4 ways Covid-19 pandemic has changed our money habits

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Updated: Feb 10, 2021 2:33 PM

Covid-19 has changed many aspects of our lives. Here is a look at a couple of remarkable changes in money habits brought about by the pandemic.

The rapid adoption of contactless payment channels has been one of the most significant lifestyle changes brought about by the pandemic.

Have you ever wondered why more and more people are buying insurance nowadays or why a large number of people are willing to buy their own home rather than live on rent? The Covid-19 pandemic has, in fact, literally changed our world in more ways than we could imagine. It has impacted the way we think, work, travel (or don’t), study, communicate and spend money.

Here we are taking a look at how the pandemic has changed some of our money habits which will impact our lives going ahead.

1. Rapid adoption of contactless payment channels

The rapid adoption of contactless payment channels has been one of the most significant lifestyle changes brought about by the pandemic. True, digital payments were getting popular much before the outbreak of the feared disease. However, some of its channels, like UPI, have witnessed explosive growth in the recent months owing to the fast, safe, convenient and contactless nature of the transactions. In fact, according to the National Payments Corporation of India data, UPI transactions grew to 2.21 billion in November last compared to 1.22 billion in November 2019 while the total transactions processed amounted to Rs 3,90,999 crore from Rs 1,89,229 crore 12 months back.

This is a welcome trend which is likely to continue in the future as well as more and more people would gradually move away from cash transactions. This rapid growth has also created some information gap which has been exploited by scamsters. As such, people should get sensitized about how to use these sophisticated channels and exercise maximum caution to minimise losses owing to frauds.

That being said, the pandemic months witnessed a fall in credit and debit card usage primarily owing to the atmosphere of economic uncertainty which decreased consumption. However, as things have slowly started to normalise, card transactions are reaching pre-Covid levels. According to the RBI data, banks reported credit card transactions (at POS) worth Rs 50,139.67 crore in September 2020 compared to Rs 50,696.50 crore in March while the total number of outstanding credit cards at the end of September 2020 stood at 58.69 million.

“It will be worthwhile to point out here that credit cards, when used smartly and responsibly, could be the most rewarding payment channel available in the market. And with the pandemic further enabling contactless application and use of credit cards, more and more people are likely to benefit from its features in the near future. Credit cards incentivise regular spends with benefits like cashback and reward points that help them save more, especially when the card benefits are aligned with their unique spending patterns and monthly budget for card spends. However, the total outstanding must be cleared in time every month to avoid interest charges that could offset any benefits earned and adversely impact the credit score of the user,” says Adhil Shetty, CEO, BankBazaar.com.

2. Growing enthusiasm to invest in direct equities

The pandemic dealt a heavy blow to the Indian economy which was marked by widespread income losses and pay-cuts. In such an uncertain situation, countless people were forced to rethink about their financial future. The ensuing lockdowns also meant people had more time in hand to reprioritise their financial objectives and fewer options to spend on discretionary things. While many took this as an opportunity to boost their emergency cash reserves, others purchased or topped-up life and medical insurance policies to secure their family’s financial health in the face of an unexpected crisis.

Another interesting trend was seen in many people using their free time to sign up for direct equity investments to grow their wealth taking advantage of the high volatility in the markets which allowed discounted investment opportunities that could generate high returns. In fact, Indian brokerages witnessed 24 lakh new demat accounts just between April and June last year.

Smart and disciplined investments lie at the heart of wealth creation, and the growing enthusiasm over stock market investments is surely exciting as equities have the potential to generate great returns. However, they are also highly risky in nature which requires expertise and a research-oriented approach to reap rich dividends and minimise the chances of incurring heavy losses. Hence, amateur investors must devote time and effort to understand the nitty-gritty of stock investments before taking the plunge. This includes getting clarity about the various cost of investments and understanding fundamental and technical analysis to able to make independent and informed investment decisions that are completely in line with their risk appetite, financial goals, liquidity and portfolio diversification requirements.

So, “before embarking upon your equities investment journey, ensure you have the necessary know-how by reading books and articles or enrolling for an online course. If you don’t possess the time and expertise to invest directly in stocks but don’t want to miss out on the investment opportunities either, you’ll be well-advised to consider investing in top-rated equity mutual funds instead where professional fund managers make critical investment decisions on behalf of investors to generate high returns, albeit with medium to high risk. You may get in touch with a certified investment advisor to help you make the right fund choices according to your returns expectations and risk appetite,” advises Shetty.

