The research aims to understand and analyze the personal finance habits of the middle income professionals in India. Their financial decisions today would determine their future financial strength. The study was conducted on over 2000 salaried professionals.
The personal finance readiness of a salaried professional defines the likelihood of one meeting all his goals in life. It defines:
• How efficiently the cash flows are being tracked.
• How well the investments are being planned.
• How comfortable the retirement phase is going to be.
• How efficiently one can handle any unforeseen/unfortunate events in life.
Only 2.43% Entry Level professionals can be rated high on their personal finance readiness. Only 7.19% of the Mid – Level professionals and 11.48% of the Senior – Level professionals can be rated high on their personal finance readiness.
View of Employees and HR on Personal Finance :
Many studies have often stated that providing financial education at work place is directly proportional to their financial well being. As per the research, the salaried professionals prefer to get financial education as a workplace benefit. More than half (56.97%) the professionals stated that providing financial education at work place is highly important while 33.38% of the professionals rated financial education at workplace as important. One – tenth (9.65%) of the professional felt that financial education at work place is not important.
When the same question was posed to the HR professionals, 73.06% of them stated that financial education at work place is not important. 18.99% of the HR professionals felt it is important and 7.95% of the HR professionals felt that it is highly important.
Table of Contents
Summary 4
1.Introduction 7
2.Research Methodology 8
3.Findings 9
3.1 Retirement Planning 10
3.2 Do you have enough savings to counter any emergencies? 11
3.3 How frequently do you keep track of your expenses 13
3.4 How are the financial decisions made? 14
3.5 How much do you invest in section 80C 15
3.6 Major tax saving Investments 17
3.7 Most common goals 19
3.8 Personal Finance Readiness 21
3.9 View of Professionals and HR on Personal Finance 22
4.Reasons for current Financial State of the Salaried Professionals 23
5.Conclusion 25
Table of Figures
Figure 1: Distribution of Professionals considered for the research
Figure 2: RetirementPlanning Status of Entry Level Professionals
Figure 3: Retirement Planning Status of Mid – Level Professionals
Figure 4: Retirement Planning Status of Senior Level Professionals
Figure 5: Emergency Fund Status of Entry Level Professionals
Figure 6: Emergency Fund Status of Mid – Level Professionals
Figure 7: Emergency Fund Status of Senior Level Professionals
Figure 8: Budgeting Frequency of Professionals
Figure 9: Sources of financial advice for Professionals
Figure 10: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 – 5 lakhs
Figure 11: Distribution of amount being invested in section 80C by professionals with an annual income of INR 5 – 10 lakhs
Figure 12: Distribution of amount being invested in section 80C by professionals with an annual income of above INR 10 lakhs
Figure 13: Distribution of different kinds of tax saving investments being made by Professionals.
Figure 14: Most common goals of Entry Level Professionals
Figure 15: Most common goals of Mid – Level Professionals
Figure 16: Most common goals of Entry Level Professionals
Figure 17: Personal Finance readiness of the Professionals
Figure 18: Salaried Professionals view on Financial Education as work place benefit
Figure 19: HR professionals view on Financial education on work place benefit
Summary :
The research aims to understand and analyze the personal finance habits of the middle income professionals in India. Their financial decisions today would determine their future financial strength. The study was conducted on over 2000 salaried professionals. The professionals participated in the study were classified as:
• Entry – level Professionals : Less than 6 years of work experience
• Mid – level Professionals : 6 -10 years of work experience
• Senior – level Professionals : More than 10 years of work experience.
The research has been conducted on various aspects of personal finance. Summary of each aspect is shown below.
Are you preparing yourself for retirement? :
Based on the current personal finance habits of the professionals, 91 % cannot afford to retire at the age of 60. The probability of extending the retirement age is higher for such professionals owing to lack of enough retirement corpuses.
Only a tenth of Entry Level Professionals have started investing in a retirement plan. Among the Mid – Level Professionals, only 20% have an investment plan for their retirement. More than half the Senior Level Professionals 71% haven’t yet started investing for retirement.
