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Page 1: Personal Financial Planner

CCopyright 2012Cwww.arthayantra.com

Personal Finance Habits of Salaried Professionals

in India

ArthaYantraA CFO FOR EVERYONE

Page 2: Personal Financial Planner

Table of Contents

CCopyright 2012Cwww.arthayantra.com

CCopyright 2012Cwww.arthayantra.com

Summary 4

1. Introduction 7

2. Research Methodology 8

3. Findings 9 3.1 Retirement Planning 10

3.2 Do you have enough savings to counter any emergencies? 11

3.3 How frequently do you keep track of your expenses 13

3.4 How are the financial decisions made? 14

3.5 How much do you invest in section 80C 15

3.6 Major tax saving Investments 17

3.7 Most common goals 19

3.8 Personal Finance Readiness 21

3.9 View of Professionals and HR on Personal Finance 22 4. Reasons for current Financial State of the Salaried Professionals 23

5. Conclusion 25

Page 3: Personal Financial Planner

Table of Figures

CCopyright 2012Cwww.arthayantra.com

CCopyright 2012Cwww.arthayantra.com

Figure 1: Distribution of Professionals considered for the research

Figure 2: Retirement Planning Status of Entry Level Professionals

Figure 3: Retirement Planning Status of Mid – Level Professionals

Figure 4: Retirement Planning Status of Senior Level Professionals

Figure 5: Emergency Fund Status of Entry Level Professionals

Figure 6: Emergency Fund Status of Mid – Level Professionals

Figure 7: Emergency Fund Status of Senior Level Professionals

Figure 8: Budgeting Frequency of Professionals

Figure 9: Sources of financial advice for Professionals

Figure 10: Distribution of amount being invested in section 80C by

professionals with an annual income of INR 2 - 5 lakhs

Figure 11: Distribution of amount being invested in section 80C by

professionals with an annual income of INR 5 - 10 lakhs

Figure 12: Distribution of amount being invested in section 80C by

professionals with an annual income of above INR 10 lakhs

Figure 13: Distribution of different kinds of tax saving investments being

made by Professionals.

Figure 14: Most common goals of Entry Level Professionals

Figure 15: Most common goals of Mid – Level Professionals

Figure 16: Most common goals of Entry Level Professionals

Figure 17: Personal Finance readiness of the Professionals

Figure 18: Salaried Professionals view on Financial Education as work

place benefit

Figure 19: HR professionals view on Financial education on work place

benefit

Page 4: Personal Financial Planner

Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.com

Summary :

The research aims to understand and analyze the personal finance habits of the middle

income professionals in India. Their financial decisions today would determine their future

financial strength. The study was conducted on over 2000 salaried professionals. The

professionals participated in the study were classified as:

· Entry – level Professionals : Less than 6 years of work experience

· Mid – level Professionals : 6 -10 years of work experience

· Senior – level Professionals : More than 10 years of work experience.

The research has been conducted on various aspects of personal finance. Summary of

each aspect is shown below.

Are you preparing yourself for retirement? :

Based on the current personal finance habits of the professionals, 91 % cannot afford to

retire at the age of 60. The probability of extending the retirement age is higher for such

professionals owing to lack of enough retirement corpuses.

Only a tenth of Entry Level Professionals have started investing in a retirement plan. Among

the Mid – Level Professionals, only 20% have an investment plan for their retirement. More

than half the Senior Level Professionals 71% haven't yet started investing for retirement.

Do you have enough savings to counter any emergencies? :

The practice of keeping away money dedicated only for emergencies does not exist in

large portion of the population. An emergency fund should account for 3-6 months of

expenses. In the segment of Entry Level professionals, 58% do not have a fund set aside for

emergencies where as 28% have savings equivalent to 1 – 2 months of their expenses.

Among the Mid – Level Professionals, 42.31% do not hold a emergency fund where as

19.23% hold savings which can fund their expenses for 1 – 2 months. One- third (33.33%) of

Senior Level professionals hold savings can fund their expenses for 1 – 2 months where as

37.50% do not have an emergency fund in place. This current state of the employees would

force them to liquidate their existing investments or assets in order to fund their

emergencies.

