Do Indian middle-class families understand the importance of financial planning?

Financial planning

Can we go 14 years back into memory lane and relive the sub-prime crisis that hit the US economy hard and caused the downfall of major banks like Lehman Brothers? While the US economy reeled from this crisis, India was not affected much. Our so-called weaker banks withstood the crisis better than the American behemoths. While the stringent RBI controls were one of the reasons for the Indian banks surviving this crisis, another significant contributing factor was the capability of the Indian middle class to understand the significance of financial planning.

So, do Indian middle-class families understand the importance of financial planning? Yes, we do, and that too, much better than what the Americans do.

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The Saving Mentality

Indians have been brought up with a saving mentality. The older generation prefers to save rather than go for loans. However, the present generation is moving the American way by relying more on loans than savings. Nevertheless, they also understand the significance of savings. Therefore, almost every Indian has at least one savings account in the bank, if not more. The Indian Government has done its bit by introducing the Pradhan Mantri Jan Dhan Yojana to encourage the saving habit amongst Indians. This scheme is directed explicitly toward India’s lower and the lower-middle class segment.

The Chit Fund Savings

Indians are ingenious people who have devised innovative saving methods over the years. Chit funds existed in India before formal banking was introduced by the British during the pre-independence period. However, the chit funds in those days were restricted to homogenous groups within specific communities. Nevertheless, they were popular avenues for saving money and generating credit for meeting their immediate requirements.

You have registered online chit funds that work on the same principles but a more extensive and sophisticated scale. These online chit fund platforms like Money Club provide ideal incentives for the Indian middle class to plan their activities well and prepare themselves to face a financial crisis.

Financial Planning

Bank and Post Office Savings

If you study any bank’s balance sheet in India, you will find a significant proportion of savings and fixed deposits, which is ample proof that Indians love to save. The Indian deposit rates are comparatively higher than the developed economies in Japan and the US. These rates encourage people to save money in safe avenues like banks and post offices. Indians have an excellent debit card culture that perfectly blends savings and sophisticated technology. The US and other countries have more credit cards than debit cards. If you see any international gateway, you might not have any avenue for payment through debit cards.

Government Saving avenues

Saving avenues are the maximum in India compared to other developed economies. The Indian Government offers tax incentives for people to save. These savings go a long way in developing the Indian economy. For example, schemes like National Savings Certificates, Kisan Vikas Patra, Pradhan Mantri Vaya Vandana Yojana, Atal Pension Yojana, etc., offer excellent avenues for people to save for the future and also save tax on investing in some of them.

Mutual Funds

Mutual funds are other excellent saving avenues for Indians, especially those who do not have the risk appetite or the requisite knowledge of how share markets function. These mutual funds are available in various types: debt funds, equity funds, index funds, small-cap, mid-cap, large-cap, hybrid funds, etc. Each of these mutual funds has its risks but presents good opportunities for earning decent returns on investments.

Earn 3 To 4 Times Higher Interest Than Bank Fixed Deposits

Insurance Products and Annuity Plans

Indians believe in insurance products as one of the best financial instruments that offer support during a financial crisis. However, during the COVID-19 second wave, we witnessed that even insurance companies found it challenging to honor claims. The pandemic has made the Indian middle-class realize the significance of having adequate health and life insurance.

Government Bonds and Corporate FDs

The top Indian government entities like the Indian Railways, NTPC, etc., issue ten-year government bonds allowing people to invest in them and get good returns. Though these bonds have lock-in periods, investors can trade them on the stock exchange. These are promising avenues for saving money and getting decent returns on their investments. Corporate FDs are also excellent avenues for fruitful investments.

Final Thoughts

With a plethora of investment opportunities available for the Indian middle-class, can anyone say the Indian middle-class does not understand the importance of financial planning? It is not true because all these investment avenues are extremely popular among Indians. Thus, we can state that the Indian middle-class understands the significance of financial planning.