Indian consumers’ sense of financial freedom is low, Life Freedom Index

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Table of Contents

4 Chapter 1 Life Freedom Index Introduction

6 Chapter 2 State of Life Freedom of Indian Urban Consumers Key Findings

8 Chapter 3 Low Financial Freedom Life Freedom Index and its Components

13 Chapter 4 Not Actively Planning for Unexpected Events and External Factors Financial Awareness Index

17 Chapter 5 Not Actively Realigning or Reviewing Plans Financial Planning Index

21 Chapter 6 Sufficiency needs significant improvement Financial Sufficiency Index

24 Chapter 7 Living life with dignity – a distant dream for Indian Urban Consumers Adequacy Index

27 Chapter 8 Complete financial liberty eludes Indian Urban Consumers Financial Liberty Index

29 Methodology and Sample 36 About us

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PrefaceHDFC Life is pleased to launch the first Life Freedom Index in India, which will serve as the primary indicator of how truly free an individual, is from a financial perspective.

Macroeconomic scenario is yet to be positive, household savings seem to have gone down because families have less money to put away in a year of high inflation. Moreover, lack of social security benefits in a country with a majority of young population increases the need of a sound financial plan, which can cover both immediate and future financial needs of an individual.

The Life Freedom Index assesses the current state of financial freedom of Indian Urban consumers, their awareness about avail-able products, sufficiency and adequacy of financial planning, and above all their current state of financial freedom.

The survey resoundingly reveals that Indian Urban consumers’ sense of financial freedom is low. They are making financial choices on a shaky foundation. The degree of freedom and liberty that consumers perceive themselves to have, appears to be over-estimated on a rather contrasting backdrop of low financial awareness - either on account of limited awareness of the risks or on account of low product knowledge. Consumers are chalking out financial plans, despite limited knowledge about finan-cial goals and various investment options available.

Indian Urban consumers do not consider external economic factors such as inflation, government regulations, interest rates etc as important enough to be accounted for in his/her financial plan. It is surprising that they do not acknowledge that these external factors, given the frequent interest rate hikes, rising inflation and economic downswings can significantly impact his/her financial needs.

On a positive side, Indian Urban consumers have realized the necessity of financial planning and are already chalking out finan-cial plans and are generally disciplined in adhering to them.

The Life Freedom Index draws interviews of 1,600 respondents in separate surveys conducted between November, December 2011 and January 2012 across 11 Indian cities; Ahmedabad, Bengaluru, Bhopal, Indore, Bhubaneswar, Chennai, Delhi, Kochi, Kolkata, Ludhiana and Mumbai. The findings from the survey were distilled into various specific measurement indices that collectively formed the overall ‘Life Freedom Index.’

We are glad to present you with India’s first Life Freedom Index, and hope you find real value in its insights.

Mr. Sanjay Tripathy Mr. Arun Jethmalani EVP & Head - Marketing & Direct Channels MD, ValueNotes

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The Life Freedom Index is made of up the following five sub-indices:

1) Financial Awareness Index (FAI): Captures the finan-cial product knowledge and the awareness level of events that can have a significant impact on current and future financial needs of the Indian Urban consumers.

2) Financial Planning Index (FPI): Reflects the existence of a comprehensive financial plan, which is regularly reviewed and realigned to address evolving financial needs.

3) Financial Sufficiency Index (FSI): Reflects the state of Indian Urban consumer’s on the sufficiency of their finan-cial plan to meet immediate financial needs .

4) Financial Adequacy Index (AI): Reflects the level of confidence of the Indian Urban consumer’s financial man-agement practices being adequate to live life with dignity, independently and meet the desired standard of living throughout his lifetime.

5) Financial Liberty Index (FLI): Reflects the psychologi-cal feeling of ‘Financial Freedom’ and ‘Financial Security’ of Indian Urban consumers in India.

These five sub-indices together measure the state of finan-cial freedom of the following four consumer segments:

1) Chief Wage Earner (CWE): A person who contributes the most to the household income and is the key financial decision maker of the family, in the age group of 30 – 45 years and falls under the Socio Economic Classification (SEC) groups A and B.

2) Wisdom Investor: A person who is aged 45 years or above and falls under the Socio Economic Classification (SEC) groups A and B.

3) Young Aspirant: A person who is aged 20 to 30 years and falls under the Socio Economic Classification (SEC) groups A and B.

