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Close to 90 percent of Indian consumers have faced salary cuts or business losses to some extent and therefore continue to be concerned about COVID-19, a study conducted by HDFC Life has found. The top three concerns for Indians--economic slowdown (67 percent), job insecurity (51 percent) and fear of debt (41 percent) due to lack of income--are also linked to the pandemic.
The Life Freedom Index, an indicator of financial awareness, preparedness and security, slipped 4.8 points to 61.8 in 2021 from 66.6 in 2019, highlighting the adverse impact of COVID-19. “The drop indicates that the health pandemic has turned into a financial concern with various challenges surfacing,” says Vishal Subharwal, Head – Marketing, Digital Business & E-commerce, HDFC Life.
Likewise, the Financial Sufficiency and Adequacy Index dipped by 8.7 points to 62.8 indicating that consumers feel their current financial plans might not be adequate. Expectedly, the health expenses score jumped by 13 points compared to 2019, the study noted.
A measure of financial preparedness
The purpose of the HDFC Life’s Life Freedom study is to ascertain the state of financial freedom of urban Indian consumers. It ascertains their awareness about available products, sufficiency and adequacy of financial planning, and their current state of financial freedom.
It includes four sub-indices Financial Awareness Index, Financial Planning Index, Financial Sufficiency and Adequacy Index, and Financial Liberty Index. The four indices together enable the measurement of the ‘financial freedom’ of consumers. In 2021, the study covered 1,987 respondents across various life-stages and 14 cities including metros, tier-I and tier-II cities.
Financial awareness on the rise
On the bright side, financial awareness around financial products increased over the last year. The index rose 2.1 points to 53.4 from 2019. “Maintaining one’s standard of living under unexpected adverse events has been an important factor driving the need for financial security,” per the study.
Familiarity with term insurance – pure protection risk cover - has increased by 11 points, while it has gone up by 10 points for both endowment and unit-linked plans policies. Not surprisingly, the pandemic has led to Indians giving more importance to life insurance. Over 41 percent of those polled said they bought a life insurance policy in the first wave that enabled them to plan better for the second wave, according to the report.
Parents, well-heeled women more concerned about financial preparedness
The study categorises consumers into ‘proud parents’, ‘wisdom investors’, ‘smart women’ and ‘young aspirants’ brackets. The first two categories comprised 39 percent and 29 percent, respectively. Smart women (working women aged 25-45 who have invested in at least one financial product) and young aspirants (20-30-year-old males who have invested in at least one financial product) made up 10 percent and 22 percent of the respondents, respectively.
The impact of COVID-19 on financial preparedness was more prominent among parents, specifically 31-45-year-old males with kids, followed by the segment of ‘smart women’.
“This is largely driven by the feeling of insufficiency,” the report noted. Wisdom investors (45-60-year-old males who have invested in at least two financial products) and young aspirants have felt the minimal impact. The former happens to be in a comfortable position due to maturity in handling finances and investments and the latter due to the fact that they have fewer financial responsibilities and no dependents.