The new middle class trap: Unsecured loans and social pressure fuel debt in India, Hong Kong and elsewhere

India and Hong Kong are very different in culture, government and location. But now they share a worrying problem: their middle classes are stuck in growing consumer debt. The middle class, which once stood for stability and progress, is now under mental stress, facing financial risks and rising inequality.

In both places, people’s incomes are not growing much, but the cost of living is going up. Because of this, many middle-class families are becoming financially weak. A big reason is the rise in unsecured loans, credit used for shopping and daily spending and the pressure to live a fancy lifestyle shown on digital platforms.

But the middle-class people of these two countries are not outliers. They fit in the bigger global pattern that affects their counterparts in the US or Turkey alike.

Indian middle class: From prudence to precarity

In the 1990s, Indian middle-class life was defined by modesty and measured ambition. Families back then could buy land and build homes on single incomes, without the burden of high-interest debt or extravagant spending.

However, this picture has changed over the years, and look drastically opposite to the middle-class sight of the 1990s. Salaries, in terms of rupees earned, have jumped. However, when adjusted to inflation and the rupee-dollar conversion, the difference may not look dramatic.

But in recent times, the growth rate has slowed. For mid-level earners, with those making between Rs 5 lakh and Rs 1 crore annually, it has witnessed 0.4 per cent compound annual growth rate over the last decade. The cost of essentials — from food to education — has surged, and more significantly, social media-driven consumerism now pressures even conservative households into unsustainable spending habits.

Today, desperation has overtaken discipline. Financial experts have over the years pointed out that the culture of saving has given way to survival through borrowing — credit card EMIs, buy-now-pay-later schemes and digital wallets. The data paints a grim picture: credit card non-performing assets (NPAs) surged to Rs 6,742 crore in 2024, up from Rs 1,108 crore in 2020 — a nearly 510 per cent jump in just five years.

In parallel, unsecured personal loans ballooned. Retail lending grew over 30 per cent in 2023 alone with banks and fintech firms eagerly offering credit at the click of a button. These loans are often used not for asset creation, but to maintain appearances—smartphones, cars and vacations that mask financial distress.

Psychological toll and societal implications

Beyond the numbers lies a deeper human tragedy. Anurag, a former travel agent, represents a growing cohort of Indians who are financially and emotionally exhausted. He accrued $13,000 in debt after losing his job and experienced such psychological strain that he began contemplating suicide, a Financial Times report said. His case is not isolated.

As per Marcellus Investment Managers, around 10 per cent of middle-income Indians are ensnared in a debt trap, while national household savings are at their lowest point in 50 years. The economic optimism heralded by policymakers often hides this widespread urban distress, where easy credit replaces real income growth.

The Indian government has acknowledged the issue, albeit reactively. In 2024, Finance Minister Nirmala Sitharaman introduced tax breaks to provide fiscal relief to the middle class, implicitly admitting to their deteriorating financial state. The Reserve Bank of India also raised the risk weight on unsecured personal loans to 125 per cent, tightening the spigot of easy credit.

Hong Kong: From property dreams to debt nightmares

Thousands of miles away, Hong Kong’s middle class is facing its own debt reckoning, though under a different economic regime. Once seen as a hub of capitalist success and real estate wealth, the city has become a cautionary tale of financial overreach. A South China Morning Post report cited the case of Fai Chan, who inherited a modest 377 sq ft flat, but was forced into borrowing at 40 per cent interest just to secure legal ownership.

Chan’s monthly repayments, often exceeding his income, forced him into further borrowing from even riskier lenders. Despite never defaulting, his life was consumed by anxiety, with debt collectors flooding him with offers thinly veiled as threats.

Hong Kong’s Money Lenders Ordinance caps interest rates at 48 per cent annually, but loopholes and lax enforcement have enabled the growth of quasi-legal and outright illegal lending. A tiered system — ranging from first-tier regulated finance firms to shadowy second-tier entities — has filled the vacuum left by traditional banks, which have tightened lending amid economic uncertainty.

Even within this “regulated” space, abuses are rampant. Hidden handling fees, personal data leaks and intimidation tactics are widespread. Debt collection complaints surged to over 2,300 criminal cases in 2024, including home vandalism and harassment of employers and families.

A shared fate: Squeezed by aspirations, caught by credit

Despite their vastly different financial ecosystems, the Indian and Hong Kong middle classes share fundamental vulnerabilities. Both are increasingly reliant on unsecured credit to maintain lifestyles that are, in many cases, artificially inflated by social pressure and economic stagnation.

In India, smartphone penetration, online gaming and astrology-fuelled speculation platforms are outlets for economic frustration. In Hong Kong, it’s the promise of property ownership and financial independence that lures the middle class into the debt trap.

In both cases, lenders are eager to capitalise. India’s microfinance industry, for instance, grew by 37 per cent in FY2023 before plummeting due to rising defaults and regulatory scrutiny. Similarly, Hong Kong’s moneylending ecosystem exploded from 779 entities in 2009 to over 2,400 by 2021, a South China Morning Post report said.

Structural drivers and systemic risks

The deeper issue lies in how both societies have structured their growth narratives. In India, government rhetoric around a “new India” driven by consumption perhaps overlooks the skewed income distribution and jobless growth that leave the middle class behind.

Similarly, Hong Kong’s growth model, underpinned by real estate speculation and export dependency, is faltering under the weight of global shocks and domestic inequality.

India’s household debt as a share of GDP rose from 35 per cent in March 2020 to 43 per cent in June 2023 — an unsustainable trajectory given the stagnant income base. Meanwhile, 40,741 Hong Kong homeowners now owe more than the market value of their homes, the highest negative equity figure since 2003.

Social cost: Families, mental health and harassment

The price of debt is not just financial. It is also deeply social and psychological. In both nations, debt collectors have resorted to public shaming, employer intimidation and even physical threats. Indian collectors call bosses and neighbours, while Hong Kong collectors splash paint and tamper with door locks.

Family members become collateral damage. In Hong Kong, a woman named Leung and her relatives were harassed due to a loan application that used them as referees without consent. Such experiences sow distrust, social isolation, and in severe cases, lead to suicidal ideation.

But this is not an India-Hong Kong phenomenon

The US is battling with its own household debt crisis. It has reached $1.14 trillion, with a significant portion attributed to credit cards, a Federal Reserve report says. Delinquency rates on credit card balances have risen, with 8.9 per cent of balances falling into delinquency over the past year. The Fed report showed that aggregate delinquency rates increased in the first quarter of 2025.

In Turkey, a country already grappling with economic upheaval, credit card debt is a crisis the leadership and courts are battling with. Its central bank last year said credit card indebtedness reached unprecedented levels in 2023 (the last year for which data is available to public), soaring to 2.5 times the amount seen in 2022.

Credit card debts in Turkey soared in the first 10 months of 2023 to $34.7 billion. The number of individuals under legal follow-up for unpaid credit and credit card debts rose by 39 per cent in the January-November period of 2024, reaching 1.66 million.

A new middle class trap

In theory, the middle class should be a buffer of stability and a driver of economic growth. But, it has become a pressure cooker of consumerist expectations and financial vulnerability. Easy credit, cultural pressures and poor regulation have created a scenario where millions are just one missed payment away from collapse.

As household debt rises and structural economic issues remain unaddressed, countries with high middle-class deb risk turning their growth dreams into widespread distress. Without significant policy intervention, cultural shifts and income restructuring, this segment — often the promise of a brighter future — may become the symbol of a collective socioeconomic failure.