How frequently do you keep a track of your expenses? :

Most of the professionals generally do not keep a track of where they spend and how much

they spend.Only 26.26% of the professionals are maintaining a healthy track of all their

expenses. Nearly one – tenth (10.61 %) of them review their expenses frequently. Majority of

the professionals (42.93%) review their expenses only occasionally. A fifth of the

professionals (20.20%) review their financials rarely.

Summary Personal Finance Habits

Page No:4

Page 5: Personal Financial Planner

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Who is advising you in making your financial decisions? :

The poor financial decisions being made by majority of the professionals can be attributed

to the kind of financial advice they get. Friends and Colleagues act as financial advisors for

35.40% of the professionals. Family members are the prime source of financial advisory

30.97% of the professionals. 13.27% of the professionals make financial decisions based on

their self research. Friendly Neighborhood agents advise 15.93% of the professionals. Only

4.42% of the professionals seek advice from an expert financial advisor before making an

investment.

How well are the taxes being planned? :

Tax savings is the nirvana of financial planning for majority of the professionals. But many

bad decisions are being made even in the process of tax planning. At least 8% of the Entry

Level professionals are over doing the tax saving investments. Among the Mid – Level

professionals, 37% under utilize the tax benefits under section 80C and 17% of them are over

doing the tax saving investments. In the segment of Senior Level Professionals, 27% under

utilize the benefits of section 80C where as 53% over invest.

Are you choosing the right tax saving investment? :

Tax saving forms an integral part of investment planning strategies for most of the Indians.

But it is important such tax saving investments compliment one's ability to achieve life's

goals. For 77.46% of the professionals, Insurance is their primary choice as 80C investment

instrument. Among such professionals, 95.86% of them receive their financial advice from

family or neighborhood friends.

Only 6.86% of the professionals invest in Equity Linked Saving Schemes. PPF or EPF is the

primary choice of tax saving investment for 7.95% of the professionals. Among such

professionals, 76.85% of the employees who invest in PPF or EPF stated that they receive

their financial advice from their colleagues.

NSC is chosen by 3.45% of the professionals where as fixed deposit is the primary choice for

4.28%. 83.26% of employees who invest in NSC get their advice from Family.

The tax saving investment patterns recorded depicts the equity aversion of many of the

professionals.

Summary Personal Finance Habits

Page No:5

Page 6: Personal Financial Planner

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Personal Finance Readiness :

The personal finance readiness of a salaried professional defines the likelihood of one

meeting all his goals in life. It defines:

· How efficiently the cash flows are being tracked.

· How well the investments are being planned.

· How comfortable the retirement phase is going to be.

· How efficiently one can handle any unforeseen/unfortunate events in life.

Only 2.43% Entry Level professionals can be rated high on their personal finance readiness.

Only 7.19% of the Mid – Level professionals and 11.48% of the Senior - Level professionals can

be rated high on their personal finance readiness.

View of Employees and HR on Personal Finance :

Many studies have often stated that providing financial education at work place is directly

proportional to their financial well being. As per the research, the salaried professionals

prefer to get financial education as a workplace benefit. More than half (56.97%) the

professionals stated that providing financial education at work place is highly important

while 33.38% of the professionals rated financial education at workplace as important. One

– tenth (9.65%) of the professional felt that financial education at work place is not

important.

When the same question was posed to the HR professionals, 73.06% of them stated that

financial education at work place is not important. 18.99% of the HR professionals felt it is

important and 7.95% of the HR professionals felt that it is highly important.

Summary Personal Finance Habits

Page No:6

Page 7: Personal Financial Planner

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Introduction :

Most professionals generally relate financial well being to either their income or the

accumulated assets. However, planning for the future financial needs is often ignored. The

financial life cycle of a salaried professional follows a specific pattern. At a young age, the

salaried professionals rely on loans and other forms of debt to fulfill their dreams of buying a

car, home etc. During the peak earnings phase they pay off their debts and start saving

towards retirement. Once retired, they draw the money from their savings to take care of

their everyday expenses.

