Finding out how Indians earn, save and spend is a mammoth task. That is exactly what Dr Rajesh Shukla, director of NCAER-CMCR has done in a book titled “How India Earns, Saves and Spends“.
The study explores the connection and impact of urbanization and consumerism on the economy. The revelations the study delivers around personal finance is worth taking a look.
Let us see what the inferences are and how the book makes an attempt at unmasking the real India.
Spending Patterns
The study unveils that a major chunk of money of urban Indians, around 45% is spent on food. Transportation and education comes second and third place with 11% and 8.7% approximately. On the non-routine expenditure, ceremonies take a huge cut while medical emergencies come second.
That explains why investors should pay importance on budgeting to curb the spend on food and transportation and also plan for a emergency fund – these are the three top areas where money is being spent most. Food, transportation and education are non discretionary expenses and cannot be skipped, hence it makes sense to reduce the outgo by careful budgeting.
Investment Avenues
The study shows that most of the Indians still invest in a life insurance policy as the most preferred investment class (around 26.6%). This probably explains why almost every investor will have some form of life insurance policy loaded with him. Now that is a pity – this means that most of us are mixing investments with insurance, the basic purpose of which is protection.
Jewelery comes a tad behind at 13%.
Equity investment is at a mere 7.5% – it is but obvious that investors are not aware of what equity can do for them. Now this isn’t one of the wisest ways to invest.
Investors are keeping cash in banks, around 63% while 23% is at home ! Money lying idle in a bank is a waste – it is being eaten away by a monster called inflation. This amounts to negative earnings ! Investors are better off investing in debt funds to earn some better returns.
As far as saving money is concerned, the urban consumer saves first for emergencies and then for retirement. Saving for the education of children also scores high on their agenda. The saving pattern, in my view, is good. It looks like the right mix for the average Indian. The priorities seem to be right though it can be better.
Where do you spend, save and invest your money ?
All images courtesy Money Today
Good information. Food looks like the most spent area as most of us concentrate on eating out. Not sure why consumer goods is an area of investment though ?
@Rajiv, Good question ! I hope investors are not buying consumer goods as investments – many consumer goods depreciate over time and are liabilities, not assets.
I invest mostly in Fds and MFs. My money is spent on my kids mostly. I invest less than 50% of my money. Is this OK ?
@Shilpi, If you invest less than 50% but a minimum of say 20% to 25% of your net take home, you are OK. Investments into MFs and FDs are dependant on your goals, risk profile and rate of return, among other factors. Happy investing.
@Radhey,
Good one. According to me Indians usually save more but they do not invest wisely hence don’t know how to make money work for them.
Agree with Rakesh. Indians are world famous for saving money but equally bad while investing it. Most of their investments cannot beat inflation. I think that’s one of the reasons despite India being rich, Indians are still poor.