Most Low-Income Households See No Increase In Income, Save Less Than 20 Per Cent: Study

Low-income households in India reported no increase in income over the past five years, according to a Redseer report. Around 77 per cent of such households faced stagnant incomes wherein even a marginal growth in income was often offset due to rising inflation and cost of living which directly impacted costs associated with food, healthcare, housing, and daily transportation. As per the survey, many low-income individuals work in informal or unregulated sectors that generate irregular income streams. This leads to perpetual financial instability for such earners.

In addition to this, limited accessibility to institutionalised banking and financial services leads to financial illiteracy, with individuals who do not know efficient saving and tactful investment.

The average age of respondents was found to be 42 years, representing individuals hailing from metropolitan tier 1, and tier 2+ regions. The respondents were employed across various service industries including government/private jobs, registered/unregistered businesses, daily wage labourers, and those involved in agricultural practices.

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Saving less than 20% of Income

The study conducted by Redseer Strategy Consultants finds that middle-income households in India are only able to save less than 20 per cent of their income. Low and emerging-middle-income groups save 14 and 17 per cent respectively. This is in contrast to the national average of 30 per cent.

What is eating into their pocket?

Essential Expenses: The majority of lower and middle-income households’ money is spent on essential expenses such as food, house rent/loans, EMIs, medical costs, etc.

Education Costs: The respondents say education loans, and fees for children take away a significant portion of their income.

Medical Urgencies: Medical costs result in around 30 per cent of savings depletion for such households, according to the study. The families are being forced to deplete their savings for unforeseen health emergencies. The situation is not helped by the rising cost of medical care and inadequate health insurance coverage.

No-risk Investments

The survey finds that such individuals are more financially vulnerable wherein around 8 per cent of these households reported zero savings in the last few months. The low-income groups still prefer traditional savings instruments such as bank deposits, fixed deposits, and post office schemes.

No appetite for Stock Market: Due to their already vulnerable situation, around 79 per cent of low-income, 78 per cent of emerging-middle-income, and 81 per cent of middle-income households choose low-risk saving instruments over volatile market investments like stocks and mutual funds (MFs).

Moving towards micro credits

In a situation where essential expenditures exceed income, one in every four individuals with zero savings turns to other lending options like micro-credits, bank loans, credit cards, etc.

The study finds that around 65 per cent of Indian households ask their friends and family for financial support. Some 6 per cent completely deplete their savings or sell/mortgage assets to meet their expenses.