3. Homeownership gains preference over renting

COVID-19 has polarized opinions on real estate like never before. As before, pro-renting advocates emphasize the arguments of flexibility, freedom of choice and reduced financial commitment. In the current time, they add that renting is seen as the choice only for those who have lost their jobs or are in danger of doing so.

More than anything, the security associated with owning a physical asset during a coronavirus-like crisis coupled with rising aversion to high-risk investments is giving rise to increased demand for residential real estate buy over renting.

In another trend noticed during Covid-19, many long-standing tenants now prefer to buy a home over renting. The key factor determining this change was the fact that countless landlords/owners were asking their tenants to vacate the property. This prompted affected tenants who had the financial wherewithal to consider buying their own homes. This trend was especially prevalent in the IT hubs Pune and Bangalore, and even in MMR.

Additionally, many tenants are increasingly seeing monthly rental outgo as a pure expense with further benefits. Paying EMIs as SIPs to build non-volatile asset such as real estate makes a lot more sense to them. They are further encouraged by the cheaper home loan interest rates, which currently average between 6.85% and 7.5%. Once the present uncertainties such as pay cuts and even potential job loss are resolved, they would prefer to buy homes.

“The rent-everything mindset of the Ola-Uber generation of millennials is also giving way in the post COVID-19 world. Homeownership has gained a lot of positive connotations for them in the current times. ANAROCK’s consumer sentiment survey conducted during the lockdown confirmed that millennials are, in fact, key housing demand drivers now. The prevailing uncertainties, stock market volatility, recent-past financial sector incidents and travel bans have brought about a change in the way millennials think. Out of the total participants in the sentiment survey who were in favour of real estate as an investment option, 55% were aged between 25 and 35 years – and 68% are end-users. In the previous edition of this survey, only 42% were in this age bracket,” says Prashant Thakur, Director & Head – Research, ANAROCK Property Consultants.

4. More people buy insurance

One recent change in consumer behaviour has been that more and more people have started buying insurance – both life and health – post the spread of Covid-19. For instance, the pandemic has made everyone think about their protection net. Millennials between the age group of 22-35 years have better assessment of their protection needs, when it comes to buying term covers which shields them adequately. As per data by Policybazaar, there has been a 40% Y-o-Y increase in term insurance buying by the millennial generation. Data indicates that the proportion of term policies bought by millennials with sum assured of Rs 50 lakh and beyond has more than doubled in the past 5 years, surging from 20% to 42%. Meanwhile, the Rs 50+ lakh cover has today become the new mark for millennials, as nearly 30% of them are going for this sum assured now.

“The data clearly depicts how millennials today have prioritized purchasing a bigger coverage to protect their family & dependents from any uncertainties. The latest trend of shifting preference towards buying policies with a higher sum assured is in sharp contrast to the millennial buying trends five years back, when Rs 15 lakh and Rs 20 lakh were the most sought-after term cover marks. Similarly, policies bought by salaried individuals hold the largest share of 75%. However, we are also experiencing an inclined growth in self-employed proportion i.e. 25% in 2020 viz a viz 20% in 2019. The changing trend clearly establishes how millennials today are wary of the risks and hence better understand the importance of a safety net,” says Tarun Mathur, CBO-Policybazaar.com.

So far as health insurance is concerned, various studies have also pointed out how people are increasingly turning towards health insurance due to the pandemic. There are three reasons for this. In the first place, India is an under-insured country, and the percentage of people having adequate insurance cover is small. The onslaught of the pandemic made people realise the extent of financial hardship a sudden illness can cause, both in the short term and in the long term. This has popularised the idea of having a medical insurance that can take care of the financial aspects of medical emergencies for oneself and one’s families.

“A large number of Indians also predominantly work and live in cities and towns away from their home towns, at times leaving behind families comprising older parents and young children. So, the pandemic also brought out the helplessness of people who were unable to arrange medical care for their families because they weren’t physically present. This is when the smaller and often overlooked aspect of medical insurance, such as emergency services, home care, etc., became more significant, and the demand for such services covered by medical insurance peaked,” says Adhil Shetty, CEO, BankBazaar.com.

The IRDAI has also done its bit in making health insurance more accessible. For instance, not only was COVID-19 treatment mandatorily covered under existing medical insurance policies, IRDAI also directed insurance companies to create targeted low-price products exclusively covering the pandemic, essentially meant for people without any existing medical cover. This ensured that people were covered for the treatment expenses if they were ill with COVID-19 at a very low cost. This was a big step in introducing medical insurance to the uninsured.

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