Source: The Marketing White Book 2009 -2010,

Businessworld

Financial Insecurity In India

February 19, 2009

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I. Max-NCAER Survey

II. Financial Vulnerability

III. Average Surplus Income

III. Poor Long-term Financial Planning

IV. Long-term Investment Avenues

V. Indebtedness In India

VI. Not Prepared For Risk Management

Sample Table of Contents

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Max-NCAER Survey 2008: How India Earns, Spends & Saves

Study conducted by Max New York Life Insurance & the National Council of Applied

Economic Research (NCAER)

Objective:

Establish how aware Indians are about risk and how do they plan for risk

management in the long-term with extensive and concrete data-based evidence

• Conducted through 2005 & 2006

• Covered 63,016 households

• 70% households from rural India & 30% from urban centers

Some Conclusions:

• Households earning less than expenditure levels – 25% (51 million households or 262

million persons)

• Households that can’t survive for more than 1yr on their current savings if major source

of household income lost – 96%A financially secure country cannot be built on the base of a small proportion of financially secure households.

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Financial Vulnerability

Financially Vulnerable – Significant mismatch between income & need-based expenditure levels.

• Average income of vulnerable households – Rs 40,450 p.a

• Average income on non-vulnerable households – Rs 73,082 p.a

• Average deficit of vulnerable households – Rs 24, 967

• Average surplus of non-vulnerable households – Rs 30, 036

• Average household: Annual Income – Rs 65,041

Annual Expenditure – Rs 48,902

Annual Surplus – Rs 16, 139 left to Save & Invest

Annual saving – Rs 11, 613

• Urban income level is 85% higher than rural income

• Urban saving is nearly double that of rural household (Rs 26, 762 p.a)

Expenditure of households varies according to need and, therefore income levels do not translate directly to the levels of vulnerability. Households in higher income groups are also financially vulnerable.

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Average Surplus Income In Indian Households

Estimates of Surplus Income, Investment & Savings

1961

3713

10465

16139

3757

5759

17246

26700

1198

2841

7574

11613

Financial Investment

Physical Investment

Savings in Cash

Surplus Income

Rs/Annum/Household

All India Urban Rural

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Poor Long-term Financial Planning

Some astonishing findings about Indian households:

• 81% save

• 36% keep savings at home – as cash!

What does the India household save for?

• Primarily for emergencies – 83%

• Children’s education & inheritance – 81%

• Old age – 69%

• Weddings & other social events -63%

• Buy or build house – 47%

• Improve or expand business – 47%

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Long-term Investment Avenues

Where does the India household put in its savings?

• Large no. of the sample - Keep it at home (includes 20% of salary earners)

• Over 50% keep their savings in banks

• 5% save in Post Office accounts

• 3% in cooperative societies

• Less than 3% buy into bonds & other financial instruments

There is little correlation between savings & long-term gain. With such poor focus on long-term financial planning, it is not surprising

that indebtedness is high.

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Indebtedness In India

How bad is the indebtedness around us?

• 40% of rural households in debt

• 25% of urban households in debt

• 10% in the lowest income group in urban India saves nearly 6% of income while incurring

a deficit (income – expenditure) of Rs. 9,500 p.a

• 10% in the lowest income group in rural India saves nearly 3% of income while incurring

a deficit (income – expenditure) of Rs. 6,000 p.a

36% of respondents had no idea about finding alternate income source if major household income source was lost (due to job loss,

death or disease).

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Not Prepared for Risk Management

Insurance ownership LOW

• 24% households own life insurance

• Only 1.2% families have health insurance

• Ownership of health insurance in metros is a mere 3.9%

• Average Sum Assured for households with life insurance is just over Rs. 1lakh

• Spend on healthcare – 4.65% of income

• Health-related shocks deplete savings upto 9% & increase indebtedness by as much as

5%

Insurance is related to economic growth. A nation that is aware of, plans for, and manages risk, paves the way for economic growth.

Poor risk management reduces growth to matter of mere chance & good fortune.

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Need For Long-term Financial Planning

• Insurance helps household to weather financial ups & downs

• Insurance is a means for long-term planned growth and not a tax-saving measure.

• Insurance is essentially a risk management tool

• Increased ownership of insurance is indicative of a risk-management culture – a prerequisite

for the economic growth of business, individuals and households

• Financial literacy is extremely low in India

• Tremendous scope to educate households on long-term financial planning & risk management

• Huge opportunity to direct the saving potential of households into right investment avenues

A culture of miniscule long-term financial planning and poor levels of financial literacy comprise the core of India’s financial insecurity.

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Thank You