| It doesn't take a survey to conclude that most Indians are unsavvy when it comes to planning for their financial well-being. Yet, the MNYL-NCAER India Financial Protection Survey, 2005-06-with a sample size of 63,000 households across India, it's the largest so far-has yielded some worrisome findings. It shows that though Indians are slogging, they let their savings lie idle in bank accounts for 2 per cent or worse, keep them at home for no returns. No investing in stock markets or pensions for them. Barely 2 per cent have insurance covers. Only a few urban salaries save for old age. Most of them borrow to cover routine household expenses or social ceremonies such as marriages and births. The average annual income of a household is Rs 65,041, expenditure being Rs 40,976 leaving a surplus of Rs 24,065. Unless they begin to save wisely, they will continue to run the risk of getting caught unawares in the rain.  | | 18%
are salary and wage earners compared to 32.5% labourers | | 20%
of rural post-graduate breadwinners derive their income from agriculture | | 32.5%
are those who make a living through brute labour and are the most vulnerable | | "Income is insufficient to cover both routine and unusual expenses for a quarter of households. Their awareness of financial planning is also relatively primitive."
S.L. RAO, CHAIRMAN, INSTITUTE FOR SOCIAL AND ECONOMIC CHANGE | | EARNING
Too Little, Too Skewed The survey has thrown up a stark picture of rural-urban income divide. The urban salaried are the most well-off even though they account for a smaller percentage of the total population. They also enjoy the highest per capita income. Predictably, on an average, urban Indians earn more than their rural counterparts and they also spend a larger proportion of their income. The survey has also revealed that only this miniscule percentage of the population-18.5 per cent-primarily salary earners in urban areas, can be considered financially secure. Most Indians appear to be financially vulnerable. This large swathe is spread across businessmen, professionals and farmers who remain susceptible to financial disasters and are outside the purview of any form of social protection. Those who earn their livelihood through brute labour (32.5 per cent) appear to be the most vulnerable in both urban and rural areas. Education level of the breadwinner also influences the source of income. Self-employed agriculturists tend to be largely illiterate. In rural India, only 20 per cent of post-graduate breadwinners derive their income from agriculture. In contrast, over 60 per cent post-graduates are salaried. SPENDING
On Living and Eating | | 546
is rural India's average monthly per capita expenditure in rupees | | 1025
is the average per capita monthly expenditure in rupees for urban India | | "High growth fuels aspirations beyond the earnings of Indians, putting at risk their financial well-being."
GARY BENNETT, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, MAX NEW YORK LIFE | | Putting food on the table is the primary challenge. But that's a reflection of how meagre the income is rather than a pointer to any tendency to indulge in gastronomic delights. Not surprisingly, all Indians on an average spend about a half of what they earn on food. Rural households spend more than half their income on their daily bread. But India is not alone. Typically, basic expenses, such as food, do eat into the paltry incomes that are emblematic of most poor economies, leaving little money for anything else. Reinforcing the point that Indians are financially vulnerable, the survey reveals that Indians most of the time borrow to meet routine expenses. So much so that routine household expenditure is the biggest reason for borrowing, followed by medical treatment and social expenditure like marriages. In the event of unforeseen expenses cropping up, all income groups demonstrate similar spending patterns. While the average monthly per capita expenditure in rural India is Rs 546, that in urban India is Rs 1,025. Consumption patterns across the more affluent-be it in rural or urban areas-are broadly similar. The major point of difference is the expenditure on education. Predictably, urban households spend a significant portion of their money on education. Strikingly, the rural-urban divide blurs when it comes to expenditure on durables. Though, strangely, a greater number of affluent rural households own high-category consumer durables than their urban counterparts, even as both categories spend a large amount on conveyance. Housing, on the other hand, is a relatively smaller expense for self-employed agriculturists. SAVINGS
Precariously Perched | | 51%
of borrowers who approached a financial institution for loans wanted to purchase consumer durables | | 4.8%
of rural Indians borrow for social expenses against 3.3% in urban areas | 70%
of urban households consider purchasing life insurance more important than all other insurance products | | First, the good news. Indians are saving a substantial part of their earnings. The bad news is, the money saved is not being made to work hard to ensure foolproof financial security for the future. The real villain is the choice of saving instruments. Instead of investing savings in a manner that will help them tide over expected and unexpected future needs, a tad over half of all Indians are depositing their money in banks where-though safe, earning a little over 8 per cent-it grows at barely 2 per cent a year. The risk is, steadily rising inflation (currently by 6.5 per cent a year) is eroding the worth of the money thus saved much faster than what the banks are paying. So effectively, Indians are vulnerable at lower returns. Worse, another one-third are simply stashing up their savings under their pillows; barely 5 per cent are relying on post office schemes; and fewer still, 2 per cent to be exact, have a life cover. Given the preference for such saving instruments, Indians are unlikely to be able to build reserves deep enough to see them through retirement or cushion unforeseen shocks. Not unless the rate of return from banks rises dramatically or money locked in safe vaults begins to multiply on its own. In short, a miracle to the rescue. Further, complacent in the belief that money parked with banks is safe-as, in addition to protecting the principal, they also guarantee returns -Indians aren't losing sleep worrying about the chances of being struck by a financial mishap. Most Indians do not seem to be concerned that the gains to be had from banks or even the post office saving schemes, for that matter, are so meagre that the slightest shock to their income streams can cripple them. This is evident in the astounding 41 per cent saying they are fairly confident of their financial well-being. This sanguineness heightens the risk they run of getting impoverished should their incomes become unstable. Saving for old age appears to be a trend mainly among the educated urbanites. As health services improve, more Indians will end up working late into their old age to earn a living. | | 36%
Indians keep their savings at home instead of investing the money in stocks or putting it in bank | | 81%
of Indian households save; the urban ones have twice the annual surplus (Rs 24,078) compared to the rural (Rs 10,351) | "The survey points to a tremendous need to enhance financial literacy and education for households to do better in achieving lasting financial security."
SUMAN BERY, DIRECTOR-GENERAL, NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH | |
| | 4%
Indians bought an insurance policy in 2006. Awareness of insurance is high but not the interest to invest in one. | | 55%
of affluent rural homes have life insurance compared to 35% in the urban areas | "The survey points to a tremendous need to enhance financial literacy and education for households to do better in achieving lasting financial security."
SUMAN BERY, DIRECTOR-GENERAL, NATIONAL COUNCIL OF APPLIED ECONOMIC RESEARCH | | Index |