Do you have enough savings to counter any emergencies? :
The practice of keeping away money dedicated only for emergencies does not exist in large portion of the population. An emergency fund should account for 3-6 months of expenses. In the segment of Entry Level professionals, 58% do not have a fund set aside for emergencies where as 28% have savings equivalent to 1 – 2 months of their expenses. Among the Mid – Level Professionals, 42.31% do not hold a emergency fund where as 19.23% hold savings which can fund their expenses for 1 – 2 months. One- third (33.33%) of Senior Level professionals hold savings can fund their expenses for 1 – 2 months where as 37.50% do not have an emergency fund in place. This current state of the employees would force them to liquidate their existing investments or assets in order to fund their emergencies.
How frequently do you keep a track of your expenses? :
Most of the professionals generally do not keep a track of where they spend and how much they spend.Only 26.26% of the professionals are maintaining a healthy track of all their expenses. Nearly one – tenth (10.61 %) of them review their expenses frequently. Majority of the professionals (42.93%) review their expenses only occasionally. A fifth of the professionals (20.20%) review their financials rarely.
Who is advising you in making your financial decisions? :
The poor financial decisions being made by majority of the professionals can be attributed to the kind of financial advice they get. Friends and Colleagues act as financial advisors for 35.40% of the professionals. Family members are the prime source of financial advisory 30.97% of the professionals. 13.27% of the professionals make financial decisions based on their self research. Friendly Neighborhood agents advise 15.93% of the professionals. Only 4.42% of the professionals seek advice from an expert financial advisor before making an investment.
How well are the taxes being planned? :
Tax savings is the nirvana of financial planning for majority of the professionals. But many bad decisions are being made even in the process of tax planning. At least 8% of the Entry Level professionals are over doing the tax saving investments. Among the Mid – Level professionals, 37% under utilize the tax benefits under section 80C and 17% of them are over doing the tax saving investments. In the segment of Senior Level Professionals, 27% under utilize the benefits of section 80C where as 53% over invest.
Are you choosing the right tax saving investment? :
Tax saving forms an integral part of investment planning strategies for most of the Indians. But it is important such tax saving investments compliment one’s ability to achieve life’s goals. For 77.46% of the professionals, Insurance is their primary choice as 80C investment instrument. Among such professionals, 95.86% of them receive their financial advice from family or neighborhood friends.
Only 6.86% of the professionals invest in Equity Linked Saving Schemes. PPF or EPF is the primary choice of tax saving investment for 7.95% of the professionals. Among such professionals, 76.85% of the employees who invest in PPF or EPF stated that they receive their financial advice from their colleagues.
NSC is chosen by 3.45% of the professionals where as fixed deposit is the primary choice for 4.28%. 83.26% of employees who invest in NSC get their advice from Family.
The tax saving investment patterns recorded depicts the equity aversion of many of the professionals.
Personal Finance Readiness :
The personal finance readiness of a salaried professional defines the likelihood of one meeting all his goals in life. It defines:
• How efficiently the cash flows are being tracked.
• How well the investments are being planned.
• How comfortable the retirement phase is going to be.
• How efficiently one can handle any unforeseen/unfortunate events in life.
Only 2.43% Entry Level professionals can be rated high on their personal finance readiness. Only 7.19% of the Mid – Level professionals and 11.48% of the Senior – Level professionals can be rated high on their personal finance readiness.
View of Employees and HR on Personal Finance :
Many studies have often stated that providing financial education at work place is directly proportional to their financial well being. As per the research, the salaried professionals prefer to get financial education as a workplace benefit. More than half (56.97%) the professionals stated that providing financial education at work place is highly important while 33.38% of the professionals rated financial education at workplace as important. One – tenth (9.65%) of the professional felt that financial education at work place is not important.
When the same question was posed to the HR professionals, 73.06% of them stated that financial education at work place is not important. 18.99% of the HR professionals felt it is important and 7.95% of the HR professionals felt that it is highly important.
Introduction :
Most p, span style=rofessionals generally relate financial well being to either their income or the accumulated assets. However, planning for the future financial needs is often ignored. The financial life cycle of a salaried professional follows a specific pattern. At a young age, the salaried professionals rely on loans and other forms of debt to fulfill their dreams of buying a car, home etc. During the peak earnings phase they pay off their debts and start saving towards retirement. Once retired, they draw the money from their savings to take care of their everyday expenses.
Personal Finance remains one of the most ignored aspects of life. Ideally people would like to see their hard earned money compliment the hard work they put behind in earning it. But they often fail to take necessary actions to set their money on a growth path. Most professionals assume that money management is necessary only when they have a lot of surplus. But regardless of income level and age, anyone who has income needs to have a well sketched plan to manage their finances better.
