A financially secure country cannot be built on the base of a small proportion of financially secure households
India saves but does not invest. India saves for long-term goals such as emergencies, education and old age, but does not invest in long-term instruments. Financial vulnerability is not limited to poor households; even prosperous households are financially vulnerable as ? a majority ? do not plan their future, nor do they save long-term
Less than 25 per cent of households have life insurance
Shri Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, Government of India today released the book ?How India Earns, Spends and Saves?. The book, a joint publication of the National Council of Applied Economic Research (NCAER), New Delhi and Max New York Life is a compilation of results from the Max New York Life-NCAER India Financial Protection Survey, a major survey conducted by the NCAER with the support of Max New York Life.
Understanding household saving is of importance for several reasons. At the national level, household savings provide the main source of investment financing both for government and for the corporate sector. Rapid GDP growth leads to rising household income and higher saving rates. This is true for India as it has been elsewhere in Asia. But for the individual household, saving is done in order to achieve specific short-term and long-term goals, notably financial security. Accordingly, the main goal of the Max New York Life-NCAER survey is to gain deeper insight into the motives for financial saving, the degree of financial security (or vulnerability) of Indian households, and the degree of sophistication that households bring to bear in their saving and investment decisions.
Indian households ? wise savers but unwise investors
Presenting the key findings of the study, Dr Rajesh Shukla, principal author of the report and Senior Fellow at NCAER (National Council for Applied Economic Research), said that Indian households have a strong saving habit. While income level is an important factor in influencing the saving patterns of households, variations in savings behaviour are equally decided by education level and occupation.
81% of Indians save; the average household savings are Rs. 16,139
— The top income-quintile saves 44% of income
— Graduate households save 30% of income; non-graduate families an average of 18%
— Salaried earners save around 7% of income; labourer households save about 4%
The surprising finding of the survey is that even poor households save despite being in debt. The simultaneous exercise of unprofitable savings and high-interest debt only serves to aggravate their financial vulnerability.
Commenting on the saving habits of Indian households, Mr Suman Bery, Director-General, NCAER, said: ?Financial security is an essential element of inclusive growth. In a more dynamic labour market and in the absence of established state-provided mechanisms of social security, households in India increasingly need to look to financial instruments to meet their asset accumulation and old-age goals. Yet the pattern of financial asset accumulation is relatively primitive indicating a need for much greater awareness of the role that specific financial instruments can play in reducing financial vulnerability and enhancing financial security?.
Financial literacy for financially secure households
Indian households keep 65 per cent of their savings in liquid assets like bank or post office deposits and cash at home, invest 23 per cent in physical investments like real estate and gold and only 12 per cent in financial instruments. Life insurance is among the most popular financial instruments.
— 36% of savings are kept as cash at home, 50% in banks, 5% in post office accounts and 3% in cooperative societies
— 58% labourers and 20% salary earners said that their first choice for depositing savings would be to keep it at home
The study found 96 per cent of the households cannot survive beyond a year on their current savings in case of loss of income due to some eventuality such as death or disability of the chief earner. Yet a majority expressed confidence in their financial well-being. Lack of awareness of their financial preparedness for income loss predicated their ignorance of the more viable channels for long-term investment.
Commenting on the solutions for financial protection to meet both long-term financial needs and loss of main source of income, Mr Analjit Singh, Chairman, Max India Ltd., said: ?There is an urgent need for a financial literacy programme to make people understand their options and financial needs at different life stages. Life insurance is one of the most important financial instruments for financial security. In the rapidly changing Indian economic and social environment, life insurance products sold appropriately to the consumers not only create awareness of the changing reality but also help reduce their vulnerability and overall improve the long-term financial security of the individual, the family and thereby the nation.?
Mr Gary Bennett, Managing Director & CEO, Max New York Life Insurance Co. Ltd., added: ?The concept of need-based selling can significantly improve financial literacy. At Max New York Life, for example, we train our agent advisors beyond the minimum training hours stipulated by IRDS to understand the financial needs of each individual and household and provide solutions to meet those needs. The advisors, in turn, create financial literacy among customers, which enable them to understand the unique role of life insurance as a tool for financial protection and long-term wealth creation.?
The Survey found that though 78 per cent of the households are aware of life insurance, only 24 per cent households own a life insurance policy. The ownership is 38 per cent among urban households but a low 19 per cent among rural households.
The Survey covered 342 towns and almost 2,000 villages across 250 districts and 2,255 wards. The sample size included 63,016 households, equally divided between rural and urban areas.
About Max New York Life Insurance Co. Ltd. (www.maxnewyorklife.com)
Max New York Life, a joint venture between Max India Ltd. and New York Life, a Fortune 100 company, is one of India?s leading private life insurance companies. The Company offers both individual and group life insurance solutions. It has established a wide distribution network with 229 offices across 149 cities in India. Through its wide network of highly competent life insurance agent advisors and flexible product solutions, Max New York life is creating a partnership for life with its customers in India.
About NCAER
The National Council of Applied Economic Research (NCAER) was founded in 1956 as an independent institution to give support to government and non-government organisations and the private sector in empirical economic research. The institution?s research covers five broad areas: Agriculture, rural development and resource management; Poverty, human development and gender; Industry, science and technology and infrastructure; Growth, trade and economic adjustment; and Surveys and general economics. The Council?s research focuses on the progress of India?s economic reform programme and its impact on agriculture, industry and human development.
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