases.

This suggests that consumption borrowing in India is often driven by financial necessity rather than discretionary spending.

Debt design also matters

A randomised controlled trial among Indian microfinance borrowers found that greater flexibility in loan repayment reduced financial stress while encouraging productive investment and improving incomes. The study indicates that the purpose and structure of borrowing are often as important as the borrowing itself.

Borrowing constraints

Stephen Zeldes' influential research demonstrated that liquidity-constrained households may benefit from borrowing when current income is temporarily insufficient, but future income prospects remain strong.

What does the evidence collectively suggest?

The empirical literature consistently supports the following broad conclusions:

A broader behavioural dimension

Easy availability of credit is only one part of the story. Changing consumer behaviour is also being shaped by social media, digital commerce, instant loan platforms, Buy Now Pay Later (BNPL) products and lifestyle inflation. These developments can encourage spending decisions that are disconnected from long-term financial capacity. The availability of credit should therefore be accompanied by stronger financial literacy so that borrowing decisions remain informed and sustainable.

The financially sustainable path for wage earners is to meet essential consumption from current income, build precautionary savings, and invest regularly. Borrowing should ordinarily be reserved for emergencies or investments that enhance future earning capacity, rather than for recurring discretionary consumption.

As retail credit continues to expand, banks should follow responsible lending practices while policymakers strengthen financial literacy and consumer protection. The objective is not to discourage borrowing, but to ensure that credit promotes long-term financial resilience and supports sustainable economic growth rather than encouraging unsustainable household debt.