Today, the salaried professionals are expected to make more financial decisions than ever before. It is also important that the decisions being made are financially prudent as well. They are being presented with a gamut of financial products for every aspect of their daily life, be it bank account, credit card, loans, insurance or retirement. Choosing a best suited product becomes a challenge for the professionals. So managing personal finances also becomes more important than ever.
This research by ArthaYantra is intended to analyze the current personal finance habits of the Salaried Professionals and the effect of such habits on their financial well being in the future. More than 2000+ professionals across different industries with varied work experiences are studied to capture their current financial habits. The survey captures the sources of financial advice of these professionals. This is used to analyze the impact of financial advice source on the individual financial decision making process. The research captures tax planning habits of the individuals and the avenues of tax saving investments.
Research Methodology :
The study by ArthaYantra is aimed at understanding the current personal finance habits of the salaried professionals. The data analyzed for the survey is collated from: :
• ArthaYantra’s interactions with its current base of clientele.
• Survey conducted by ArthaYantra on salaried professionals across different salary ranges and different industries.
• Survey conducted by ArthaYantra on 200+ Human Resource professionals across different industries.
The questionnaire drafted for professional survey was designed to capture the general personal finance practices. The survey questionnaire for professionals covers a wide range of personal finance aspects including :
• Spending patterns
• Primary mode of payments.
• Saving routine.
• Frequency of analyzing the expenditures and available surplus
• Status of retirement plan.
• Tax planning strategies
• Common goals and aspirations.
• Sources of financial advice.
• Priority of employee benefits.
The findings are then analyzed to know the impact of their current financial habits on their potential future well being.
The research segments the professionals as:
• Entry – level Professionals: Professionals with less than 6 years of work experience.
• Mid – level Professionals: Professionals with 6 -10 years of work experience.
• Senior – level Professionals: Professionals with more than 10 years of work experience.
The questionnaire designed for HR professionals tries to capture the common reasons behind employee attrition patterns and the priority of employee benefits.
Findings :
Are you preparing yourself for retirement? :
“18.64% Can Afford to retire at the age of 60”
The changing socio economic structure of the country increases the importance of the retirement Planning. Indians no longer have the social net of joint families, nor do the majority of them work in government organizations that provide pension post retirement. The new dynamics of nuclear family, lack of social security and inflation driven economy has made funds for retirement important for the professionals and their family. The adequacy of the retirement funds is dependent on:
• Design of the retirement Plan :
The complexity of designing a retirement plan lies in determining the required retirement corpus, how much to save and where to invest.
• Tenure to achieve required corpus :
The design of the retirement plan and tenure are interdependent. The time at which one starts planning for retirement, determines how long it would take to achieve the required retirement corpus.
Early planning for retirement is important because it typically takes years of systematic saving in order to accumulate the ideal amount of funds for the post retirement phase. Additionally, power of compounding also works in favor of the early starters. The interest accumulated over the years also gives the flexibility of investing lesser amounts if started early.
As observed in Figure 2, only 9.29% Entry Level Professionals have started investing in a retirement plan other than mandatory retirement related options like PF provided by their organizations.
The retirement planning status of Mid – level and Senior Level Professionals is represented by Figure 3 and Figure 4 respectively. Only 19.23% of Mid – Level Professionals and 29.63% of Senior Level Professionals started planning for their retirement.
Do you have enough savings to counter any emergencies? :
Every individual on an average faces at least three emergencies during their life time between the age of 30 and 45. These emergencies could range from a job loss to a health scare. It is important to make sure that money is the last thing one has to worry about during such stressful times. Building an emergency fund is the primary step to avoid any financial disaster because of any unforeseen or unfortunate events in life.
Majority of Personal Finance experts advocate to maintain an emergency fund which accounts for 3-6 months of expenses. Emergency fund should be held in assets which guarantee capital preservation and can be converted to cash quickly. Having an emergency fund prevents professionals to spiral into financial distress during difficult times. It also reduces dependency on loans or liquidation of other assets.
“35.75% of the Professionals are prepared for an emergency”
The emergency fund status of Entry Level Professionals is summarized in Figure 5. More than half the Entry Level Professionals (57.47%) do not have enough savings to support their expenses for at least a month. More than a quarter of Entry Level Professionals (28.30%) has savings which account for only 1 – 2 months of their expenses.