4) Urban Woman: A woman aged 25 to 40 years and falls under the Socio Economic Classification (SEC) groups A and B.

The Socio Economic Classification (SEC), groups urban In-dian households on the basis of education and occupation of the Indian Urban consumers into five segments (SEC A, SEC B, SEC C, SEC D and SEC E households).

The key objectives of the survey are to measure the follow-ing, across cities in India:

• Awareness levels of major events and various investment products

• Level of financial planning

• Sufficiency of financial plans

• Adequacy of financial plan to live life with dignity

• Psychological feeling of financial freedom and security

Over 1,600 respondents were interviewed in separate surveys conducted between November, December 2011 and January 2012 across 11 Indian cities; Ahmedabad, Bengaluru, Bhopal, Indore, Bhubaneswar, Chennai, Delhi, Kochi, Kolkata, Ludhiana and Mumbai. The findings from the survey were distilled into various specific measurement indices that collectively form an overall Life Freedom In-dex.

Life Freedom Index

Chapter 1: Introduction

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Not financially free

The various findings of the survey build up quite an inter-esting picture of Indian Urban consumers and the state of freedom they currently enjoy. The survey resoundingly shows that Indian Urban consumers’ sense of financial free-dom is low and is yet to reach a state of financial nirvana. The lack of financial freedom can be attributed to many fac-tors -- low financial awareness, inadequate planning and a general feeling that they need to do more to increase their financial sufficiency and adequacy. What this translates into is that they may not be able to meet their various short and long-term needs. Indian Urban consumers do acknowledge that more needs to be done to improve their current state of freedom.

Making inappropriate financial choices

Indian Urban consumers are making financial choices on a shaky foundation. The degree of freedom and liberty that consumers perceive themselves to have, appears to be over-estimated on a rather contrasting backdrop of low financial awareness - either on account of limited aware-ness of the risks or on account of low product knowledge. Consumers are chalking out financial plans, despite limited knowledge about financial goals and various investment options available.

Not planning actively for unexpected events and external forces

The implications of the above is that the current degree of freedom and security of Indian urban consumers is stem-ming mainly from investments and risk management measures undertaken to cover known / expected events. Consumers are actively recognizing the need to manage expected events such as child’s education, retirement or health expenses, but are failing to account for the arguably larger threats to freedom including unexpected life events such as accident/ critical illness, death or damages due to a natural calamity. Indian urban consumers do not con-sider external economic factors such as inflation, govern-ment regulations, interest rates etc as important enough to be accounted for in his / her financial plan. It is surprising that they do not acknowledge that these external factors, given the frequent interest rate hikes, rising inflation and economic downswings can significantly impact his / her financial needs.

Most concerned about child’s education

While drawing up a financial plan, no other financial event appears as important for Indian Urban consumers as his/her child’s education. Children’s education is the most sig-nificant financial event considered in the Indian Urban con-sumer’s household. Health and retirement, in that order are the next two concerns for Indian Urban consumers.

Sense of liberty inflated

The sense of financial liberty of Indian Urban consumers appears inflated, given the inadequacy in their financial planning and awareness levels. The state of mind of Indian Urban consumers represents two contrasting sentiments. On one hand, they have realized the incomprehensiveness and insufficiency of their financial plans and are not very confident about living life with dignity. However, on the other hand, their sense of financial liberty does not reflect a similar sentiment and score much higher. Thus, it clearly suggests that this sense of liberty is not in line with their financial planning, sufficiency, and adequacy.

Appetite for financial planning prevalent

Indian Urban consumers across all segments have realized the necessity of financial planning. They are already chalk-ing out financial plans and are generally disciplined in ad-hering to them. However, on the flip side, these plans lack comprehensiveness and need to be realigned with their desired financial goals.

Tier 2 cities more free than Tier 1

Indian Urban consumers residing in Tier 2 cities mirror a higher sense of financial freedom than their Tier 1 city coun-terparts. Tier 2 consumers across all segments, except Wis-dom Investors, perceive themselves better-off in terms of planning, sufficiency, adequacy and hence a higher sense of liberty. It is possible that relatively low cost of living and low financial stress associated with a Tier 2 city contribute to higher sense of financial freedom among consumers re-siding in Tier 2 cities compared to Tier 1 cities. In terms of socio-economic classification, SEC A consumers across all segments, except Young Aspirants, have a mar-ginally better sense of financial freedom. It appears that a better socio-economic profile influences the level of finan-cial freedom of consumers to some extent.