Personal Finance remains one of the most ignored aspects of life. Ideally people would like

to see their hard earned money compliment the hard work they put behind in earning it. But

they often fail to take necessary actions to set their money on a growth path. Most

professionals assume that money management is necessary only when they have a lot of

surplus. But regardless of income level and age, anyone who has income needs to have a

well sketched plan to manage their finances better.

Today, the salaried professionals are expected to make more financial decisions than ever

before. It is also important that the decisions being made are financially prudent as well.

They are being presented with a gamut of financial products for every aspect of their daily

life, be it bank account, credit card, loans, insurance or retirement. Choosing a best suited

product becomes a challenge for the professionals. So managing personal finances also

becomes more important than ever.

This research by ArthaYantra is intended to analyze the current personal finance habits of

the Salaried Professionals and the effect of such habits on their financial well being in the

future. More than 2000+ professionals across different industries with varied work

experiences are studied to capture their current financial habits. The survey captures the

sources of financial advice of these professionals. This is used to analyze the impact of

financial advice source on the individual financial decision making process. The research

captures tax planning habits of the individuals and the avenues of tax saving investments.

Introduction Personal Finance Habits

Page No:7

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Research Methodology :

The study by ArthaYantra is aimed at understanding the current personal finance habits of

the salaried professionals. The data analyzed for the survey is collated from: :

· ArthaYantra's interactions with its current base of clientele.

· Survey conducted by ArthaYantra on salaried professionals across different salary

ranges and different industries.

· Survey conducted by ArthaYantra on 200+ Human Resource professionals across

different industries.

The questionnaire drafted for professional survey was designed to capture the general

personal finance practices. The survey questionnaire for professionals covers a wide range

of personal finance aspects including :

· Spending patterns

· Primary mode of payments.

· Saving routine.

· Frequency of analyzing the expenditures and available surplus

· Status of retirement plan.

· Tax planning strategies

· Common goals and aspirations.

· Sources of financial advice.

· Priority of employee benefits.

The findings are then analyzed to know the impact of their current financial habits on their

potential future well being.

The research segments the professionals as:

· Entry – level Professionals: Professionals with less than 6 years of work experience.

· Mid – level Professionals: Professionals with 6 -10 years of work experience.

· Senior – level Professionals: Professionals with more than 10 years of work experience.

The questionnaire designed for HR professionals tries to capture the common reasons

behind employee attrition patterns and the priority of employee benefits.

Research Methodology Personal Finance Habits

Figure 1: Distribution of Professionals considered for the research

Page No:8

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Findings :

Are you preparing yourself for retirement? :

The changing socio economic structure of the country increases the

importance of the retirement Planning. Indians no longer have the social

net of joint families, nor do the majority of them work in government

organizations that provide pension post retirement. The new dynamics of

nuclear family, lack of social security and inflation driven economy has

made funds for retirement important for the professionals and their

family. The adequacy of the retirement funds is dependent on:

· Design of the retirement Plan :

The complexity of designing a retirement plan lies in determining the

required retirement corpus, how much to save and where to invest.

· Tenure to achieve required corpus :

The design of the retirement plan and tenure are interdependent. The

time at which one starts planning for retirement, determines how long it

would take to achieve the required retirement corpus.

Early planning for retirement is important because it typically takes years

of systematic saving in order to accumulate the ideal amount of funds

for the post retirement phase. Additionally, power of compounding also

works in favor of the early starters. The interest accumulated over the

years also gives the flexibility of investing lesser amounts if started early.

As observed in Figure 2, only 9.29% Entry Level Professionals have started

investing in a retirement plan other than mandatory retirement related

options like PF provided by their organizations.

“18.64%

Can

Afford

to retire

at the

age of

60”

Findings Personal Finance Habits

Figure 2: Retirement Planning Status of Entry Level Professionals

Page No:9

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The retirement planning status of Mid – level and Senior Level Professionals is represented by

Figure 3 and Figure 4 respectively. Only 19.23% of Mid – Level Professionals and 29.63% of

Senior Level Professionals started planning for their retirement.