Among the Mid – Level Professionals, 42.31% do not hold a emergency fund where as 19.23% hold savings which can fund their expenses for only 1 – 2 months. The detailed stand of Mid – Level Professionals with respect to their Emergency Fund is shown in Figure 6.
Figure 6: Emergency Fund Status of Mid – Level Professionals
The Emergency fund status of Senior Level professionals does not look promising either. Majority of these professionals maintain unsatisfactory level of emergency funds. One – third (33.33%) of them hold savings that can fund their expenses for 1 – 2 months whereas 37.50% do not have any emergency fund in place. The details are summarized in Figure 7.
The results from the study conducted clearly show the fact the practice of keeping away money dedicated only for emergencies does not exist in large portion of the salaried professionals. This current state of the professionals would push them to liquidate their existing investments or assets in order to fund their emergencies.
Figure 7: Emergency Fund Status of Senior Level Professionals
How frequently do you keep track of your expenses :
One of the best practices of personal finance includes designing a house hold budget and monitoring it regularly. The most simple and effective home budgeting technique is to list down all expenses incurred. This helps in identifying the major expense heads where spending can be minimized. This aids in building a healthy monthly surplus. The home budgets are to be reviewed at regular intervals to make sure that the financials are on track. Budgeting frequency can play an important role in identifying ad curbing unnecessary spending that happens in the family. It would also result in efficient use of the income received by the family.
Budgeting frequency habits of professionals is summarized in Figure 8. One out of five Professionals (20.20%) review their financials rarely where as Majority of them (42.93%) review them occasionally. Only 26.26% of the Professionals are maintaining a healthy frequent track of all thnbsp;eir expenses. 10.61 % of the professionals review their expenses frequently. This signifies the fact that most of us generally do not keep a track of where we spend and how much we spend.
“Only 26.26% of the Professionals are maintaining a healthy frequent track of all their expenses.”
Figure 8: Budgeting Frequency of Professionals
How are the financial decisions made?
“Only 4.42% of the Professionals said they seek advice from an expert before making an investment”.
The long – term financial impact of every financial decision can be significant. Financial decision making process is often viewed in isolation, rather than holistically. The benefits of a good financial decision can continue for many years and similarly a bad decision can hurt both short and long term financial prospects. There is always a wide impact of a financial decision, which is often ignored. The ecosystem of that supports the financial decision making of the professionals includes office, family and friends. It is this ecosystem that most of the professionals rely upon for any financial advice. Off late office colleagues has emerged as critical resources of financial advice for the salaried professionals.
Friends and Colleagues act as financial advisors for 35.40% of the professionals. Family members are the prime source of financial advisory for 30.97% of the professionals. 13.27% of the professionals make financial decisions based on their self research. Friendly Neighborhood agents advise 15.93% of the professionals. Only 4.42% of the professionals seek advice from an expert financial advisor before making a financial decision. The composition of sources of financial advice for professionals is shown in figure 9. Every major decision in life be it buying a home, moving into a new city, education of the children, everything has a financial implication associated with it. The financial implications of such decisions should be discussed with a financial advisor. Lack of access to quality advice is the prime reason behind individuals making some financially bad decisions.
How much do you invest in section 80C:
One of the major components of tax savings in India is investments that are part of section 80C of the income tax code. These investments bear the advantage of decreasing tax liability of the individual. However, it is also important to make sure that the professionals do not exhaust their available surplus in the pursuit of saving tax.
Among the professionals who fit in the salary bracket of 2 – 5 lakhs per annum, 67.96% make investments worth INR 10,000 – INR 25,000, 18.45% make investments worth INR 25,000 – 50,000. Only 5.83% and 2.91% of them make investments worth INR 50,000 – 75,000 and INR 75,000 – 1, 00,000 respectively. 4.85% of them make investments worth more than INR 1 lakh. At least 7.76% of these professionals are over doing the tax saving investments. Among such professionals 98.85% get their financial advice from friendly neighborhood agents and family and 87.75% of them said insurance is their primary tax saving instrument.
“Nearly 14.97% of the Professionals are investing more than 1 lakh under section 80C.”