State of Life Freedom of Indian Urban Consumers

Chapter 2: Key Findings

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The Indian Urban consumers’ Life Freedom Index at 58.3 on a scale of 100 is low, denote that they are not completely insecure financially, but still have a long way to go before achieving a complete state of financial freedom. Indian Urban consumers score the least on financial awareness (43.2), suggesting that the other key factors viz, financial planning, sufficiency, liberty and adequacy are possibly over-estimated. Financial Awareness Index being signifi-cantly lower than the Financial Planning Index implies that financial choices are being made in an environment of lim-ited awareness regarding both; the risks which need to be managed as well as awareness around the various financial options available to manage these risks.

On a positive note, the survey indicates that the Indian Urban consumers definitely understand the need to plan finances. However, as they fail to review and realign their plans as per the changing events of their lives, their sense of Financial Sufficiency and Financial Adequacy is mis-judged. Moreover, this gap in their planning and financial management activity fails to give consumers the confi-dence required for meeting immediate or long term goals for leading a life with dignity. It is alarming to note that Indian Urban consumers score highest in terms of finan-cial liberty (68), much higher than financial planning and awareness and even Life Freedom Index, indicating that this sense of liberty rests on a very shaky foundation. The survey findings reveal that only 27% of the consumers seek professional advice for financial planning. This points out to a latent need for professional financial advice, which will help Indian Urban consumers in overcoming gaps in finan-cial planning and management.

Fig. 1 Life Freedom Index

Fig. 2 Life Freedom Index and its components

Financial Awareness Index (43.3) -

The financial awareness of Indian Urban consumers is poor – there is a lack of awareness around all three key aspects – the “expected” events, which need to be planned for, un-expected life risks and most importantly external economic forces. Awareness around the latter two are much lower than awareness around expected events. This is concerning, as the latter two pose greater threat to life freedom than the expected events do. Product knowledge and product awareness is also low, which can be worrisome as it implies that financial plans are being drawn with only incomplete knowledge.

Financial Planning Index (62.7) –

Although Indian Urban consumers have chalked out a fi-nancial future, their plan suffers from serious gaps in terms of comprehensiveness and its realignment with identified goals. Furthermore, consumers are also not very active in reviewing their plans and the frequency of review needs significant improvement.

Financial Sufficiency Index (62.7) –

The lack of comprehensiveness in financial plans is reflect-ed in the sufficiency scores of Indian Urban consumers. The shortfall in financial plans does not accord Indian Urban consumers enough confidence for meeting immediate fi-nancial commitments.

Adequacy Index (63.5)

Is the Indian Urban consumer assured of living life with dig-nity? The survey indicates that Indian Urban consumers are still a long way from achieving that state. Shortfall in terms of financial planning, its sufficiency or the overall manage-ment of the financial planning process is not providing them the requisite confidence.

Financial Liberty Index (68.0)

Financial liberation as a state of mind – irrespective of the reality of the financial choices intended or made. On this parameter, the Indian Urban consumer is neither fully lib-erated nor is there a sense of complete financial freedom. However, the levels of financial planning and sufficiency make it evident that the sense of financial liberty among Indians is over-estimated and not based on a strong foun-dation.

Low Financial Freedom Chapter 3: Life Freedom Index and its Components

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1.1 LFI by consumer segments

Among all categories of Indian Urban consumers, Wisdom Investors (63.0) are the most financially free, followed close-ly by Chief Wage Earners (CWEs). Young Aspirants have tak-en the first steps to financial planning but their plans need significant improvement in all aspects to provide them with the requisite level of financial freedom and confidence to live life with dignity. On the other hand, Wisdom Investors, backed by experience, have stronger financial plans. Finan-cial freedom of CWEs and Urban Women is low, suggesting that India’s Generation X is striving to find a balanced plan, which is capable of meeting immediate, and future finan-cial commitments and provides them with enough confi-dence to live life with dignity. The chart below represents the LFI scores for each of the consumer segments.

Fig. 3 Life Freedom Index by each consumer segment

Chief Wage Earner (CWE): The judicious planner

The Indian CWE scores the highest on self-assessment of his financial planning and management activity. He definitely understands the need to plan finances and is indeed doing significantly better off in terms of aligning his finances with goals as compared to other consumer categories. The CWE is bound by a number of financial responsibilities, of which he considers his child’s education, retirement and health expenses as the most important. However, the survey re-soundingly shows that the Indian CWE’s sense of financial freedom is low and he senses some shortfall in his financial planning due to which he is not very confident about meet-ing his immediate and future financial commitments.