Neglecting retirement planning during early or mid phases of the career will result in

inadequate funds for retirement. This will force the professionals to either increase their

saving rates during the last few working years or work for longer periods. Based on the

retirement planning status of the professionals studied, only 18.64% can afford to retire at

the age of 60.

Retirement Planning Personal Finance Habits

Figure 3: Retirement Planning Status of Mid – Level Professionals

Figure 4: Retirement Planning Status of Senior Level Professionals

Page No:10

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Do you have enough savings to counter any emergencies? :

Every individual on an average faces at least three emergencies during

their life time between the age of 30 and 45. These emergencies could

range from a job loss to a health scare. It is important to make sure that

money is the last thing one has to worry about during such stressful times.

Building an emergency fund is the primary step to avoid any financial

disaster because of any unforeseen or unfortunate events in life.

Majority of Personal Finance experts advocate to maintain an

emergency fund which accounts for 3-6 months of expenses.

Emergency fund should be held in assets which guarantee capital

preservation and can be converted to cash quickly. Having an

emergency fund prevents professionals to spiral into financial distress

during difficult times. It also reduces dependency on loans or liquidation

of other assets.

The emergency fund status of Entry Level Professionals is summarized in

Figure 5. More than half the Entry Level Professionals (57.47%) do not

have enough savings to support their expenses for at least a month.

More than a quarter of Entry Level Professionals (28.30%) has savings

which account for only 1 – 2 months of their expenses.

“35.75%

of the

Professionals

are

prepared

for an

emergency”

Emergency Fund Personal Finance Habits

Figure 5: Emergency Fund Status of Entry Level Professionals

Page No:11

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Among the Mid – Level Professionals, 42.31% do not hold a emergency fund where as

19.23% hold savings which can fund their expenses for only 1 – 2 months. The detailed stand

of Mid – Level Professionals with respect to their Emergency Fund is shown in Figure 6.

Emergency Fund Personal Finance Habits

Figure 6: Emergency Fund Status of Mid – Level Professionals

Figure 7: Emergency Fund Status of Senior Level Professionals

Page No:12

The Emergency fund status of Senior Level professionals does not look promising either.

Majority of these professionals maintain unsatisfactory level of emergency funds. One - third

(33.33%) of them hold savings that can fund their expenses for 1 – 2 months whereas 37.50%

do not have any emergency fund in place. The details are summarized in Figure 7.

The results from the study conducted clearly show the fact the practice of keeping away

money dedicated only for emergencies does not exist in large portion of the salaried

professionals. This current state of the professionals would push them to liquidate their

existing investments or assets in order to fund their emergencies.

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How frequently do you keep track of your expenses :

One of the best practices of personal finance includes designing a house hold budget and

monitoring it regularly. The most simple and effective home budgeting technique is to list

down all expenses incurred. This helps in identifying the major expense heads where

spending can be minimized. This aids in building a healthy monthly surplus. The home

budgets are to be reviewed at regular intervals to make sure that the financials are on

track. Budgeting frequency can play an important role in identifying ad curbing

unnecessary spending that happens in the family. It would also result in efficient use of the

income received by the family.

Budgeting frequency habits of professionals is summarized in

Figure 8. One out of five Professionals (20.20%) review their

financials rarely where as Majority of them (42.93%) review

them occasionally. Only 26.26% of the Professionals are

maintaining a healthy frequent track of all their expenses. 10.61

% of the professionals review their expenses frequently. This

signifies the fact that most of us generally do not keep a track of

where we spend and how much we spend.

“Only 26.26%

of the

Professionals

are

maintaining a

healthy

frequent track

of all their

expenses.”

Budgeting Frequency Personal Finance Habits

Figure 8: Budgeting Frequency of Professionals

Page No:13

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How are the financial decisions made?

The long – term financial impact of every financial decision can be

significant. Financial decision making process is often viewed in isolation,

rather than holistically. The benefits of a good financial decision can

continue for many years and similarly a bad decision can hurt both short

and long term financial prospects. There is always a wide impact of a

financial decision, which is often ignored. The ecosystem of that supports

the financial decision making of the professionals includes office, family

and friends. It is this ecosystem that most of the professionals rely upon for

any financial advice. Off late office colleagues has emerged as critical

resources of financial advice for the salaried professionals.

