 "Lending, banks, credit, loans, cash, income, wage, earning")
A staggering 77 per cent of low-income households in India reported that they had witnessed no increase in their household incomes over the last five years, a study by consulting firm Redseer found. Focusing on middle and low income households, the study looked at the financial behaviours and knowledge of respondents and a severe lack of financial literacy.
The study delved into income trends, spending habits, savings patterns, and how these households manage income-expenditure deficits. Respondents included a mix of professions, including government and private sector employees, business owners, daily wage workers, and agricultural workers. The average age of respondents was 42 years from metropolitan, Tier-I, and Tier II+ cities.
Here are the key findings of the study:
No increase in household income over five years
A significant 77 per cent of low-income households reported no increase in income over the past five years. Any minor increases were nullified by rising inflation in essential areas such as food, housing, healthcare, and transportation. For context, the inflation rate in India has increased on average by 5.82 per cent between 2019 and 2024.
Many middle and low income households have individuals who work in informal or unregulated sectors with irregular income streams, which further leads to financial instability.
Additionally, most households still have little or limited access to formal banking and financial services exacerbating their challenges, hindering efficient saving and investment.
Low to middle income households save less than 20 per cent income
Low, emerging, and middle-income households save less than 20 per cent of their income, compared to the national average of 30 per cent.
Most savings for lower and middle-income households are allocated to essential needs like food, medical expenses, and housing costs.
Traditional saving methods such as bank savings, fixed deposits, and post office schemes are preferred by 81 per cent of middle-income, 78 per cent of emerging-middle-income, and 79 per cent of low-income households, over riskier investments like stocks and mutual funds.
Two-thirds households rely on friends/family for financial support
About two-thirds or 65 per cent of households rely on friends and family for financial support, while 6 per cent deplete their savings or sell/mortgage assets to cover expenses. When expenses exceed income, one in four (around 24 per cent) individuals with zero savings resort to formal lending options such as micro-credits, bank loans, and credit cards, the study found.
However, a noticeable increase in the adoption of formal lending options among low, emerging, and middle-income households, was observed. This indicates significant growth potential in this sector.
Medical emergencies leading factor in depletion of saving
Medical emergencies were cited as a major factor for savings depletion for 30 per cent of households. This was followed by children’s education expenses, which contribute to the depletion of savings for 22 per cent of households. Other significant factors included marriage costs, job losses, and debt repayments.
Commenting on the survey findings, Jasbir S Juneja, partner at Redseer Strategy Consultants said, “Effective personal finance management is vital for the stability and growth of any household... The findings highlight the urgent need for improved financial products and services. Access to affordable health insurance, favourable educational loans, and comprehensive financial planning services could significantly reduce financial stress for families. Furthermore, promoting financial literacy and providing emergency financial solutions can help households develop more resilient financial strategies.”
