The Hindu Business Line : Indians’ optimism on financial security, risks misplaced: Study

New Delhi, Feb. 7 Almost 54 per cent of households in India feel that they are financially secure, though a survey has found that around 96 per cent of the houses cannot survive beyond a year on their current savings in case of loss of income due to some eventuality.

“Financially at risk urban Indians appear to be even more optimistic than their rural counterparts. This indicates that Indians do not take a long-term view for their financial security and, hence, their optimism is misplaced. There is also a pressing need for financial literacy for better understanding of their financial risks,” the survey done by Max New York Life and the National Council for Applied Economic Research (NCAER) has said.

The survey also said that an average city household saves Rs 26,762 per year, almost double the amount saved by its counterparts in hinterlands. It also pointed out the income disparity between urban and rural areas since households in urban areas earn 85 per cent more than the rural houses.

“Expenses of urban households are substantially higher at Rs 69,065 per annum than Rs 40,309 per annum in rural areas,” the study added. In absolute terms, the study pointed out that the income of an urban household was Rs 95,827 per annum in 2004-05 against Rs 51,922 per annum in hinterlands.

Noting that 81 per cent of Indian households save for the future, it said that while the income level is an important factor in influencing the saving patterns of households, variations in the savings behaviour were decided by education levels and occupation.

According to the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia, who released the report, contractual saving should be encouraged by making it a default option. He added that people should be given the option to opt out of the saving obligation.

“NCAER should conduct such surveys at regular intervals to help the Government and industry understand the changes in income trends which are not captured by National Sample Survey,” he said.

On the investment front, the survey said, 36 per cent of households prefer to keep their findings at home and more than half the households (51 per cent) prefer to keep the savings in bank deposits. “Households opting for post-office deposits account for five per cent, while only two per cent opt for purchasing insurance policies,” it noted.

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