Friends and Colleagues act as financial advisors for 35.40% of the

professionals. Family members are the prime source of financial advisory

for 30.97% of the professionals. 13.27% of the professionals make financial

decisions based on their self research. Friendly Neighborhood agents

advise 15.93% of the professionals. Only 4.42% of the professionals seek

advice from an expert financial advisor before making a financial

decision. The composition of sources of financial advice for professionals

is shown in figure 9. Every major decision in life be it buying a home,

moving into a new city, education of the children, everything has a

financial implication associated with it. The financial implications of such

decisions should be discussed with a financial advisor. Lack of access to

quality advice is the prime reason behind individuals making some

financially bad decisions.

“Only 4.42%

of the

Professionals

said they

seek advice

from an

expert before

making an

investment”.

How are the financial decisions made Personal Finance Habits

Figure 9: Sources of financial advice for Professionals

Page No:14

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How much do you invest in section 80C:

One of the major components of tax savings in India is investments that are part of section

80C of the income tax code. These investments bear the advantage of decreasing tax

liability of the individual. However, it is also important to make sure that the professionals do

not exhaust their available surplus in the pursuit of saving tax.

Among the professionals who fit in the salary bracket of 2 – 5 lakhs per annum, 67.96% make

investments worth INR 10,000 – INR 25,000, 18.45% make investments worth INR 25,000 –

50,000. Only 5.83% and 2.91% of them make investments worth INR 50,000 – 75,000 and INR

75,000 – 1, 00,000 respectively. 4.85% of them make investments worth more than INR 1 lakh.

At least 7.76% of these professionals are over doing the tax saving investments. Among such

professionals 98.85% get their financial advice from friendly neighborhood agents and

family and 87.75% of them said insurance is their primary tax saving instrument.

In the segment of professionals whose compensation package lies

between 5 – 10 lakhs per annum, 37.18% make investments worth INR

10,000 – INR 25,000. Nearly a fifth (17.95%) of the professionals makes

investments worth INR 25,000 – 50,000 where as 15.38% of them make

investments worth INR 50,000 – 75,000. Out of the remaining professionals,

12.82% make investments worth INR 75,000 – 1, 00,000 where as 16.67%

make investments worth more than INR 1 lakh. So, 37.18% of the

professionals are not utilizing tax benefits under section 80C and 16.67%

of them are over doing the tax saving investments.

“Nearly

14.97% of the

Professionals

are investing

more than 1

lakh under

section 80C.”

How much do you invest in section 80C Personal Finance Habits

Figure 10: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 - 5 lakhs

Page No:15

Figure 11: Distribution of amount being invested in section 80C by professionals with an annual income of INR 5 - 10 lakhs

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Among the professionals who earn more than INR 10 lakhs per annum, 13.33% make

investments worth INR 10,000 – INR 25,000. Another 13.33% of them make investments worth

INR 25,000 – 50,000. 6.67% of them make investments worth INR 50,000 – 75,000. 13.33% of

them make investments worth INR 75,000 – 1, 00,000 where as 53.33% of them make

investments worth more than INR 1 lakh. So, 26.66% of the professionals are not utilizing the

tax benefits under section 80C and 53.33% of them are over doing the tax saving

investments.

So among the 2000+ salary professionals studied, most of them either under utilize the

benefits of section 80C or over do the tax saving investments due to their habit of failing to

keep a track of their investments. Lack of financial awareness can be the prime reason

behind under utilization or over doing the tax investments. The second attribute for these

patterns can be the source of financial advice. Especially in the case of professionals who

over do the tax savings, their major source of financial advice is either friends and family or

some neighborhood friendly agent.

The other important aspect of making tax saving investments is the time during which the

investments are made. The best practice of planning taxes is to distribute the payments for

tax saving investments evenly across the year. It is advisable to avoid concentrating or

postponing all the tax saving investments towards end of the financial year. This piles up the

burden on the professionals during the end of financial year, especially if they start tax

saving investments post November. Tax Saving Investments by 28.85% of Entry Level

Professionals are made during January to March. October to December is the preferred

time for 18.27 % of the Entry – Level Professionals. Among the Mid – Level Professionals,

25.71% of Mid – Level Professionals start making tax saving investments during October to

December and 18.57% during January to March. Majority of Senior – Level professionals

start making tax saving investments in the second half of the financial year with 20.83%

starting during October to December and 29.17% during January to March.

