Financial Fitness Survey: People are not financially prepared

How financially savvy do you consider yourself? Rate your financial acumen on a scale of 1 to 10. Ideally, you would score yourself higher than the average result from a recent survey conducted by Finnovate, a financial fitness platform. According to their survey, the average financial fitness score was only 5.29 out of 20. This suggests that many people might not be as financially prepared as they believe, despite the abundance of information available online about saving, investing, and planning.

Survey Details

The survey, which included 1,727 participants, was divided into four age groups: 18-30, 30-45, 45-60, and 60+. It assessed knowledge and habits in six key areas of personal finance: goal planning, budgeting and taxation, loan management, insurance planning, investment planning, and estate planning.

Key Findings

Nehal Mota, Co-Founder and CEO of Finnovate, commented on the results, highlighting a significant gap in areas such as retirement planning, appropriate investment deployment, and adequate insurance coverage. Despite some level of awareness regarding financial goals and net worth, the survey uncovered troubling gaps:

• Retirement Savings: While 63% of affluent individuals and High Net Worth Individuals (HNIs) in India have clear financial goals and 69% are aware of their net worth, 65% have not saved enough for retirement. This points to a concerning shortfall in long-term financial security.
• Emergency Funds and Tax Planning: Approximately 40% of respondents lack a sufficient emergency fund, and 27% have not effectively planned their taxes.
• Debt and Insurance: Only 38% of respondents are debt-free, with 31% of individuals aged 60 and above still managing EMIs. Additionally, 73% are either uninsured or underinsured for health, and 74% lack adequate life insurance, leaving them vulnerable to financial shocks.
• Investment and Financial Management: Although 81% invest in equities, 53% invest less than 30% of their savings in equity. Furthermore, 54% are unaware of the CAGR (Compound Annual Growth Rate) of their investments. Around 40% of respondents have not compiled their financial documents, with this number still at 26% among senior citizens. Additionally, 36% have not fully assigned nominees and beneficiaries to their assets.

Age-Specific Insights

Financial fitness scores were lowest among those aged 18-30, primarily due to inadequate planning. In the 30-45 age group, 58% invest less than 30% of their income, risking an insufficient retirement fund. The 45-60 age group also exhibits signs of inadequate savings and poor tax planning. For individuals over 60, 29% are unaware of their current net worth, which is crucial for managing post-retirement finances.

Financial Literacy Trends

Despite the wealth of resources available—such as online videos, social media events, and live investment workshops—there remains a stark gap in financial knowledge. Many still prefer investing in property and gold over financial assets like mutual funds and equities. A research paper by Priyadarshi Dash and Rahul Ranjan highlights that less than 4% of India’s population opts for mutual funds or equity-linked assets, with India having the lowest household exposure to equities compared to major global economies.

Regional Financial Literacy Index

According to the Financial Literacy Index (FLI) from the NSS 77th round of the All India Debt and Investment Survey:

• Low Literacy (<=0.33): Arunachal Pradesh, Assam, Bihar, Jharkhand, Manipur, Meghalaya, Nagaland, Uttar Pradesh.
• Medium Literacy (0.34 to 0.53): Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Mizoram, Odisha, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, Uttarakhand, West Bengal.
• High Literacy (>=0.53): Chandigarh, Delhi, Goa, Himachal Pradesh, Kerala, Pondicherry.

Common Financial Mistakes

Nehal Mota identifies several common mistakes made by mass affluents and HNIs:

1. Investing without considering financial goals.
2. Inadequate term and health coverage.
3. Underperforming investments.
4. Not knowing the right benchmarks.
5. Poor planning for legacy transfer.

Reasons for Financial Fitness Gaps

Key reasons for lacking financial fitness include low awareness of financial products, not seeking professional advice in a timely manner, and disproportionate time and effort invested in speculative trading.

Importance of Financial Literacy

Financial literacy is crucial for making informed decisions, creating effective household budgets, planning savings, managing debt, and preparing for life events and emergencies without unnecessary debt. Government bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority (IRDAI), along with industry groups, are actively conducting financial literacy programs. These initiatives aim to educate the public about various financial products and raise awareness through events across the country.