TO WHAT EXTENT DOES THE ADOPTION OF DIGITAL PAYMENTS ALTER HOUSEHOLD FINANCIAL BEHAVIOUR WITH SPECIAL REFERENCE TO INDIA

The adoption of digital payments in India, accelerated by the 2016 demonetization and the COVID-19 pandemic, has transformed household perspectives on money. This paper investigates the extent to which digital payments alter household financial behaviour, focusing on their impact on consumption, savings, and debt risk. By examining behavioural economics literature and Indian data, the analysis demonstrates that digital transactions lessen the psychological “pain of paying” and promote increased spending. In the Indian context, empirical evidence shows a consistent rise in spending since the demonetization. This behavioural shift overlaps with a decline in household savings and a rapid rise in consumer credit. While digital payments encourage financial inclusion, convenience, and macroeconomic growth, they also threaten savings discipline and over-indebtedness. The paper concludes that while India’s digital payments have democratized access to financial tools, it also brought the risk of long-term financial instability. To strike a balance between financial discipline and inclusion, policy recommendations include regulating digital credit, promoting savings through ‘nudge’ features, and providing financial literacy.