NEW DELHI: Soaring inflation in India has pushed up expenses sharply. A survey by fintech major BankBazaar said nearly 62% of people have been relying on credit to meet their daily expenses, while savings have gone down for almost 80% of India's salaried class.
The study involved 1,675 salaried people in the 22-45 years age group and was carried across six metro cities and more than 18 tier-II cities across India. Women comprised 43% of the respondents.
More than half have taken a loan to finance their needs
At least 57% respondents have taken a new loan in the last one year to fulfil their aspirations or needs. People in metro cities (56.9%) borrowed more than those non-metros (52.1%).
While only 4% of these new borrowers found it difficult to repay their loans, 82% are considering restructuring their loans.
People in non-metro cities (8.1%) are finding it twice as difficult to meet their loan commitments compared to metros (3.1%).
Why are people opting for loans?
After a tough pandemic last year, people are on a spree to fulfill aspirations that were missed last year, and this is reflected in their borrowing. Last year, about 62% of those surveyed took a loan.
The top reasons for opting for a loan were to buy a house (63%) or a vehicle (50%), or to for higher education (43%). However, they also borrowed the highest to fund a holiday and buy consumer durables.
Despite high aspirations, the increasing cost of living is blunting the edge in the East. While reliance on credit is high at 63%, only 52% people took a loan last year. While almost half of these were to build assets – a house (49%) or a vehicle (44%) – 33% of loans were to cover medical expenses.
In the West, people are controlling expenses. The region accounts for the lowest dependence on credit and just above half of them (52%) took a loan last year. Of these, 56% borrowed to invest in a personal vehicle. House and education ranked much lower at 39% and 33%, respectively.
In the south, reliance on credit is lower and 35% are holding on without dipping into their credit cards and other credit products more, revealed the survey.
New loans are fewer at 59%, and only a few have invested in assets like a house (45%) or a vehicle (33%). A third (32%) used them to fund education and medical expenses (30%).
Despite increased expenses, aspirations of young India are running high. East India leads the pack as the most aspirational region in India (88.2), followed by the West (88) on the aspiration index, according to the latest Aspiration Index 2022 study by BankBazaar. This year’s Index is at 87.3, reaching its pre-pandemic 2018 levels for the first time.
The Index captures the importance Indians assign to an aspiration, how confident they are of its fulfilment, and what their current readiness for fulfilment is. A higher Index represents greater aspirations. The study tracks 17 goals under five broad aspirations: health, wealth, fame, relationship, and personal growth.
“Despite inflation, people are still focused on their priorities. The study shows that 57% of people took a loan in the last year. Of these, almost half of them have taken a loan to invest in a house (49%) or vehicle (43%). Around 35% are to fund higher studies and 26% for home upgradation. When you read this along with the overall high Aspiration Index, it indicates India's resolve to battle through challenges in pursuit of their goals,” explains Adhil Shetty, CEO of BankBazaar.
According to the study, this year’s index grew by 2.9 points led by non-material aspirations, such as health and relationships.
The five most popular life goals highlight what Indians wanted the most: be happy and healthy (49.2%), see the world (44.1%), be their own bosses (34.1%), save for their children's education (37.9%), and splurge a little on the finer things of life (31.3%).
However, the most aspirational goals are different and reveal the heart of young India. While mental health and saving and investing for children are among the top five, living close to the family, eating well, and of course, a home of one's own are other priorities.
Metros (87.8) led the graph over non-metros (85.2) in terms of aspirations, with the gap being the highest till date at 2.6.
Roadblocks
"Limited savings post pandemic coupled with high cost of living have emerged as barriers to India's aspirations. Early Jobbers face serious job losses and depletion of savings during the Covid years; nearly half rue the lack of savings. Moneymooners are torn between family responsibilities and work pressures in a swiftly changing world. And Wealth Warriors are thrown off-track by high cost of living and depleted savings," said the report.
More than three-fourth (77%) respondents agreed that expenses had gone up sharply, of late.
“Wealth warriors, with bigger liabilities and higher responsibilities, feel the heat the most. Metros (79%) feel the pinch more than the non-metros (72%). Correspondingly, the reliance on credit to meet monthly expenses has increased for 62% respondents, and savings have plateaued or gone down for almost 80%,” the study said.
80% people have borrowed Rs 5000-50,000 per month to meet monthly expenses. This is despite 64% respondents having received at least one increment and 44% having received a promotion over the last one year.
Pandemic–induced reduction in savings
One of the more adverse effects of the pandemic has been a reduction in savings, largely due to job losses, medical expenses, and rising costs of living. 47% respondents reported a drop in their monthly savings while 32% said they were unable to increase their savings. While respondents across all age cohorts have seen a drop in savings, the reduction has not been the same for all. Among women, Early Jobber and Wealth Warriors saw a greater drop in their savings as compared to Moneymooners.
Women are investing in crypto
One of the notable trends highlighted in this index is a growing interest in non-traditional forms of investment, specifically cryptocurrency. 32% of the survey respondents invested in cryptocurrency, out of which a whopping 38% consisted of Early Jobber women.
Credit Awareness
Close to 90% of those surveyed know what credit score is and 80% have checked their credit score. More than 73% have seen their scores remain steady or increase in the last one year.
Early retirement
Early retirement is one of the top five goals for 29% of respondents, making it the sixth most preferred goal. Retirement planning is the second most important reason to invest. Despite this, only 60% have a retirement corpus. Only 22.1% say they’re off-track. Moreover, not even 40% are planning a retirement corpus of Rs 1 crore or more.