Wisdom Investor: The traditional investor

In comparison to other consumer segments, the Indian Wisdom Investor is comparatively closer to achieving finan-cial freedom than the other consumer segments. However, he is not completely financially free and needs significant improvement on the aspects of financial planning, aware-

ness so that he can be closer to achieving financial nirvana. He appears to rely more on traditional assets and therefore, to achieve his financial goals, he has made a financial plan, which is focused around traditional forms of investment such as property, gold and insurance products. He seems to have made these long term investments, but is not keep-ing track of events, which may dilute his return on invest-ments.

The Wisdom Investor scores poor on financial awareness, implying that the perception about his financial liberty, suf-ficiency and adequacy is not well-founded and probably inflated. Interestingly, despite being conscious about the shortfalls, his financial plans still provide him with a certain level of confidence about his financial sufficiency, adequa-cy and liberty.

Young Aspirant: A novice in financial planning

The Young Aspirant is at a stage in life where he is inter-ested in acquiring wealth and other comforts/ luxuries for living a comfortable life. He thus accounts for the purchase of durables and family holidays while planning his finances. However, the Young Aspirant is also aware of other bigger responsibilities such as child’s education and health ex-penses. He is conscious of life’s major responsibilities and is keen to fulfill them without compromising on the fun quotient of life. His desire to fulfill these aspirations and the need to meet his responsibilities has made the Young Aspirant realize the importance of financial planning. Con-sequently, he has also developed a habit of adhering to these plans. However, the Young Aspirant is a novice when it comes to goal-based financial planning and is not able to use his financial know-how to realign his plans and ar-rive at a comprehensive plan, which can cover all his short and long term financial goals. The Young Aspirant’s sense of financial sufficiency, liberty and adequacy appears to be marginally over-estimated, given his low financial planning score and poor awareness levels.

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Urban Woman: An active contributor to her family’s income

Urban India is currently witnessing an increase in the num-ber of double income households, where women contrib-ute mostly as the second wage earner. Consequently, the Urban Woman is becoming financially independent and has a higher sense of financial liberty. She is actively plan-ning for her child’s education, health expenses and EMI payments, while her financial freedom also allows her the liberty to indulge in other luxuries like family holidays and durables. The working single Urban Woman is ready to face the financial challenges of her life independently. A deeper reading of the findings reveals that due to higher financial security provided by the income of the chief wage earner, the overall sense of financial adequacy and sufficiency is comparatively higher in married Urban Women as com-pared to that in their unmarried counterparts.

However, the Urban Indian Woman is not completely finan-cially free and needs improvement on aspects such as fi-nancial planning, sufficiency and adequacy and has a long way to go when it comes to goal-based financial planning. Given her poor financial awareness levels, she is unable to use her financial know-how to review and realign her plans and arrive at a comprehensive plan, which can cover all her short and long term financial goals.

1.2 LFI by SEC classification

SEC A Indian Urban consumers score marginally higher than their SEC B counterparts. The SEC A Wisdom Investor (64.0) is the most financially free across all consumer seg-ments, while SEC A Young Aspirants (53.8) have the lowest level of financial freedom. Relatively more comprehensive financial plans and greater sense of liberty make SEC A con-sumers more financially free. However, LFI scores of both SEC A and SEC B Urban Women are at par, indicating that women across India are skeptical about the comprehen-siveness and sufficiency of their financial plans.

Fig. 4 Sec A consumers more financially free

1.3 LFI by City

The LFI for Tier 2 city consumers (59.3) is higher than that for Tier 1 cities (57.8). Reduced financial stress of Tier 2 cities is probably offering the former a relatively better sense of financial freedom. However, Tier 1 Wisdom Investors (63.6) score better than their Tier 2 peers (60.4).

Fig. 5 Tier 2 Cities score higher on LFI than Tier 1 Cities

1.4 Importance of life insurance among Indian Urban consumers

All consumer segments were asked to rate the importance of life insurance in covering risks to financial freedom. 44% Indian Urban consumers feel life insurance is very impor-tant to cover the risks to financial freedom, while 23% feel life insurance is extremely important. Importance of life in-surance is the highest among CWEs and Wisdom Investors as 71% and 68% of them respectively consider it as either very important or extremely important.