How much do you invest in section 80C Personal Finance Habits

Figure 12: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 - 5 lakhs

Page No:16

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Major tax saving Investments :

The intention of government behind giving this dedcution of 1 lakh is to

promote the habit of savings among the professionals. Inclusion of PF,

PPF and EPF is to promote the idea of saving for retirement. Since it is a

mandatory practice for majority of the organisations to provide PF for

their employees, one can even opt of ELSS and give an exposure to

equity for their retirement funds also. So given these options it is

important to choose the investments which helps the professionals

maximize the benefits of tax savings. The challenge however lies in

picking in suitable products. It is important that the professionals analyze

their risk profile and pick the tax saving instruments suitable to them.

The tax saving investments choices by professionals is summarized in

Figure 20. Among the professionals studied, 77.46% stated that Insurance

is their primary choice as 80C investement vehicle. This implies that most

of the professionals mix their investments with insurance which is not a

good personal finance practice. Amoing the professionals professionals

who prefer insurance as their tax saving investment, 95.86% receive their

financial advice from family or neighborhood friends. These are

esentially the agents who have a vested interest of filling their yearly

targets.

When do you make tax saving investments Personal Finance Habits

Page No:17

“Only 22.54%

of the

Professionals

invest in tax

saving

instruments

other than

Insurance.”

Figure 13: Distribution of different kinds of tax saving investments being made by Professionals.

Equity Linked Saving Schemes are preferred by 6.86% of the professionals. This depicts the

equity aversion of many of the professionals. Inclusion of equity in the retirement fund is an

option that is ignored more often than not in India.

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PPF or EPF as a tax saver vehicle is preferred by 7.95% professionals. 76.85% of the

professionals who invest in PPF or EPF stated that they receive their financial advice from

their colleagues.

NSC is preferred by 3.45% of the professionals where as fixed deposits is preferred by 4.28%.

Majority (83.26%) of such professionals get their financial advice from Family.

It is tricky to determine the investment product suitable for the individual without assessing

their current financial situation and future goals. But as per the research results with the

professionals favoring insurance over other investments, it can be said that the strategy

behind their tax saving investments should be revisited and fine tuned.

When do you make tax saving investments Personal Finance Habits

Page No:18

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PERSONAL FINANCE OUTLOOK 2013

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Most common goals :

When setting goals, every one holds a different set of expectations of

their life. Their likelihood of achieving the goals set by is directly

proportional to their financial well being. The financial goals of an

individual can be classified under three segments: Short term goals like

buying a two wheeler buying a car, medium term goals like buying a

home, children's education and long term goals like retirement. Defining

a goal and determining the amount needed and tenure will help in

setting a specific investment plan in order to achieve them.

In the segment of Entry Level Professionals, the near term goals like

buying a two wheeler, buying a car, buying a home, getting married

were on the high priority list. The goals like emergency fund and

retirement were rated less on the priority scale.

“Saving for

retirement is the last

priority for the

Professionals.”

Most common goals Personal Finance Habits

Figure 14: Most common goals of Entry Level Professionals

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Among the Mid – Level Professionals, child care, children's education, buying a home and

buying a car were on the high priority list. The goals like emergency fund and retirement

plan were rated low on the priority scale even by Mid – Level professionals. The goals like

children's education, children's marriage, and retirement were rated as high priority by

Entry Level Professionals.

Retirement is being recognized as an important goal only by Senior Level Professionals.

Failing to realize the long term goals and being concerned about near future may prove

costly for the Entry Level and Mid – Level Professionals.

Most common goals Personal Finance Habits

Figure 16: Most common goals of Entry Level Professionals

Page No:20

Figure 15: Most common goals of Mid – Level Professionals

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PERSONAL FINANCE OUTLOOK 2013

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Personal Finance Readiness :

The personal finance readiness of salaried professionals defines

the likelihood of meeting most of their goals in life. It defines:

· How efficiently the cash flows are being tracked.

