New Delhi, July 2: In a recent survey that covered 10,000 low-income people earning less than Rs 70,000 per annum, more than 70 per cent of the respondents said they don’t choose formal savings instruments, and instead relied on chit-funds and money under the mattress, to park their money.
“Strong social contract that chit funds nurture in this cohort and a combined effect of lack of awareness, tech intimidation, and accessibility” are challenges faced by formal financial systems to bring low-income groups into parking their money in savings instruments, noted PayNearby’s survey, titled “India Savings Behaviour”.
In the survey conducted during the first 15 days of June this year, more than 65 per cent of respondents said they shied away to save their money in formal savings mechanisms as they were unable to maintain regular cash flows. The respondents maintained that “uncertainty in income flow” and “large household expenses” were big deterrents for them to commit to any savings products.
Anand Kumar Bajaj, CEO, PayNearby, said, "The lower stratum of society has traditionally depended on informal saving instruments, the likes of chit funds despite the vulnerabilities and red flags associated with the mode of saving. Lack of accessibility to the formal financial channels, besides a strong sense of community affiliation has been acting as a force gravitating the cohort to these informal modes."
Meanwhile, the remaining 35 per cent of the low-income group said to have chosen formal savings instruments to park their money mainly “to stop themselves and the household from unnecessary expenses,” the survey said. Of which, 65 per cent wanted to accumulate wealth to meet their short-and medium-term life goals.
In light of the COVID-19 pandemic, nearly half of the low-income respondents in the survey have said to build a corpus to deal with emergency-like situations. An emergency fund is parked for immediate requirements to cover expenses during dire needs.
Financial experts agree that while the virus has had a profound impact on both savings and expenditure, the rule of thumb to save money is not only to accumulate wealth but to be financially safe.