AZE.US
Credit cards, consumer loans and installment payment plans allow people to purchase goods and services they cannot cover with their current income. However, poor financial planning and pressure to project a higher social status can lead to excessive debt, according to an Azerbaijani banking expert.
As AZE.US reports, banking expert and attorney Akram Hasanov told MediaNews.az that the modern economy continuously encourages people to consume more.
Advertising and other marketing tools persuade consumers to keep buying, he said. Once one desire is satisfied, another quickly takes its place, while relatively few people are able to control their spending consistently.
“One of the main problems is that people do not plan their finances properly and cannot assess future risks,” Hasanov said.
“They spend beyond their means, hoping that their income will increase in the future.”
However, incomes do not always grow as expected. Unexpected expenses, job losses or changes in the economy can leave borrowers unable to meet the obligations they accepted when their financial outlook appeared more favorable.
Hasanov said banks and other lenders also benefit from this consumer psychology. When people are given access to additional credit, many will use it because their material needs and desires are effectively unlimited.
“People use loans to buy phones, cars and apartments, travel abroad or demonstrate their social status,” he said. “This comes from the desire to keep up with their neighbors.”
Advertising, social media and pressure from one’s surroundings can intensify that behavior, encouraging consumers to imitate the lifestyles of people with significantly higher incomes.
The danger is that borrowers may consider only whether they can make the next payment rather than how the full debt will affect their finances over time. As several obligations accumulate, even a relatively small decline in income can make repayment difficult.
Hasanov argued that preventing excessive household debt should be among the government’s priorities. Such measures would protect not only borrowers but also financial institutions, he said.
When heavily indebted customers can no longer meet their obligations, the resulting losses affect banks and can create broader risks for the financial system.
The expert therefore urged consumers to distinguish essential expenses from purchases driven by status or advertising, evaluate potential future risks and avoid assuming that their income will automatically rise.
AZE.US