Most salaried individuals make financial decisions in isolations. They do not think about adequately addressing future needs. It is important they look beyond short term goals and start preparing for the future. This is the conclusion drawn by a research conducted by online personal finance service company, ArthaYantra.com. The research was to understand and analyse the personal financial habits of the middle income individuals in India and the effect of such habits on their financial well being in the future.
The survey was conducted among a pool of over 2,000 salaried professionals working across industries, with current base of ArthaYantra’s clientele and over 200 Human Resource professionals across different industries.
Here are the key findings of the research:
Financial readiness for future
Only 6.75% professionals are financially ready to face future challenges. The financial readiness of salaried professionals defines the likelihood of meeting most of their goals in life. It is defined by: Efficiently tracking cash flows, investment planing, comfortable retirement planning, being prepared for unforeseen events in life.
Based on the survey, only 2.43% professionals with a work experience of 1-5 years can be rated high on their future readiness. Only 7.19% with a work experience of 6-10 years are future ready. Only 11.48% of those with a work experience of over 10 years are future ready.
Retirement planning
Based on the current financial habits, only 18.64% can afford to retire at the age of 60. This also means that the probability of extending the retirement age is higher for the rest owing to lack of enough retirement corpus. Even for people who can retire at 60, quality of retirement would be sub-par.
The survey shows that those with work experience of less than 5 years, only 9.29% have started investing in a retirement plan other than provident fund or other such mandatory retirement related options provided by their organisations. Those with work experience of 6-10 years, only 19.23% have planned their retirement and 29.63% of those with work experience of over 10 years started investing for retirement.
Emergency fund
Given that saving money for emergencies does not exist among professionals. They would have to encash their existing investments to fund their emergencies.
As per the survey, 14.22% with a work experience of less than 5 years have an emergency fund which can account for the expenses worth 3 or more than 3 months. Among those with work experience of 6-10 years, only 44.23% have emergency fund for more than their 3 months. Those in 30-45 age bracket, individual faces an average of 3 emergencies and possibility if him/her undergoing financial distress is very high.
Sources of financial advice
Lack of access to quality advice is the prime reason behind individuals making bad financial decisions.
Almost 35% make investments based on the advice of their friend or colleagues. Another 31% take investment decisions based on feedback from family members. Then 13% rely on self research and 16% make investments on advice from or products sold by neighborhood agents. Only 4.50% seek advice from an expert before making an investment.
Most common goals
Creation of emergency fund and retirement fund were given the least priority. Common family aspirations like buying a house or car are rated on priority followed by family needs like child birth, child education and child marriage.
Major tax saving Investments
The survey shows 77.50% stated that insurance is their primary choice as a 80C investment vehicle. When drilled down further, 96% preferred insurance as tax saving investment. Nearly 7% invest in equity-linked saving schemes.
Almost 8% invest in PPF or EPF for tax deduction. Over 76% who invest in PPF or EPF said they took financial advice from colleagues. Only 3.50% invest in NSC and 4% choose fixed deposits for tax deduction. Over 80% of those who invest in NSC get advice from family.