· How well the investments are being planned.

· How comfortable the retirement phase is going to be.

How efficiently one can handle any

unforeseen/unfortunate events in life.

These factors form the pillars of a strong financial foundation for

salaried professionals from which they can reap long term

benefits.

Among the Entry Level Professionals, only 2.43% can be rated

high on their personal finance readiness.

These levels are alarming low especially conisdering the

advantages associated with starting saving for futre at an early

stage of career.

Only 7.19% of the Mid – Level professionals can be rated high on

their personal finance readiness. Generally the professionals in

this segment aspire getting a home and also have the burden

of child maintainance costs. The numbers also explain the over

dependence on debt among this segment.

Only 11.48% of the Senior Level professionals can be rated high

on their personal finance readiness. Especially with high child

education costs and other forms of debt like home loans in their

name, these professionals should start managing their financials

better.Unless the financial readiness increases from the current

low levels, adverse economic or personal condition can

negatively impact significant percentage of the professionals.

“Only 6.75% of the

Professionals

are prepared

to face an

emergency in

life.”

Personal Finance Readiness Personal Finance Habits

Figure 17: Personal Finance readiness of the Professionals

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View of Professionals and HR on Personal Finance :

Many studies have often stated that the productivity of a

salaried professional is directly proportional to their financial

well being. Financially stressed salaried professionals carry

forward the same levels of mental stress to the work which

indirectly affects the productivity of the professionals. Since the

productivity of a professional is affected due to their bad

financial decisions and professionals spend most of their time at

their respective working organizations, HR of the organization

does have a role to play in the financial well being of their

professionals. Getting a financial education program in place is

the first step in order to make sure that the professionals are

financially literate. This helps professionals in making better

financial decisions and indirectly makes sure that the

professional is not stressed due to various financial decisions

made or to be made in the future.

The view of salaried professionals and HR professionals is

depicted in Figure 21 and Figure 22 respectively. More than half

(56.97%) the professionals stated that providing financial

education at work place is highly important while 33.38% of the

professionals rated financial education at workplace as

important. One – tenth (9.65%) of the professional felt that

financial education at work place is not important. These

numbers do signify the fact that the salaried professionals prefer

to get financial education as a workplace benefit.

“56.97% of the

Professionals

feel that

financial

education at work place

is highly

important.”

Personal Finance Habits

Figure 18: Salaried Professionals view on Financial Education as work place benefit

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When the same question was posed to the HR professionals, 73.06% of them stated that

financial education at work place is not important. 18.99% of the HR professionals felt it is

important and 7.95% of the HR professionals felt that it is highly important. This clearly shows

that the view of employees is a lot different from the HR Professionals when it comes to

financial education at work place.

Personal Finance Habits

Reasons for current Financial State of the Salaried Professionals :

Financial literacy :

Financial literacy is defined as an understanding of basic economic concepts which deal

with the art of saving and investments. Lack of financial knowledge and source of financial

advice play a vital role in the sub optimal financial decisions being made by the

employees. The lack of financial literacy is also the driving factor behind the lesser saving

rate among the employees. The spending habits instead of saving habits are being directly

proportional with the increasing salaries of the employees. The various socio economic

factors that drive this factor of lack of financial literacy among the employees are :

· Personal finance is always given a low priority.

· Basics of personal finance are not part of educational curriculum except for some

students from finance background.

· Lack of financial knowledge among family members, especially they being the major

driving force behind financial decision making process.

All these factors play a pivotal role in the current financial state of the employees. Personal

finance is being perceived through the color of tax planning or investment planning. Lack

of knowledge on various personal finance aspects is affecting the financial decision

making process of the employees and their potential financial future. Especially in the

current world where one can find many options for every financial need, it is important they

know the basics of personal finance before making any financial decision.

