Over 1,600 respondents were interviewed in separate surveys conducted between January 2016 and February 2016 across 10 Indian cities
Although Indian consumers understand the need to plan their finances well ahead in life, they fail to review and realign their plans as per the varying events of their lives, according to the latest findings of the Life Freedom Index’s 2016 edition said a report by HDFC Life.
Over 1,600 respondents were interviewed in separate surveys conducted between January 2016 and February 2016 across 10 Indian cities: Ahmedabad, Bengaluru, Indore, Bhubaneswar, Chennai, Delhi, Kochi, Kolkata, Ludhiana and Mumbai. The findings from the survey were distilled into various specific measurement indices that collectively form the overall Life Freedom Index.
The Index is made of up the following sub-indices:
Financial awareness index: It captures the financial product knowledge and the awareness level of events that can have a significant impact on the current and future financial needs of the Indian consumers.
Financial planning index: This reflects the existence of a comprehensive financial plan, which is regularly reviewed and realigned to address evolving financial needs.
Financial sufficiency and adequacy index: It reflects the state of Indian consumers on the sufficiency of their financial plan to meet immediate and future financial needs. Adequacy reflects the level of confidence of the Indian consumers have in their financial management practices being adequate to live a life with dignity, and meet the desired standard of living.
Financial liberty index: This reflects the psychological feeling of ‘Financial Freedom’ and ‘Financial Security’ of Indian consumers in India.
The reason for inaction on the consumers’ part may probably be happening as they are likely to be less aware of the risks or events that needs planning.
They are not very confident about living a life with dignity and are quite uncertain about the sufficiency of their financial plans in meeting the immediate and future commitments. Indian consumers are not very well acquainted with the various aspects and merits of goal-based planning either and thus, are yet to achieve a good alignment of their finances with their lives’ significant goals.
This is probably because they are relatively unaware of the risks that need to be planned for.
The life freedom index stood at 57.9 out of 100; marginally lower than 58.3 seen in 2012.
Broadly based on four parameters—financial awareness, financial planning, financial sufficiency and adequacy and financial freedom—the findings show that Indians score high on financial liberty (67.7) and financial planning (61.8) compared to financial awareness (51.9) and financial adequacy (58.4).
This gap in their planning and financial management activities fails to give consumers the confidence required for meeting immediate or long-term goals for leading a life with dignity.
The report took into account four consumer segments: smart woman (a working woman aged 25-45); proud parent (a person who contributes the most to the household income and is the key financial decisionmaker of the family, in the age group of 30–45 years); wisdom investor (a person who is aged 45–60 years; and young aspirants (a person who is aged between 20 and 30 years).
Interestingly, smart woman and young aspirant categories score higher among other consumer segments on the index.
Compared to 2012, 9% smart women are now more aware about the importance of financial planning.
Lack of planning
While consumers do plan for unexpected events like accident, illness, death or damage due to natural calamities; they do not seem to not take into account factors like inflation, government regulation and interest rate fluctuations.
Tier 2 cities versus Tier-1
Indians residing in tier-2 cities enjoy more financial freedom across all segments compared to their tier-1 counterparts. Tier-2 consumers perceive themselves to be better-off in terms of planning, sufficiency, adequacy and hence they have a higher perception of financial liberty.
No health planning
Health planning score among wisdom investors was the highest (46.9), compared to other customer segments.
Edited excerpts from HDFC Life’s Life Freedom Index.