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1.5 Preferred source of advice for financial decision making

The survey asked Indian Urban consumers about their preferred source of advice for financial decision making. While 35% of them rely on their social network of friends and relatives for financial planning advice, only 27% seek professional help (Finan-cial Planner/ Advisor). Given the gaps in financial plans and low awareness levels, it appears that there exists a need for proper professional advice, which will help consumers in ironing out inconsistencies in financial planning and management.

Fig. 7 Indian Urban consumers rely more on social network for financial planning advice

Fig. 6 Indian Urban consumers consider life insurance as an essential risk cover

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Financial Awareness Index (FAI) captures the financial prod-uct knowledge and the awareness level of events that can have a significant impact on future financial needs of the Indian Urban consumers. These events are classified into expected events, unexpected events and other external factors, while products have been defined as those finan-cial instruments such as market linked, insurance and fixed income products that can be used to cover risks arising out of occurrence of these events.

The survey throws up the low levels of financial literacy in India, both in terms of events that need to be considered for sound financial planning and the product choices avail-able to mitigate the various life risks. A deeper reading of the findings reveals that the consumers’ awareness about important events around which they need to plan finances, borders on being extremely poor. Although they score bet-ter in terms of knowledge about the various financial in-struments available, the score still falls in the low range. The survey also highlights a glaring gap between event aware-ness and product knowledge. This indicates that although Indian Urban consumers have some level of knowledge, though limited, about various financial products, they ap-pear completely out of sync when it comes to deciding where, when and how they need to allocate their finances.

Indian Urban consumers are making financial choices on a foundation based on low awareness of their future financial needs. They do not appear to be fully aware of future events, which can have a significant financial impact, whether it be unexpected (death, accidents or critical illness), exter-nal (inflation, market volatility, economic downswings) or expected events (children’s education, retirement, depen-dent’s marriage etc.). This is worrisome as it indicates that Indian Urban consumers are significantly underprepared for events, which could potentially derail their financial situation.

The overall Financial Awareness Index (FAI) for Indian Urban consumers’ reads 43.3, suggesting low levels of financial awareness. Event awareness (28.2) is poor, while product knowledge (58.3), though significantly higher, is still low and needs considerable improvement.

The chart below represents the overall FAI and its underly-ing indices.

Fig. 8 Awareness about future financial needs is poor

Financial awareness of all Indian Urban consumer segments ranges between poor and low. The Indian CWE scores the highest in terms of financial awareness, while Young Aspi-rants are the least aware category of consumers. The Young Aspirants are relatively novices in the domain of financial planning and management and hence they are yet to com-pletely familiarize themselves with the various aspects of financial planning, such as significant events around which finances need to be planned as well as the various financial instruments available. Interestingly, despite having more investment and planning experience the Wisdom Inves-tors’ awareness is lower than that of CWEs, but at par with that of the Urban Women. This clearly indicates that India’s Generation X is relatively more conscious about the signifi-cance of planning finances around life’s significant events and has comparatively sounder financial knowledge than the other segments.

Fig. 9 CWEs most financially aware, Young Aspirants the least

Not Actively Planning for Unexpected Events and External Factors

Chapter 4: Financial Awareness Index (FAI)

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1.5.1 Financial event awareness and its components

The survey findings reveal that all categories of Indian Urban consumers assign more importance to expected events (child’s education, dependent’s marriage, retirement, etc.) while chalking their financial plans. Unexpected events such as accident, death or natural calamity rank second on the list of priorities during financial planning. However, external factors (inflation, regulations, and interest rates) are given least importance, implying that Indian Urban consumers are not taking adequate steps to shield themselves and their dependents from these unexpected or external forces. It is worrisome to note that Indian Urban consumers are not conscious about unexpected events and macro-economic forces, which pose a greater threat to their finances.

Awareness score for each consumer category reveals that Indian CWEs are the most conscious about all types of financial events that need to be planned for. It is interesting to note that Young Aspirants and Wisdom Investors are almost at par in terms of awareness.

Fig. 10 External factors assigned low priority during financial planning

As seen in the charts below, child’s education is the primary concern during financial planning for all consumer segments, es-pecially for CWEs (75%). Retirement (57%) and health expenses (61%) are the second major concerns for CWEs. Interestingly, Wisdom Investors are relatively more worried about child’s education rather than retirement or health expenses. Concern about retirement is understandably the least among Young Aspirants and Urban Women. Concern over health expenses is relatively high across all categories, implying that the growing number of lifestyle related diseases are hurting the finances of Indian Urban consumers. Young Aspirants as well as Urban Women, although aware of the other major responsibilities in life, account relatively more for purchase of durables and family vacations.