Figure 19: HR professionals view on Financial education on work place benefit

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Behavioral Bias :

Ranging from food habits, dressing style to social etiquette, all aspects of life are influenced

by the social interactions. People learn and implement all the ideas on the basis of their

interactions with colleagues, friends and family. Similarly the financial decisions being

made are essentially controlled by non – financial factors. Individual characteristics

combined with the impact of the society, colleagues, family and friends account for these

major non – financial factors.

The investment decisions are the ones that are affected most due to this behavioral bias of

following the people around us. The positive signal about the investment is being conveyed

by the friend or colleague but not by the market governing factors of the investment. This is

similar to buying a house in a locality because someone advised that the area is going to

flourish in the coming days. So essentially, the utility curve of financial instruments is skewed

because it is not the individual need or demand that is driving the utility curve but the wild

goose chase of the individuals is driving it.

Emotional quotient :

Most of the financial decisions made by the individuals are driven by emotions rather than

objectives. There has always been the social pressure on the middle class to be an owner of

a house rather than a renter. Buying a home is considered, a ticket to a superior standing in

the social circles. Our physiological behavior patterns give us a sense of security, when we

own a home. Similarly the emotional quotient attached with a owning a car surpasses the

pleasure of investing in a retirement fund.

The other underlying emotional factor that can be drawn from the research is instant

gratification. Most of the employees at starting stage of their careers delay the process of

planning and do no concentrate on their finances. The results from the study also show that

most of Entry Level Professionals neither have a retirement plan nor an emergency fund.

Majority of such professionals live from pay check to pay check and rely on credit card for

their bill payments.

The investments being made by the professionals studied also reflect the lack of objectivity

behind their decisions. Professionals often make investments and think they have saved

enough and are happy about it. Assigning a goal to the investments/savings being made is

as important as making savings and investments. Detaching emotions and assigning a goal

to investments will make sure that money is channelized in a more efficient manner.

Lack of Quality Advice :

The indirect factor which is affecting the financial decision making process of the

professionals is the current market structure. The transactional nature of the market played

its part in supporting the myth among professionals that financial advice is costly and

money management is only required for the wealthy. This is the major factor behind the

professionals banking on the advice from their family, friends and colleagues. But majority

of this group of advisors themselves lack the financial knowledge. A group of these advisors

also have a vested interest of selling products and gaining commissions through such

transactions. Providing quality financial advice for vastly diversified salaried professionals is

a concern.

Personal Finance Habits

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Personal Finance Habits

New innovations which can leapfrog the existing system and provide the professionals the

much needed quality advice is the need of the hour. Offering personal finance solutions

through online technology can prove beneficial for the professionals. It gives them

convenience to plan their finances at their convenient time. The online personal finance

management techniques provide access to quality financial advice which is also cost

effective.

Conclusion :

Over the past few years the Indian socio economic conditions are changing at a fast pace.

In the social front, most of the Indians no longer have the joint family net to rely on.

Increasing costs in all walks of life have been affecting the standard of living of salaried

professionals. Child care and education costs have become costly. Medical Inflation rate

remained high during the last few years. Private sector has become major employment

provider. We no longer have the pensions to ensure that we have a continuous income

stream even during post retirement phase. So the professionals need to manage their

income between consumption and savings efficiently.

The findings of the study show that most of current professionals are living from pay check to

pay check basis. The financial decisions are being made in isolation and lack a holistic

approach. It is important that they look beyond the short term goals and start preparing

themselves for the long term objectives. The result of current personal finance habits of the

salaried professionals could be catastrophic. It is important to start giving attention to

personal finance when time is on their side.

The employee and employer relation goes beyond the pay check. Professionals spend

majority of their active hours of the day at the workplace. The prosperity of the employer is

directly proportional to productivity of its salaried professionals. Financial distress off late has

proved to be one such factors which is negatively effecting the productivity of the salaried

professionals. The concern of professionals regarding their financials is evident. They have

realized that work place financial education can prove beneficial for them for making

financially well informed decisions. Though realization of importance of personal finance by

professionals is a positive take away from the research, failure to act still remains a concern.

Lack of financial knowledge and access to quality advice are the underlying issues that are

to be addressed in order to make sure that the current salaried professionals are future

ready financially.

Conclusion

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