While higher income, educated Indians are financially literate, they aren’t really much better off when it comes to planning their financial futures. This is not due to lack of knowledge, but of initiative
The government’s efforts towards financial inclusion have opened the doors for financial literacy for the disadvantaged lot in our country. Besides having bank accounts, they have been given access to other privileges, so far unknown to them, like pension plans, life insurance and accidental cover -- made available at an annual premium as low as Rs 12.
While the concept of financial security is new to this (lower income) group, their educated counterparts (likely to be more financially literate) aren’t much better when it comes to making sound decisions for their future.
Using data that follows, we argue that the privileged ones are not great financial decision makers. We believe this is not due to lack of knowledge or understanding but a result of not taking initiative.
In a study conducted by AEGON in India (among other countries), most Indians (61 per cent) claimed they had a retirement plan and around 57 per cent believed a better financial future awaits them compared to 31 per cent globally. We’re clearly, an optimistic lot. If only we backed this optimism with concrete action.
We kicked off this exercise by surveying 500 people to get a slightly better understanding of how people think about planning for their retirement. Here’s what they told us:
- In a younger age of group (22-28), 45% people were concerned about saving enough for retirement.
- In the 28-45 age bracket, which ought to be concerned a whole lot more, almost 60% people were concerned about saving for their retirement.
- Overall, almost 20% said they plan to consider getting started planning for their retirement online
- Now, consider a study of our users.
Starting with a sample data set of over 35,000 users of our retirement planning tool, we considered 8,000 that were valid and complete in every aspect. In the first part of this study published in the Mint we took a look at how these 8,000 people spread their expenses across categories. Next, we looked at the savings requirements, in order to fund their retirement.
Further, we looked at how many people chose to take the next step of doing something about it, in terms of starting to build a portfolio or sign up to get started planning for their retirement. The average BigDecisions user has an income of well over Rs 600,000 per annum, is comfortable using technology and is typically, well educated.
One caveat is that, these users might have chosen to use BigDecisions.com for research and understanding purposes, while using their own advisors/banks to act on the results. Having said that, the same conditions exist for different age and customer groups, so the following points aim to bring out these findings:
Table 1: All demographic profiles
|
Age Group |
Rtmt Corpus (Rs Cr) |
Intent to Buy |
Monthly Savings Reqd (Rs) |
|
18-25 |
4.71 |
10.70% |
36,688 |
|
25-30 |
3.60 |
11.60% |
34,408 |
|
30-35 |
3.38 |
9.70% |
43,156 |
|
35-40 |
3.34 |
11.90% |
58,065 |
|
40-45 |
2.79 |
12.80% |
74,018 |
|
45-50 |
2.26 |
16.40% |
113,170 |
|
50-55 |
1.92 |
11.10% |
149,152 |
|
55-60 |
1.39 |
16.20% |
353,624 |
|
60-∞ |
1.13 |
22.20% |
329,987 |
|
Grand Total |
3.17 |
11.80% |
66,113 |
Table 2: Married – Spouse not earning (Single Income)Age Group
|
Rtmt Corpus (Rs Cr) |
Intent to Buy |
Monthly Savings Reqd (Rs) |
|
|
18-25 |
5.95 |
8.80% |
45,128 |
|
25-30 |
3.85 |
12.90% |
35,611 |
|
30-35 |
3.33 |
10.80% |
45,444 |
|
35-40 |
3.36 |
12.20% |
59,991 |
|
40-45 |
2.74 |
11.90% |
77,404 |
|
45-50 |
2.23 |
17.70% |
132,199 |
|
50-55 |
1.87 |
11.90% |
163,890 |
|
55-60 |
1.39 |
17.10% |
382,202 |
|
60-∞ |
1.10 |
29.20% |
462,609 |
|
Grand Total |
3.08 |
12.50% |
78,162 |
Table 3: Married – Spouse Earning (Double Income)
|
|
|
|
|
|
|
|
Age Group |
Rtmt Corpus (Rs Cr) |
Intent to Buy |
Monthly Savings Reqd (Rs) |
|
|
18-25 |
4.92 |
13.30% |
31,184 |
|
|
25-30 |
3.99 |
10.40% |
37,324 |
|
|
30-35 |
3.68 |
10.20% |
41,631 |
|
|
35-40 |
3.54 |
12.80% |
56,356 |
|
|
40-45 |
2.97 |
17.40% |
64,074 |
|
|
45-50 |
2.62 |
17.80% |
68,392 |
|
|
50-55 |
2.43 |
9.80% |
104,714 |
|
|
55-60 |
1.53 |
5.60% |
143,125 |
|
|
60-∞ |
1.09 |
10.00% |
59,629 |
|
|
Grand Total |
3.50 |
12.20% |
51,701 |
Some interesting takeaways:
As
This difference starts to look steep once you cross 40 years of age. For example, look at the savings required in in the age 45-50 category with single income households compared to the younger age groups. Notice the steep jump from Rs 77,000 to over Rs 130,000.
Intention to buy a retirement plan/make plans for retirement, increase radically from age 35 onward, (as our first table shows). This is even more starkly visible in the single earners table, with the percentage going as high as 29% for people 60 and beyond. This climb starts from age 45 on, as realization hits people they haven’t build enough of a corpus for their post retirement years.
The key point is, that if you look at the intention to evaluate next steps to start saving, the percentage of our users increase as they get older and nearing retirement.
In the all important years of 25 to 40, which ought to be the best time to start so that your money gets time to grow, about 10 per cent looked to get started. Whereas this number jumps closer to 20 per cent when people move closer to retirement.
Overall, only about one in ten people chose to get started. This is even more surprising when you look at people who have no one else to depend on, in their old age. Less than 25 per cent of single men and 15 per cent single women looked to get started with their retirement plans.
So, a rather somber message we’re seeing in this is that while we are very optimistic about the future, and know that we need to go about planning for our financial security, not too many people are doing much to get started.
Most asset management and insurance companies tasked with spreading investor awareness seem to consider financial literacy across customer categories, as the biggest issue. But we believe that for higher income, more educated consumers, it is financial inertia that is a much bigger problem. They have no problem understanding that saving and investing regularly and starting early are the best ways to plan their financial futures, yet, they don’t really get down to doing, what needs to be done!
Manish Shah is a co-founder & CEO, BigDecisions.com
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