Indians are wise savers but poor investors: Survey

The book, 'How India Earns, Spends and Saves' launched by Deputy Chairman, Planning Commission, Government of India, Montek Singh Ahluwalia, Feb. 6, which contains the findings of the survey, reveals that this phenomena is not just confined to just poor or middle-class households, but is prevalent in rich households too.

The survey reveals that most Indians prefer keeping 65 percent of their savings in liquid assets like bank or post office deposits and cash at home, while investing 23 percent in physical investments like real estate and gold and only 12 percent in financial instruments.

For getting secure return on their earning, 51 percent of Indians put their savings in the banks while 36 percent of households still prefer to keep cash at home. The investment in post offices and other guaranteed return schemes and plans gets minor part of total savings. Only 5 percent of family put their money in post offices, while 2 percent buy insurance policies and 0.5 percent invests in equities.

Interestingly, though life insurance is among the most popular financial instruments (about 78 percent of the households are aware of life insurance), yet only 24 percent of households have a life insurance policy. The ownership is 38 percent among urban households but a low 19 percent among rural households.

The survey, which covered 342 towns and almost 2,000 villages across 250 districts and 2,255 wards, suggests that Indian households have a strong saving habit. While income level is an important factor in influencing the saving patterns of households, variations in savings behavior are equally decided by education level and occupation, said Dr. Rajesh Shukla, principal author of the report and Senior Fellow at NCAER.

According to the study, 83 percent of the households surveyed saved for emergency, while children's education (81 percent) was the other key priority. While only 69 percent households saved for old-age financial security, 63 percent households said they kept aside money to meet future expenses like marriage, births and other social ceremonies.

The study also notes that nearly 47 percent households saved to buy or build a house and a similar percentage saved to improve or enlarge their business. Only 22 percent households saved to buy consumer durable and 18 percent for meeting expenses towards gifts, donation or pilgrimage.

The survey findings confirm the wide disparity between urban and rural people. On an average, the urban Indian earns 85 percent higher than his or her rural counterpart, spends 71 percent more and saves nearly double - Rs.26,762 compared with Rs.11,613 - every year.

According to the survey, a person's occupation, education, age, location and landholding directly influence his or her income. Households with graduates earn 3.5 times more than those with illiterate ones, and incomes nearly double between the ages of 25 and 66.