Figure 10: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 – 5 lakhs
In the segment of professionals whose compensation package lies between 5 – 10 lakhs per annum, 37.18% make investments worth INR 10,000 – INR 25,000. Nearly a fifth (17.95%) of the professionals makes investments worth INR 25,000 – 50,000 where as 15.38% of them make investments worth INR 50,000 – 75,000. Out of the remaining professionals, 12.82% make investments worth INR 75,000 – 1, 00,000 where as 16.67% make investments worth more than INR 1 lakh. So, 37.18% of the professionals are not utilizing tax benefits under section 80C and 16.67% of them are over doing the tax saving
investments.
Among the professionals who earn more than INR 10 lakhs per annum, 13.33% make investments worth INR 10,000 – INR 25,000. Another 13.33% of them make investments worth INR 25,000 – 50,000. 6.67% of them make investments worth INR 50,000 – 75,000. 13.33% of them make investments worth INR 75,000 – 1, 00,000 where as 53.33% of them make investments worth more than INR 1 lakh. So, 26.66% of the professionals are not utilizing the tax benefits under section 80C and 53.33% of them are over doing the tax saving investments.
Figure 12: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 – 5 lakhs
So among the 2000+ salary professionals studied, most of them either under utilize the benefits of section 80C or over do the tax saving investments due to their habit of failing to keep a track of their investments. Lack of financial awareness can be the prime reason behind under utilization or over doing the tax investments. The second attribute for these patterns can be the source of financial advice. Especially in the case of professionals who over do the tax savings, their major source of financial advice is either friends and family or some neighborhood friendly agent.
The other important aspect of making tax saving investments is the time during which the investments are made. The best practice of planning taxes is to distribute the payments for tax saving investments evenly across the year. It is advisable to avoid concentrating or postponing all the tax saving investments towards end of the financial year. This piles up the burden on the professionals during the end of financial year, especially if they start tax saving investments post November. Tax Saving Investments by 28.85% of Entry Level Professionals are made during January to March. October to December is the preferred time for 18.27 % of the Entry – Level Professionals. Among the Mid – Level Professionals, 25.71% of Mid – Level Professionals start making tax saving investments during October to December and 18.57% during January to March. Majority of Senior – Level professionals start making tax saving investments in the second half of the financial year with 20.83% starting during October to December and 29.17% during January to March.
Major tax saving Investments :
The intention of government behind giving this dedcution of 1 lakh is to promote the habit of savings among the professionals. Inclusion of PF, PPF and EPF is to promote the idea of saving for retirement. Since it is a mandatory practice for majority of the organisations to provide PF for their employees, one can even opt of ELSS and give an exposure to equity for their retirement funds also. So given these options it is important to choose the investments which helps the professionals maximize the benefits of tax savings. The challenge however lies in picking in suitable products. It is important that the professionals analyze their risk profile and pick the tax saving instruments suitable to them.
The tax saving investments choices by professionals is summarized in Figure 20. Among the professionals studied, 77.46% stated that Insurance is their primary choice as 80C investement vehicle. This implies that most of the professionals mix their investments with insurance which is not a good personal finance practice. Amoing the professionals professionals who prefer insurance as their tax saving investment, 95.86% receive their financial advice from family or neighborhood friends. These are esentially the agents who have a vested interest of filling their yearly targets.
“Only 22.54% of the Professionals invest in tax saving instruments other than Insurance.”
Figure 13: Distribution of different kinds of tax saving investments being made by Professionals.
Equity Linked Saving Schemes are preferred by 6.86% of the professionals. This depicts the equity aversion of many of the professionals. Inclusion of equity in the retirement fund is an option that is ignored more often than not in India.
PPF or EPF as a tax saver vehicle is preferred by 7.95% professionals. 76.85% of the professionals who invest in PPF or EPF stated that they receive their financial advice from their colleagues.
NSC is preferred by 3.45% of the professionals where as fixed deposits is preferred by 4.28%. Majority (83.26%) of such professionals get their financial advice from Family.
It is tricky to determine the investment product suitable for the individual without assessing their current financial situation and future goals. But as per the research results with the professionals favoring insurance over other investments, it can be said that the strategy behind their tax saving investments should be revisited and fine tuned.
