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Covid has exposed holes in handling of personal finances, says a BL Portfolio survey

Parvatha Vardhini C BL Research Bureau | Updated on May 16, 2021

The pandemic has taught many money management lessons. Here are key takeaways from the survey

As the second wave of the pandemic rages on, one thing is sure for those of us who survive this fury — our lives will inevitably be divided into pre- and post-pandemic era. Apart from the lasting effects of this outbreak on our mental and emotional state — for some of us, unfortunately, on our physical state too — Covid has also permanently altered the way we approach our savings and spends. This catastrophe has exposed the holes in our money management skills, and also taught us many financial lessons for the future, reveals a survey by BusinessLine Portfolio.

Conducted online for a period of one week from May 6 to May 12, 2021, and promoted through our website and social media, the survey drew 408 responses from the young, the middle-aged and the retired as well as the salaried and the self-employed.

Respondents were asked five questions. Multiple responses were allowed for each question.

Here are the key takeaways and the collective wisdom we gain from this survey.

Where it hurt

It hurts the most when your loved ones fall sick and the financial strain to ensure that they get the best medical care makes the hurt a double whammy. This blow, at a time when a large section of the working population has witnessed pay cuts and job losses too, adds to the pressure. As if these were not enough, work from home and focus on hygiene and wellness have simultaneously increased routine monthly expenses for many families.

The hurt can be quite deep, reveals the survey. Out of the 271 salaried respondents, 124 or almost one in every two people reported either a pay cut or a job loss. The situation is similar for the self-employed (37 out of 71 respondents).

A quarter of the respondents had to incur home care and/or hospitalisation expenses for their family during this period. In some cases, the financial burden has been huge. Take Mridula Krishna* from Chennai, who is middle-aged, is self-employed and has also faced a pay cut over the last year. Mridula’ s mother, aged 78, unfortunately contracted Covid about a year ago. What followed was an unexpected 65-day hospitalisation and a huge bill of ₹34 lakh.

“Starting with ₹40,000 a day, the bill sometimes moved up to over ₹1 lakh a day when she was on ventilator and when more consultants would see her”, says Mridula. “When she was no longer dependent on ventilator, we decided to bring her back home, though the hospital insisted that she be there for another one or two weeks. We told them that we didn’t have any more money to spend”, she adds. Till date, Mridula runs a hospital-like set-up at home, complete with fowler bed, oxygen concentrator, suction machine and 24*7 critical care nursing for her mother, who has not yet fully recovered. This has added ₹1-1.5 lakh every month to her expenses now.

While 60-something Chandrakanth* (self-employed) was fortunate to not have any medical issues, his dealership (trading) business for consumer durables in a tier-2 city in Tamil Nadu is going through tough times. His turnover business last fiscal was reduced to nearly half of what it was prior to the Covid outbreak. Fixed costs such as salaries for staff, rent for the showroom premises as well as interest on working capital loans are a significant burden now. He has decided to cut down the showroom size to reduce his rent outgo and is also working on bringing down borrowings. Chandrakanth illustrates what is perhaps the story of most small business owners, after the pandemic.

How they managed

A whopping 75 per cent of the respondents are making do with the least in such times to sail through rough waters — practise thrift by cutting down on unnecessary expenses. However, be it hospitalisation, pay cut/job loss or higher spends, only 36.5 per cent of the respondents seem to have had emergency funds as one of the means to fight a crisis. Among the 102 people who had hospitalisation/home care expenses, only 62 people had a corpus for contingencies.

Usually, an emergency fund of at least six months’ expenses is recommended to be held such that it can be easily converted into cash. This money should be besides your regular investments for the long term, planned goals such as retirement or children’s education.

Mridula is among the more systematic individuals and she, along with her dad, did have a few lakhs for contingencies. Beyond that, she managed to meet much of her mother’s hospitalisation expenses by selling part of her long-term debt portfolio; 17-20 per cent of the respondents also sold FD, bonds and post-office savings along with stocks and mutual funds.

“Every few days, the hospital would take a lump sum payment in advance and then adjust it for future expenses. Hence, I would anticipate a certain demand by the hospital and sell some of my investments some days in advance so that the amount would reach my bank account in time for the payment”, says Mridula.

In contrast, Vijay Varma, a 20-something Cost Accountant from Visakhapatnam, did not have any earmarked emergency corpus. He used his credit card, instead. “My father works in a PSU and was admitted to a hospital with which his employer did not have a tie-up. To meet the expenses of about ₹2.5 lakh, selling stocks was something I thought of. But he was admitted on a Friday evening. I could place a request to sell the stocks only the following Monday and the funds got credited on Wednesday or Thursday. Hence, I found my credit card quite useful in this scenario as I could pay right away and mobilise the funds later”, says Vijay; 75 others used credit card as a means to meet unforeseen expenses, shows the survey.

Vijay has since obtained one more credit card, thanks to its handiness. However, this can be a double-edged sword and he understands that he must be judicious in its use. Hence, he plans to open a savings bank (SB) account with a bank that offers higher interest rate for SB accounts, to keep some ready cash for emergencies. He can probably hold up to ₹5 lakh here, which is the deposit insurance cover limit for each bank.

Many a slip

(Question: Did you face any problems, delays or losses in liquidating investments or making health insurance claim? Elaborate in a line or two)

With hospitalisation/medical expenses taking centre stage, affected participants felt short-changed on a few things. Vighna Vinodh, an IT professional from Bengaluru, is eligible for a corporate medical cover. When she fell sick, she was under home quarantine and consulted a doctor on phone. She took the help of her security guard or a volunteer to buy medicines from a nearby pharmacy.

