Personal Finance

Indians as money managers

| Updated on January 24, 2011

Illustration for BL, Manager



Indians are more literate financially than their global peers, but slip up when it comes to action on managing their finances.

We Indians like to rank ourselves among the best in the world at writing software codes or launching space programmes, but how good are we at managing our own money? A study released last week by ING, the leading global financial services group, shows that we aren't as good as we think.

Yes, Indians are more financially literate than their global peers, but slip up when it comes to action on managing their finances — they either postpone decisions or idle their money in savings accounts. These results emerge from the ING Financial Literacy and Consumer Resourcefulness study conducted in collaboration with Epiphany Research in November 2010; it surveyed 5,000 people spread across 10 countries.

At the start of the survey, Indians exuded confidence about their money skills, with a whopping 84 per cent of the respondents claiming they were ‘rather' or ‘very' good at managing money. People in other countries were much more diffident with only 59 per cent claiming this.

But that sentiment changed drastically after Indians were put through tests on financial literacy and how they handled their budget, savings and investments. Once they completed the survey, a whopping 57 per cent of the Indians admitted they weren't ‘stars' at managing money.

We are, however, good at acing tests. So the majority of Indian respondents got the right answers to trick questions like, “Tom buys a financial product with which he loans money to a company. What product did Tom buy?” or “Is a 1 per cent return compounded on a monthly basis better than 12 per cent compounded yearly?” (Answers: bond and yes, respectively).

The study showed that 55 per cent of the Indians surveyed had basic financial literacy, ranking 2{+n}{+d} among 10 countries.

Indians showed great keenness in wanting to become better at managing their finances. However, they seemed to run into a roadblock when it came to actual action.

Between 30 and 40 per cent of the people surveyed said they were prevented from managing their money better as: a) They needed help but were clueless where to get it b) They tended to postpone decisions and c) They didn't know where to start.

The survey showed that Indians manage their household budget and spending quite meticulously. Nearly two-thirds of the people said that they carefully tracked their finances and made financial decisions only after research.

Indians were also very likely to make a monthly household budget (84 per cent had one) and stay within it as well (87 per cent).

The survey also showed Indians to be much more comfortably placed with respect to their finances than most global counterparts. For one, only 13 per cent of the Indians said they did not have any cash stashed away for emergencies (a third of the global respondents didn't have any such fund).

Two, Indians were able to spare 20 per cent of their monthly income towards savings, against the global average of 12 per cent. Three, quite a few Indian respondents (41 per cent) felt they weren't likely to run out of money at the end of the month. Over half said they could fall back on their nest-egg even if they did.

Having firmly established that Indians are big savers, where do they tend to put all that money? Well, this is where they seemed to take a rather passive approach.

While most Indian respondents (95 per cent) owned a savings account and life insurance (84 per cent), far fewer had a pension plan (43 per cent) or an investment product (58 per cent). Life insurance probably figures there because insurance agents are thick on the ground. A full 20 per cent of the respondents admitted to not saving for retirement.

So to draw our own interpretations from this survey, here are a few messages for us Indians:

You may not be as good at managing your money as you think you are.

Get better at money by shaking off that inertia. Seek advice and act on it.

Don't let a rising pay check and big bank balance lull you into a false sense of security about the long term. Remember, you have to contend with much higher inflation than your cousin in the US. Start moving money out of your savings account into investment options that can earn more.

Think seriously about retirement.

Published on January 24, 2011

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