Concern about unexpected events such as accident/ illness and CWE’s death is highest among CWEs, while Wisdom Investors are least concerned about accident/ illness. It is also surprising to note that even though growing inflation continues to be a ma-jor concern across India, Indian Urban consumers do not consider it important enough to be taken into account while planning finances. The survey findings reveal that only 30-36% consumers take into account inflation during financial planning. CWEs and Young Aspirants are relatively more concerned about Government regulations. The recent volatility in stock markets appears to have the least bearing on the financial planning activity of Indian Urban consumers. The charts below represent the breakup of responses for expected, unexpected and external events. Fig. 11 Expected events: Child’s education a top priority across the board

Fig. 12 Unexpected events: Consumers most concerned about accident/illness

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Fig. 13 External forces: Consumers least concerned about stock market volatility

1.5.2 Financial product knowledge and its components

A deeper reading into product awareness and knowledge indicates the types of financial instruments the Indian Urban consum-ers are aware of and take into account while chalking out financial plans. While market linked (stocks, mutual funds, derivatives etc.) and fixed income (time deposits, bonds, debentures, etc) instruments are given similar weights, albeit not very high, insur-ance products (term, life and medical insurance, ULIPs etc.) are on top of the list for Indian Urban consumers. The figures below show the overall financial awareness of the four consumer segments and the level of knowledge about the different financial instruments. These scores have been used to arrive at the overall financial product knowledge.

Fig. 14 Financial product knowledge highest for Urban Women

Fig. 15 Indian Urban consumers most knowledgeable about insurance products

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Financial Planning Index (FPI) reflects the existence of a comprehensive financial plan, which is regularly reviewed and realigned to suit evolving needs. The three compo-nents of FPI are Plan Comprehensiveness, Plan Realign-ment and Plan Review. A comprehensive plan is one, which covers all short term and long term financial goals, while realignment indicates if the consumer realigns his financial plans according to significant events occurring in his or his family’s life. Plan review refers to the frequency with which the consumer reviews his financial plan.

The current FPI (62.7) indicates that although Indian Urban consumers are fairly conscious about the necessity of a financial plan, they are not very well acquainted with the merits of goal based financial planning resulting in a plan, which still needs improvement. The Indian Urban consum-ers have some kind of a basic financial plan, but recognize that it’s not comprehensive and does not account for all short term and long term goals. The Indian Urban consum-er appreciates the benefits of a financial plan but knows that more needs to be done to ensure its overall compre-hensiveness. Consumers are not realigning these plans for most significant events but appear to be realigning plans for “some” significant events such as marriage of a depen-dent, birth of a child, higher education, etc. Indian Urban consumers are also not very active in reviewing their finan-cial plans and there is a need to increase the frequency of review significantly.

Fig. 16 Indian Urban consumers not activelyrealigning financial plans

Financial planning scores of each of the consumer seg-ments indicate that CWEs are the most active financial planners. Greater financial responsibilities in comparison to other consumer segments have influenced CWEs to plan their finances more judiciously. On the other hand, the younger generation (Young Aspirants), currently free from major financial responsibilities, scores the least in terms of

financial planning, indicating that their plans are still in a nascent stage and need to be reviewed and realigned more frequently for achieving a higher level of comprehensive-ness. Wisdom Investors are relatively more sound financial planners in comparison to Urban Women and Young Aspi-rants, but are yet to match up with CWEs.

Fig. 17 CWEs are the most judiciousplanners, while Young Aspirants are novices

1.5.3 FPI by sub components

Deeper analysis of the FPI scores by each consumer catego-ry reveals that although CWEs are the most judicious finan-cial planners, Wisdom Investors score best in terms of plan comprehensiveness. However, they fall behind in terms of plan realignment and reviewing.

Urban Women score reasonably well in terms of plan com-prehensive, but like Wisdom Investors, their plans are not appropriately aligned with all of life’s significant events, nor are they reviewed very frequently. Indian CWEs appear to be aware about the importance of reviewing and alignment of finances with life’s significant events in order to achieve a comprehensive financial plan. Young Aspirants score the lowest in terms of self-assessment of their financial plans, indicating that although young India has started financial planning, it is not aware about the nuances of goal-based planning and is also not aggressive in reviewing them.