“The need for prescription and bill for every reimbursement turned out to be quite frustrating. You never think of paperwork when you are ill. But because of this, I had to give up claiming a few thousand rupees worth of medicines as also the spend on pulse oximeter.” she says. Vighna feels that norms could be eased during the pandemic by making reimbursements up to a certain threshold automatic, on submission of test/scan reports.

In almost all cases, patients don’t end up in their insurer’s networked hospitals. This implies the absence of ‘cashless’ facility. While some of them did not face any issues with reimbursement procedures and time lines, some did have trouble, with the process not being entirely online. A few trips to the hospital later on to obtain signature, seal, etc, and to the insurer, were required, they lament.

Another grievance voiced by a few participants is that, with so many limits and sub limits and disallowances, though the sum insured was high, the actual insurance amount received was way behind what was spent. Mridula’s parents, for instance, are covered under the CHSS (Contributory Health Service Scheme) run by the Central government, which provides cover for hospitalisation. Her mother was admitted into a non-network hospital and Mridula got only ₹11 lakh as reimbursement as against the over ₹30 lakh spent. “The hospital never provided bills”, says one survey participant. “Getting a break-up of the bill is a challenge” says another. These factors also affect the insurance amount received.

Those who tried to liquidate investments too met with some roadblocks. It took 15 days for Bhaskar Rachuri* , whose family member was hospitalised, for EPF withdrawal. Although the process was online, issues such as Aadhaar not being linked with UAN, non-activation of UAN, and non-updation of bank account details were among common reasons for the delay for some EPF subscribers.

Giridhar Deshmukh*, who had to take a pay cut, says that he had saved emergency money in some Franklin Templeton debt funds. It did not help that the funds were stuck.

A change for the better

The pandemic experience indeed has prompted everyone to take a hard look at their savings pattern. 65 per cent of those surveyed say they have changed the way they save. Almost 30 per cent participants are saving more than what they used to, before Covid. Salaried folks have gone all out, enhancing health cover (71/271 salaried participants) as well as life cover (33/271). Fifty of them are willing to take higher risk for higher return, so that they get a bigger corpus for future expenses.

In contrast, out of the 66 retired folks, 65 of them don’t want to take high risk for higher return, and rightly so. Ten of them enhanced health insurance cover for self and family.

Among the self-employed, participants such as Koshy* and Lokesh Chaudhary* who took pay cuts, were willing to take higher risk for higher returns. Koshy, for instance, says he sold stocks and mutual funds to tide over his difficulties in the last year and believes that these investments will supplement his needs in future too.

Lessons for the future

(Question: What is the most important money lesson you have learnt from the pandemic? Elaborate in a line or two)

‘Set aside emergency funds’ is one lesson that resonates across age groups and work profiles. Some think an emergency corpus of six months’ expenses would suffice, while some others suggest a cover for 1-2 years’ expenses. The most conservative recommend holding this in a savings bank account itself while the seniors vouch for fixed deposits. One can consider flexi-deposit and sweep-deposit options offered by most banks. Here, the amounts will be in a deposit, earning higher than SB a/c interest, as long as you don’t need the funds. When the need arises, the sums can be swept back to your SB s/c seamlessly even as you swipe your debit card or withdraw from an ATM.

The younger people swear by stocks or mutual funds for liquidity. One must do adequate research before choosing these options and should also actively monitor one’s portfolio. A few participants disclosed that their stock market investments ended up in losses when they actually needed to withdraw the money.

The self-employed, who have taken a harder knock, have a common refrain — ‘Always have alternative sources of income’. A few participants say that they thought ‘rent’ was a reliable alternate income source, but the pandemic proved otherwise.

A third lesson, according to some, is to have limited or no debt. Sudha Narain* from Delhi says, “I have liquidated savings to foreclose loans (home and car). I feel it is important for me to be debt-free so that my child does not suffer any liabilities in case something happens to me”. Dhiren Shah* says he will always remember this adage — ‘Borrow money when you don’t need it’. It is noteworthy that about 11.5 per cent of our respondents have resorted to informal loans, personal loans or gold loans to tide over the pandemic.

For seniors who had a certain amount of risk appetite earlier, the pandemic has taught them to play safe, though many rue the lack of inflation-beating returns. Says Vani Rao* from Chennai, “As the pandemic hit at the same time as retirement, a lot of thought had to go into how to judiciously invest my retirement funds for lowest risk and optimal gain”.

To sum up, money is a big deciding factor for all our needs and wants, and it does pay to manage it wisely.

But at the end of the day, a survey participant is bang-on when he says, “Even if you have money today, you cannot buy health and oxygen. Money shouldn’t be the indicator of ‘status’ in future. It should rather be good health, food and how many trees you have planted.”

*Either name or surname has been changed to protect identity

    Survey Highlights

  • One in every two salaried or self-employed person has faced either a pay cut or a job loss

  • A quarter of the respondents had to incur home care and/or hospitalisation expenses for self/ family

  • Only 36.5 per cent had emergency funds as one of the avenues to tide over a financial crisis

  • Nearly two-thirds of the participants are spending more on essentials, hygiene and healthcare

  • Three-fourths of the respondents have cut down discretionary or unnecessary expenses

  • 30 per cent of the folks are saving more than what they used to, before Covid

  • The younger savers are willing to take high risk for high returns , so as to build a bigger corpus

  • Enhancing health insurance cover has been a priority across salaried, self-employed and retired

  • Inflated hospital bills, lower reimbursements and some delays in claim settlement are a concern

  • Setting aside earmarked emergency funds, limiting debt and building alternate sources of income are important lessons

Published on May 15, 2021

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