A survey conducted, showed that almost 45% of Indians polled are skeptical about economic recovery in the aftermath of COVID-19 and are bracing for at least a year of slow growth, which reflects a change in their outlook towards personal financial matters.
The survey was conducted by Scripbox, a digital wealth management service provider in July among more than 1,400 adult Indians to analyze their financial preparedness to achieve financial independence.
Of the respondent 87% were male and 27% were female. Fifty percent of respondents plan to eliminate optional spending and save more for an emergency, according to the Scripbox’s Financial Freedom Survey 2020. It, further said 28 percent will cut none essential spending, 22 percent will save to have a financial corpus to dip into during an emergency and 10 percent said that they will reduce their EMI burden.
“It’s a time of financial anxiety. According to the survey, almost one in every two Indians uncertain of the state of the economy and is bracing for at least a year of slow growth.
Among all respondents, nearly 44% are servicing an EMI that is 15% to 30% of their monthly income, while 11% have an EMI debt burden of over 50% of their monthly income.
Because of COVID-19 Indians are prompted to save more invest these saving into growing their wealth
Indian households have held on to money and invested it in financial instruments over the past six months as Covid-19 pandemic triggered a nation-wide lockdown in March and brought economic activity to a near standstill.
UBS’ analysis suggests that while forced savings could be going up in the formal sector on income continuity, a large chunk of labour employed in the informal sector would have strengthened precautionary savings despite fixed or deducted income by reducing consumption. If the situation normalizes and sentiment improves, UBS believes, those savings should be spent and can help in reviving growth quickly. However, if the disruptions last longer this income statement shock could become a balance sheet risk.
Indian households’ personal disposable income (PDY) growth, according to UBS, had already been impacted amid weaker job creation trends and the automation overhang before the Covid-19 pandemic hit. The household balance sheet deteriorated as they were funding consumption by taking higher leverage (went up to 23 percent of PDY in FY20E from only 16 percent in FY12) and dipping into their savings (down to 17 percent of GDP in FY20E from 24 percent of GDP in FY12), UBS’ estimates say.
Covid19 forced Indians to be more aware of the need for financial planning
While most employers announce a retrenchment, the aftermath is not a very easy phenomenon to go with. Employees across industries have been staring at substantial pay cuts if not a lay off, since the Covid-19 pandemic started. Undeniably, things are uncontrollable on all fronts, while adjusting with the new normal is what we have a control on right now.
The survey found that 28 percent intend to start with having a financial plan in place to grow their wealth, 23 percent will build a financial corpus for an emergency and 18 percent intend to save for retirement.
Children’s education and buying a house were prioritized by just 10 percent of respondents, it added.
Moreover, 50 percent of respondents intend to get external help with financial planning.
“While the pandemic has had an impact on the economy, the survey points to Indians becoming more aware of the need for financial planning. The desire to take action on growing their wealth also bodes well for the India growth story,” said AtulShinghal, founder and CEO of Scripbox.
How COVID-19 has changed the notion of financial freedom
While one in every two Indians understands the concept of financial freedom, a majority (70 percent) of respondents are unsure of how to achieve it.
Moreover, women (75 percent) are less confident than men (67 percent) in being able to achieve financial freedom.
Financial freedom has different meanings for people in various life stages and age groups. We look at three categories of people—the young professionals, the middle-aged workers in their 30s and 40s and the retirees—to understand how the pandemic has impacted their financial lives and the way they perceive financial freedom now.
For those graduating into a recession or just starting their careers, the pandemic can mean putting any plans of moving out and living independently on hold. For many young professionals who lived away from home for work, this has meant returning home to save on costs and be close to family. Any plans of pursuing higher education or committing to large expenses such as buying a car might also have to be postponed. “This is not the time to plan anything big or ambitious.
For those in their 30s and 40s, the economic consequences of the pandemic have been harsher. With many losing their jobs or taking a pay cut, servicing home loans, paying children’s school fees and funding the myriad household expenses can take a huge toll. In such a scenario, over-reliance on your employer can be dangerous. “To be free is to make sure you have enough of an emergency fund to see you through income loss and adequate insurance other than what your employer provides
For retirees, if they had all their finances sorted out before the pandemic hit, it can tide them over this difficult period without having to worry about money.