In today’s fast-paced world, personal finance management has become indispensable. A study was conducted by Redseer Strategy Consultants to investigate the personal finance practices of different income levels, with a focus on middle-class and lower-class households.
The findings provide insight into these households’ spending habits, income trends, savings patterns, and methods for handling income-expenditure shortfalls. The survey emphasises how important it is for middle-class and lower-class households to have sound financial plans in order to enhance their financial security.
The findings show that low-income households in India have experienced income stagnation during the last five years, underscoring the urgent need to improve financial literacy and personal finance management among middle-class and lower-class individuals.
The average age of the survey participants was 42 years old, and they came from a mix of metropolitan, tier 1 and tier 2+ regions. Numerous professions, including those in government and private service, registered and unregistered enterprises, daily wage workers, and agriculture, were represented among these respondents.
Important conclusions drawn from the survey:
- 77% of low-income households reported no increase in income over the past five years
- Any slight increases in income were often offset by rising inflation, particularly in essential areas like food, housing, healthcare, and transportation.
- Majority of low-income individuals work in informal or unregulated sectors with irregular income streams, leading to instability in their financial situation.
- Limited access to formal banking and financial services further intensifies their challenges, preventing efficient saving and investment.
2. Low, emerging and middle-income households manage to save less than 20% of their income, in contrast to the national average of 30%
- Majority of savings for lower and middle-income households goes into essential needs like food, medical costs, housing costs, etc.
- Households showed a strong preference for traditional saving methods like bank savings, fixed deposits, and post office schemes.
- 81% of middle-income, 78% of emerging-middle-income, and 79% of low-income households opt for these low-risk options over riskier investments such as stocks and mutual funds.
3. When expenses exceed income, 1 in every 4 individuals with zero savings opts for formal lending options like micro-credits, bank loans, and credit cards
- 65% of households turn to friends and family for financial support while 6% resort to depleting their savings or selling/mortgaging assets to cover their expenses.
- It highlights a rise in the adoption of formal lending options among low, emerging and middle-income households, signifying a huge opportunity for growth in this sector.
4. Medical emergencies turn out to be a major factor for savings depletion for 30% of households
- 22% of households said children’s education expenses contribute to the depletion of savings for the family.
- Other factors for the depletion of savings include marriage costs, job losses, and debt repayments.
“Managing personal finances is crucial for the stability and growth of any household,” said Jasbir S Juneja, Partner at Redseer Strategy Consultants. “The findings point to the urgent need for improved financial products and services. Access to affordable health insurance, educational loans with favourable terms, and robust financial planning services could alleviate financial stress for families. Additionally, promoting financial literacy and providing emergency financial solutions can help households build more resilient financial strategies.“
The full details of the survey can be accessed here: Link