Are We Saving?

“Saving for a rainy day” used to be the taraka mantra for generations in our country but this has been recently given the go as evidenced by conspicuous consumption levels.  This is further reinforced by the Reserve Bank of India’s finding that household financial savings fell to 7.8 per cent of the GDP in 2011-12 is a major cause for concern. It is the lowest in 11 years and way below the average of 11 per cent in the three preceding years.

I would consider the following factors to be responsible for this new dangerous trend.

a.  Increased household income:  While this appears to be a paradox, the order of the day being  both the spouses are earning members has actually led to lower savings as compared to the previous situation where only the male was earning.  While this is really debatable, let’s leave it at that.

b.  Availability of easy (expensive) financing:  Previously, the salary or the wages was the only means of sustaining the household and therefore of savings.  But with the onset of credit cards and personal loans that seem to be omnipresent, a new definition has emerged.  No longer does one have to wait for the salary to buy or spend on the things one wanted. The convenience of the credit cards and the blitzkrieg of advertising and promotion  of EMIs (Equal Monthly Instalments) for credit card spends, albeit at higher costs, have created the habit amongst the middle class to reach out to the credit cards more willingly.

c. Desire for a better life style and quality of living: The earlier syndrome of owning things for life (both of the object’s and the owner’s) has vanished.  Cars are replaced every 3-5 years, mobile phones perhaps once in 2 years (sometimes even earlier) and other electronic goods quite frequently to match the latest models.  Dresses were bought previously on occasions like festivals and birthdays but every day seems to be a great day for buying textiles as seen by the hordes of people entering the shops.  Sweets and savouries were earlier made at home and that too only on important festivals but they are bought and consumed almost like FMCG.   Eating out was a rare treat for the family members then but it has become a weekly ritual now.

d.  Disdain for budgeting:  While Governments at the states and the centre actually show disdain to the process of budgets and treat them as a necessary evil, it is really a cause of concern that households too have given up on this valuable tool.  Families now relate to budgets as objects of the past and relics that used to strangulate the household.

e.  Inflation:  The rise in cost of essential commodities and services are not matched by the rise in income.

All these factors have led to the situation of lower (if not negative) savings and that does not augur well for the family and the economy as well.  While one cannot do much about the runaway inflation (no matter what the Government spokesmen or the RBI statements say about it), the other factors are certainly within the ambit of every family and individual to exercise.

Let’s Save and not go the way of the bankrupt west !!

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9 Comments

  1. Mouli said,

    September 21, 2012 at 3:20 am

    Badri – So timely and just the right inputs / advice, particularly in the era of volatile and uncertain times.

    • badrirag said,

      September 21, 2012 at 3:29 am

      Mouli, thanks for the encouraging words. pls spread the virtue of savings to your near and dear ones.

      Badri

  2. Ranjan said,

    September 21, 2012 at 5:52 pm

    Very well articulated. But I guess that increased spending does perk up the economy too!

    To my mind, this decrease in savings is also due to the attraction of buying new gadgets and is in tune with the times.

    How about improving our investments rather than getting worried about the spending part?

    • badrirag said,

      September 22, 2012 at 2:44 am

      Thanks Ranjan. While I agree with you that spending helps the economy, reckless spending actually harms more than it helps. And more importantly, it drives families into debt traps that is not certainly not desirable.

      We also need to focus on the return from our investments but where are the investments going to come from? For a family, the difference between the income and the expenses is the affordable income that can go into investments. I know several friends who have the latest cars but little liquidity for emergency and investments not worth a mention. Actually, the Government dips into the savings of the citizens for its various activities and if there is none in the form of Tax Bonds or NSC or PPF,where will it go?

      Badri

  3. September 22, 2012 at 5:34 am

    I would say that last decade investors have looked at Gold and Real Estate as an alternative to Bank Deposits which I feel is one reason for the dip in Savings.

    I also agree that the present generation is currently not used to the savings habit as it is something one needs to learn from childhood which I feel is lacking these days.

    • badrirag said,

      September 22, 2012 at 3:19 pm

      If I had conveyed the impression that FDs alone are indicators of savings, please accept my apologies. Investment in land or gold has to come from savings because no bank or credit card will give loans to buy land or gold (or so i think). so if families have made significant investments in real estate and gold, then it means that they have only channelised their savings in those avenues.

  4. Balaji said,

    September 22, 2012 at 1:19 pm

    Badri,
    Have been reading your posts often and love them..especially this one…nice piece of advice…I think this lack of saving habit and over spending starts early on with Gen Y in IT/ITES getting significantly high salariea even at start and they not knowing how wisely to handle big sums of money……

    • badrirag said,

      September 22, 2012 at 3:16 pm

      Balaji,

      Thank you for your words of encouragement. While the IT Sector salaries are certainly above the industry average, there are other sectors where salaries are high to retain good people. Private banks, financial institutions, education are some examples. India is in fact losing its “strength” of low wages and that is one reason for many US companies who are looking at locations like China and Phillipines to play their outsourcing game.

  5. Mouli said,

    September 22, 2012 at 4:08 pm

    Cost as a competitive edge is only available for a short period of time. Process oriented industries and services definitely always look for cutting costs on a continual basis. It is not surprising that some of the jobs need to move around. Looking at the IT software services industry, the industry is in for some major challenges including costs. Definitely there are larger needs around quality, productivity and domain competencies / knowledge. These factors will drive the cost argument away if we can demonstrate on a sustained basis.


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