First Life Freedom Index shows consumers are making financial choices on a shaky foundation
The number of rich may be going up in India, but urban consumers are still not sure whether their financial plans are adequate to allow them spend their lives in dignity. This is one of the findings of a survey by HDFC Life Insurance, in association with ValueNotes, a provider of market intelligence and research.
The survey frames an Adequacy Index that reflects the level of confidence in the adequacy of financial plans for meeting the desired standard of living. The index reveals this sense of inadequacy among Indians.
| NOT FINANCIALLY FREE |
| * Customers are making inappropriate financial choices |
| * Not planning actively for unexpected events and external forces |
| * Sense of liberty inflated |
| * Tier-II cities more free than Tier-1 |
| * Consumers rely more on social network for financial planning advice |
| * Child’s education a top priority across the board |
Also, the country’s first Life Freedom Index, which will serve as the primary indicator of how truly free an individual, is from a financial perspective. It shows urban consumers are making financial choices on a shaky foundation. What’s worse is that the degree of freedom that consumers perceive themselves to have, appears to be overestimated on a rather contrasting backdrop of low financial awareness — either on account of limited awareness of the risks or on account of low product knowledge. Consumers are chalking out financial plans, despite limited knowledge about financial goals and various investment options available.
Urban consumers do not consider external economic factors such as inflation, government regulations and interest rates important enough to be accounted in financial plans. It is surprising, says the survey, they do not acknowledge these external factors, given the frequent interest rate increases, rising inflation and economic downswings could significantly impact their financial needs.
They also do not appear to be fully aware of planning for events which can have a significant financial impact, whether it be unexpected (death, accident or critical illness) or expected events (children’s education, retirement and dependent’s marriage, etc).
While market-linked (stock, mutual fund and derivative, etc) and fixed income (time deposit, bond and debenture, etc) instruments are given similar weights, albeit not very high, insurance products (term, life and medical insurance, and unit-linked insurance policies, etc.) are on top of the list for urban consumers.
But there are some good news, as well. Urban consumers across all segments have realised the necessity of financial planning and are already chalking out financial plans and are generally disciplined in adhering to these. However, on the flip side, these plans lack comprehensiveness and need to be realigned with their desired financial goals.
The survey says there is a higher sense of financial freedom among consumers living in Tier-II cities.
