OPINION | Inside India’s big savings slowdown and rising debt culture

Today's saving behavior depends on education, employment, and location.

A few weeks ago, I met a young tech couple in Bengaluru. Both earn well, work long hours, and proudly showed me their new apartment. The building is still under construction, but EMIs are already rolling. Their home is filled with the latest gadgets and appliances, mostly bought on zero-cost EMI. They have a modest SIP in the background, a rising credit card bill, and a philosophy that reflects aspirational India: “Why wait when we can afford the lifestyle today!”

Their parents, in a small town in West Bengal, live in a very different financial universe. They believe in saving through fixed deposits, recurring deposits, and gold before spending. For them, debt represents risk and moral discomfort, not convenience. What separates the two generations is more than financial preference—it is a cultural divide about security, aspiration, and adulthood. Increasingly, this divide is not merely generational; it is also social and structural.

India’s growth story today is shaped as much by how people save and borrow as by how much they earn. Household finance is influencing class boundaries, gender dynamics, mobility patterns, and intergenerational relationships.

A thinning financial cushion

CRISIL’s Quickonomics data shows a sharp change. Household savings fell to 18.4 percent of GDP in FY23 from a pre-pandemic average of 20.1 percent. Household financial liabilities have climbed to 5.8 percent of GDP, pushing net financial savings to a low of 5.3 percent.

The numbers reveal only part of the story. The deeper shift is cultural. Saving first and spending later was common sense because risks of illness, job loss, or crop failure were private. Families created their own safety nets. Today, the habit of waiting has weakened. Housing loans, consumption credit, personal loans, and buy-now-pay-later products have fostered a new belief that access matters more than accumulation.

For many households, this opens doors to comfort and mobility. For others, it exposes them to risk. When savings cushions shrink, the ability to handle shocks weakens. The new middle class may appear prosperous in daily life but often lives closer to financial fragility than it admits.

A new mix of wealth

Even as total savings weaken, their composition has changed. CRISIL notes households are shifting from traditional deposits to mutual funds, equities, pensions, and insurance. Real estate remains strong, and physical assets stand at nearly 12.9 percent of GDP.

The psychological shift is more notable. Urban households are becoming comfortable with market-linked returns, willing to trade guaranteed interest for potentially higher gains. This marks the rise of a market-linked middle class that sees wealth as something that can grow through participation rather than accumulation of land or gold.

CRISIL projects that financial savings in managed funds could rise from about 57 percent of GDP to nearly 74 percent by 2027. This will create households whose financial outcomes depend on market cycles. Some will benefit; others, particularly those without financial literacy or digital access, risk being left behind. Inequality is increasingly about access to the formal financial system, not just income.

Demography meets financial behavior

India’s demographic dividend previously boosted savings, but today, savings behavior depends on education, employment, and location. Urban households, especially dual-income families, borrow and invest very differently from rural ones.

This shift affects family dynamics. Young professionals who invest formally rely less on extended family during emergencies. Women managing SIPs or personal credit gain confidence and bargaining power at home. Joint families are giving way to smaller, more financially independent units.

Regional differences are becoming sharper. Urban, market-integrated families build financial assets faster. Rural households depending on traditional savings or informal loans struggle to keep pace. This creates a quiet divide between financially integrated households and those left outside the formal system.

The EMI lifestyle and its hidden fragility

A large part of India’s rising consumption is fueled by credit. EMIs now shape budgeting for many households, enabling lifestyles that previously required long waiting periods. But reliance on credit reduces financial flexibility. Once EMIs dominate monthly cash flow, savings often fall. A single disruption—job loss or medical emergency—can cause stress. India’s aspirational economy is advancing on credit but with limited shock absorption.

This creates a quiet duality. Some households use credit strategically to move up consumption brackets. Others remain in a state of permanent leverage. Over time, this could form two different societies: one that grows through strategic borrowing, another stuck in a cycle of stress.

A new social map

Changes in saving and borrowing reshape more than financial portfolios. They alter social life foundations. Inheritance itself is changing—families now pass down portfolios instead of land or gold. These are easier to divide but more vulnerable to market swings. Financial literacy increasingly determines intergenerational gain or loss.

Gender relations are shifting. Women who manage investments or credit assume more active roles in decisions about schooling, healthcare, and purchases. This creates more balanced households where choices are not dictated by traditional roles.

Urban mobility is also transforming. With wealth mostly financial rather than physical, young people feel freer to move across cities for work. They are less tied to ancestral property and more tied to skills and financial capability. Identity becomes shaped more by professional networks than birthplace.

Yet these gains are uneven. Financially literate households benefit, while those without market knowledge or digital access risk falling behind. Over time, this could harden into a structural division where upward mobility depends on income and access to formal finance.

Financial change and social evolution

India’s evolving savings landscape is not just a statistical trend—it is a social transformation. How households save, borrow, and invest is reshaping family relationships, gender roles, mobility, and class boundaries.

A more confident, financially literate generation is emerging, but it also faces higher exposure to debt and market volatility. India’s challenge is to guide this transition to strengthen resilience. Better financial education, consumer protection, and regulation will be central to ensuring opportunity is widely shared.

India’s social map is quietly being redrawn through everyday financial decisions. Whether it broadens access or deepens divides will shape the country’s social character in the years ahead.

(The writer is an Ex-Banker, Educator and Co-founder of Kompass Academy, Hyderabad. Shubham Kumar contributed to this article.)

Views are personal, and do not represent the stance of this publication.