“Saving for retirement is the last priority Personal Finance Habits
Most common goals :
When setting goals, every one holds a different set of expectations of their life. Their likelihood of achieving the goals set by is directly proportional to their financial well being. The financial goals of an individual can be classified under three segments: Short term goals like buying a two wheeler buying a car, medium term goals like buying a home, children’s education and long term goals like retirement. Defining a goal and determining the amount needed and tenure will help in setting a specific investment plan in order to achieve them.
for the In the segment of Entry Level Professionals, the near term goals like buying a two wheeler, buying a car, buying a home, getting married
Professionals.” were on the high priority list. The goamargin-top: 0px; margin-right: 0px; margin-bottom: 0px; margin-left: 30px; color: #333333; font-family: ls like emergency fund and retirement were rated less on the priority scale.
Among the Mid – Level Professionals, child care, children’s education, buying a home and buying a car were on the high priority list. The goals like emergency fund and retirement plan were rated low on the priority scale even by Mid – Level professionals. The goals like children’s education, children’s marriage, and retirement were rated as high priority by Entry Level Professionals.
Retirement is being recognized as an important goal only by Senior Level Professionals. Failing to realize the long term goals and being concerned about near future may prove costly for the Entry Level and Mid – Level Professionals.
Personal Finance Readiness :
The personal finance readiness of salaried professionals defines the likelihood of meeting most of their goals in life. It defines:
• How efficiently the cash flows are being tracked.
• How well the investments are being planned.
• How comfortable the retirement phase is going to be.
How efficiently one can handle any unforeseen/unfortunate events in life.
These factors form the pillars of a strong financial foundation for salaried professionals from which they can reap long term benefits.
Among the Entry Level Professionals, only 2.43% can be rated high on their personal finance readiness.
These levels are alarming low especially conisdering the advantages associated with starting saving for futre at an early stage of career.
Only 7.19% of the Mid – Level professionals can be rated high on their personal finance readiness. Generally the professionals in this segment aspire getting a home and also have the burden of child maintainance costs. The numbers also explain the over dependence on debt among this segment.
Only 11.48% of the Senior Level professionals can be rated high on their personal finance readiness. Especially with high child education costs and other forms of debt like home loans in their name, these professionals should start managing their financials better.Unless the financial readiness increases from the current low levels, adverse economic or personal condition can negatively impact significant percentage of the professionals.
“Only 6.75% of the Professionals are prepared to face an emergency in life.”
Figure 17: Personal Finance readiness of the Professionals
View of Professionals and HR on Personal Finance :
Many studies have often stated that the productivity of a salaried professional is directly proportional to their financial well being. Financially stressed salaried professionals carry forward the same levels of mental stress to the work which indirectly affects the productivity of the professionals. Since the productivity of a professional is affected due to their bad financial decisions and professionals spend most of their time at their respective working organizations, HR of the organization does have a role to play in the financial well being of their professionals. Getting a financial education program in place is the first step in order to make sure that the professionals are financially literate. This helps professionals in making better financial decisions and indirectly makes sure that the professional is not stressed due to various financial decisions made or to be made in the future.
The view of salaried professionals and HR professionals is depicted in Figure 21 and Figure 22 respectively. More than half (56.97%) the professionals stated that providing financial education at work place is highly important while 33.38% of the professionals rated financial education at workplace as important. One – tenth (9.65%) of the professional felt that financial education at work place is not important. These numbers do signify the fact that the salaried professionals prefer to get financial education as a workplace benefit.
“56.97% of the Professionals feel that financial education at work place is highly important.”
Figure 18: Salaried Professionals view on Financial Education as work place benefit
When the same question was posed to the HR professionals, 73.06% of them stated that financial education at work place is not important. 18.99% of the HR professionals felt it is important and 7.95% of the HR professionals felt that it is highly important. This clearly shows that the view of employees is a lot different from the HR Professionals when it comes to financial education at work place.
Figure 19: HR professionals view on Financial education on work place benefit
Reasons for current Financial State of the Salaried Professionals :
Financial literacy :
Financial literacy is defined as an understanding of basic economic concepts which deal with the art of saving and investments. Lack of financial knowledge and source of financial advice play a vital role in the sub optimal financial decisions being made by the employees. The lack of financial literacy is also the driving factor behind the lesser saving rate among the employees. The spending habits instead of saving habits are being directly proportional with the increasing salaries of the employees. The various socio economic factors that drive this factor of lack of financial literacy among the employees are :
• Personal finance is always given a low priority.
• Basics of personal finance are not part of educational curriculum except for some students from finance background.
• Lack of financial knowledge among family members, especially they being the major driving force behind financial decision making process.