The charts below illustrate the breakup of responses by each consumer segment for Plan Comprehensiveness, Plan Realignment and Plan Review.

Not Actively Realigning orReviewing Plans

Chapter 5: Financial Planning Index (FPI)

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Fig. 18 Young Aspirants least aggressive in plan realignment

A closer look at the state of plan comprehensiveness shows that majority of Indian Urban consumers across all categories have chalked out financial plans, but only a few are sure about their comprehensiveness. For instance, 95% of CWEs have drawn a financial plan, but only 29% believe that they have a comprehensive plan, which covers all their short and long-term financial goals. Majority (76%) of Young Aspirants has started planning for their future, but only 16% believe that they have a compre-hensive financial plan. Similarly, majority of Urban Women (91%) have started financial planning, but 42% still believe that their plans lack comprehensiveness and cover only a few short and long term goals. In terms of plan realignment, Indian Urban consumers are struggling to align their finances with their desired long and short-term goals. While majority of CWEs (53%) be-lieve that their plans are aligned with most financial goals, the other consumer categories do not share the same feeling. Young consumers are the least active in aligning finances with goals. Interestingly, Wisdom Investors, despite having the maximum investment experience, are yet to achieve a perfect alignment between finances and goals.

Indian Urban consumers are only ‘somewhat regular’ in terms of reviewing of financial plans. However, the positive aspect is that only 5% consumers across all categories “do not update” their financial plans, indicating that Indian Urban consumers have developed a habit of reviewing and updating their plans, although not at very frequent intervals.

Fig. 19 Plan Comprehensiveness: Only few consumers sure about comprehensiveness of their financial plans

Note:

Comprehensive plan: Covers all short and long term goals

Somewhat comprehensive plan: Covers most of the short and long term goals

Basic plan: Covers a few short and long term goals

Plan in progress: Identified short and long term goals, but no plan in place

No financial goals: No short and long term goals

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Fig. 20 Plan Realignment: Less than 16% Indians align their plans to ‘all significant’ events

Note: Significant Events refer to situations or instances that can impact the consumers’ ability to meet financial responsibilities for himself and his family. These events can be expected, unexpected or external events like marriage of a dependent, birth of a child, higher education, accident or disability, inflation, economic slowdown, etc

Fig. 21 Plan Review: Financial plans reviewed only ‘somewhat regularly’ in India

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Fig. 22 Indian Urban consumers sense insufficiency in their financial plans

FSI readings of all Indian Urban consumer segments range between low and needs improvement. Wisdom Investors have a comparatively better perception about their financial sufficiency and are more disciplined than other consumer segments. However, it is surprising to see that the CWEs’ current financial activity does not instill the requisite confidence in them yet and thus they feel that their current plan is insufficient.

The survey findings suggest that Urban Women mostly contribute as the second wage earners in the family and they have sensed the insufficiency of their financial plan to meet their and their family’s financial needs independently. On the other hand, Young Aspirants, having just begun with their financial management activity, realize that their plans are insufficient to meet their immediate financial needs.

Fig. 23 Wisdom Investors feel most sufficient; Young Aspirants least confident about it

Sufficiency needs significant improvement

Chapter 6: Financial Sufficiency Index (FSI)

Financial Sufficiency Index (FSI) reflects the perception of the Indian Urban consumers on the sufficiency of their fi-nancial plan to meet their recognized financial goals and immediate unexpected events that could occur in the span of two to three years. It also reflects how disciplined they are in adhering to their financial plans, which in turn affects the sufficiency of their financial plans.

The FSI level suggests that Indian Urban consumers’

perception about the sufficiency of their financial plans needs significant improvement. It also appears that Indian Urban consumers are conscious about the insufficiency of their financial plans to meet their immediate financial needs and are thus trying to discipline themselves finan-cially in order to achieve a better level of sufficiency.

The chart below represents the overall FSI and its underly-ing indices.

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1.5.4 FSI by sub components

FSI analysis by its underlying components reveals that the Wisdom Investors are clearly the most financially disciplined in adher-ing to their financial plan and thus have a relatively higher confidence in the sufficiency of their plan.

CWEs are generally confident about the sufficiency of their plan in supporting immediate financial needs while Young Aspirants appear to be moderately confident about the sufficiency of their financial planning and management activities. Urban Women appear to be generally confident about the sufficiency of their financial plans. However, majority of Urban Women have realized that there are some inconsistencies in their financial plans, which make them insufficient to meet immediate financial needs. Non-working Urban Women have a lower sense of financial sufficiency than their working counterparts.

