For a country like India where average salaries are low compared to
other developed/developing economies, we tend to spend too much on
buying the latest electronic gadgets. This trend of splurging on
electronic gadgets is observed more in the new generation because of
lifestyle reasons.
Considering that the average life of a smartphone is about one year,
we have to ask the question whether buying a smart phone on
EMI
is really a wise decision. As it is we as a society are very profligate
with our money and now the mobile phone companies want us to spend more
on buying their expensive and much-hyped devices. Should we take the
bait and buy these devices on EMIs? The prudent answer is a vehement
“no”!
Though it is a lifestyle choice and up to individuals to choose the
type of phone they want to use, this decision has a significant impact
on the personal finance of an individual. Every personal financial
decision, no matter how big or small, has an impact on the overall
finances of the individual. With the current trend of zero per cent
interest rate on EMIs (with hidden processing fee) and no down payment,
the smartphone business is booming for mobile phone manufacturers, banks
and telecom operators (higher
ARPU). On the face of it, the
EMI
option appears attractive to individuals who cannot afford a high-end
phone but would like to own one. At a deeper level, individuals usually
fall for such offers because they are looking for instant gratification.
This nature of ours makes us susceptible to such offers over the
savings route.
Opportunity cost
Let us consider an example where an individual who can afford to buy a
smartphone worth Rs. 12,000 gets lured by the zero per cent interest,
zero down payment bait of buying a smartphone of Rs. 36,000 on EMIs.
This individual ends up paying an excess of Rs. 24,000 beyond his means.
However, a prudent individual would choose to buy the smart phone that
costs Rs. 12,000 and invest the excess amount of Rs. 24,000 in a
systematic plan. Considering that he invests Rs. 2,000 per month for a
period of 12 months at a 10 per cent annual rate of return, he would
accumulate Rs. 25,281 at the end of the year. The same amount would be
worth around Rs. 62,093.37 in 10 years. Not to mention that the same
individual over the period of 10 years would change at least five smart
phones, getting lured into more expensive upgrades every year.
Conclusion
In the era where marketing mavens drive social frenzy around the mobile
phones, it is necessary that we do not succumb to the temptation of
spending more than what we can afford. The money thus saved should be
prudently invested to achieve more important and essential goals.
Source : http://www.desidime.com/forums/dost-and-dimes/topics/why-buying-smartphone-on-emis-is-not-a-wise-idea