All these factors play a pivotal role in the current financial state of the employees. Personal finance is being perceived through the color of tax planning or investment planning. Lack of knowledge on various personal finance aspects is affecting the financial decision making process of the employees and their potential financial future. Especially in the current world where one can find many options for every financial need, it is important they know the basics of personal finance before making any financial decision.
Behavioral Bias :
Ranging from food habits, dressing style to social etiquette, all aspects of life are influenced by the social interactions. People learn and implement all the ideas on the basis of their interactions with colleagues, friends and family. Similarly the financial decisions being made are essentially controlled by non – financial factors. Individual characteristics combined with the impact of the society, colleagues, family and friends account for these major non – financial factors.
The investment decisions are the ones that are affected most due to this behavioral bias of following the people around us. The positive signal about the investment is being conveyed by the friend or colleague but not by the market governing factors of the investment. This is similar to buying a house in a locality because someone advised that the area is going to flourish in the coming days. So essentially, the utility curve of financial instruments is skewed because it is not the individual need or demand that is driving the utility curve but the wild goose chase of the individuals is driving it.
Emotional quotient :
Most of the financial decisions made by the individuals are driven by emotions rather than objectives. There has always been the social pressure on the middle class to be an owner of a house rather than a renter. Buying a home is considered, a ticket to a superior standing in the social circles. Our physiological behavior patterns give us a sense of security, when we own a home. Similarly the emotional quotient attached with a owning a car surpasses the pleasure of investing in a retirement fund.
The other underlying emotional factor that can be drawn from the research is instant gratification. Most of the employees at starting stage of their careers delay the process of planning and do no concentrate on their finances. The results from the study also show that most of Entry Level Professionals neither have a retirement plan nor an emergency fund. Majority ; color: #555555; of such professionals live from pay check to pay check and rely on credit card for their bill payments.
The investments being made by the professionals studied also reflect the lack of objectivity behind their decisions. Professionals often make investments and think they have saved enough and are happy about it. Assigning a goal to the investments/savings being made is as important as making savings and investments. Detaching emotions and assigning a goal to investments will make sure that money is channelized in a more efficient manner.
Lack of Quality Advice :
The indirect factor which is affecting the financial decision making process of the professionals is the current market structure. The transactional nature of the market played its part in supporting the myth among professionals that financial advice is costly and money management is only required for the wealthy. This is the major factor behind the professionals banking on the advice from their family, friends and colleagues. But majority of this group of advisors themselves lack the financial knowledge. A group of these advisors also have a vested interest of selling products and gaining commissions through such transactions. Providing quality financial advice for vastly diversified salaried professionals is a concern
New innovations which can leapfrog the existing system and provide the professionals the much needed quality advice is the need of the hour. Offering personal finance solutions through online technology can prove beneficial for the professionals. It gives them convenience to plan their finances at their convenient time. The online personal finance management techniques provide access to quality financial advice which is also cost effective.
Conclusion :
Over the past few years the Indian socio economic conditions are changing at a fast pace. In the social front, most of the Indians no longer have the joint family net to rely on. Increasing costs in all walks of life have been affecting the standard of living of salaried professionals. Child care and education costs have become costly. Medical Inflation rate remained high during the last few years. Private sector has become major employment provider. We no longer have the pensions to ensure that we have a continuous income stream even during post retirement phase. So the professionals need to manage their income between consumption and savings efficiently.
The findings of the study show that most of current professionals are living from pay check to pay check basis. The financial decisions are being made in isolation and lack a holistic approach. It is important that they look beyond the short term goals and start preparing themselves for the long term objectives. The result of current personal finance habits of the salaried professionals could be catastrophic. It is important to start giving attention to personal finance when time is on their side.
The employee and employer relation goes beyond the pay check. Professionals spend majority of their active hours of the day at the workplace. The prosperity of the employer is directly proportional to productivity of its salaried professionals. Financial distress off late has proved to be one such factors which is negatively effecting the productivity of the salaried professionals. The concern of professionals regarding their financials is evident. They have realized that work place financial education can prove beneficial for them for making financially well informed decisions. Though realization of importance of personal finance by professionals is a positive take away from the research, failure to act still remains a concern. Lack of financial knowledge and access to quality advice are the underlying issues that are to be addressed in order to make sure that the current salaried professionals are future ready financially.