Fig. 24 Indians disciplined in financial planning

A closer look at the state of plan sufficiency shows that majority of Indian Urban consumers across all categories are very con-fident of their plan sufficiency (means that can meet their immediate financial requirements, i.e in the next 2-3 years) . Highest number of Wisdom Investors (22%) are extremely confident and feel that their plans are sufficient to cover them for all even-tualities. However, only 8% CWEs are extremely confident of the sufficiency of their plans. Urban Women appear to be more confident of their plan sufficiency than Young Aspirants.

In terms of plan discipline, majority of Indian Urban consumers across all segments are disciplined in adhering to their financial management activity. Young Aspirants follow a general level of financial discipline; with 16% of them believing that, they are extremely disciplined. It is interesting to note that at this young age, Young Aspirants show a moderate level of discipline in their financial management activity.

While a majority of CWEs believe that they have some amount of discipline in adhering to their financial plans, only 10% believe that they are extremely disciplined.

The charts below represent the breakup of responses for the level of confidence among customer segments with respect to their plan sufficiency and the level of discipline followed by them.

Fig. 25 Plan sufficiency: Indians moderately confident of their plan sufficiency

Fig. 26 Plan discipline: Majority of Indians believe they are financially disciplined

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Living life with dignity – a distant dream for Indian Urban Consumers

Chapter 7: Adequacy Index (AI)

Adequacy Index (AI) reflects the level of confidence about the adequacy of the financial plan for living life with dig-nity, independently and meeting the desired standard of living.

The AI level clearly indicates that Indian Urban consumers are skeptical about the adequacy of their financial plans for living life with dignity. Indian Urban consumers still sense

that all their current financial management activity is not enough to provide them with the comfort of knowing that they can spend their life in dignity. There is a sense of inad-equacy around their financial planning and management as it fails to give them the requisite confidence to indepen-dently achieve their own and their family’s desired standard of living throughout their lifetime.

The AI level for Indian Urban consumers in the current survey stands at 63.5.

Fig. 27 Indian Urban consumers skeptical about living life with dignity

Adequacy Index readings of all Indian Urban consumer segments range between low and needs improvement. The survey re-veals that Wisdom Investors score the highest in terms of adequacy. Young Aspirants’ score is low while that for CWEs and Urban Women needs significant improvement.

Young Aspirants are still striving to achieve a comprehensive financial plan and consequently they sense that they have a long way to go before they achieve a complete sense of living independently with dignity. A deeper reading of the findings reveals that due to higher financial security provided by the income of the chief wage earners (mostly their spouses/partners), the overall sense of financial adequacy is comparatively higher in married Urban Women as compared to that in their unmarried counterparts.

Fig. 28 Wisdom Investors most confident about living life with dignity, Young Aspirants most skeptical

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1.5.5 AI by sub components

Further analysis reveals that only 12% CWEs are extremely confident about the adequacy of their financial planning and man-agement for living life independently and with dignity. However, the rest still sense some shortfall in their financial planning and management. Majority of Wisdom Investors have some level of confidence but have sensed some gap in their planning and management.

Young Aspirants are only fairly confident about living life with dignity, while only 13% of them are extremely confident about their financial adequacy (living life with dignity). Only 13% of Urban Women are extremely confident about the adequacy of their financial plan. The survey also reveals that the married Urban Women are more confident about the adequacy of their financial plan than their unmaried counterparts.

The chart below represents the breakup for responses for the level of confidence among customer segments on plan adequacy.

Fig. 29 Plan adequacy: Wisdom Investors have a better sense of adequacy

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Complete financial liberty eludes Indian Urban Consumers

Chapter 8: Financial Liberty Index (FLI)

Financial Liberty Index (FLI) reflects the feeling of ‘Financial Freedom’ and ‘Financial Security’ of Indian Urban consum-ers.

Financial Freedom is a state of mind where an individual is not worried or bothered about his monetary or financial needs being met in the present as well as in the future for himself and his family. This state of mind is irrespective of the individual having a financial plan or enough financial reserves.

Whereas, Financial Security is a state of mind or belief of having an appropriate financial plan and enough financial reserves to fulfill any needs or wants in the present as well

as in the future.The FLI level (68.0) for Indian Urban consumers, although bordering on being good, still needs improvement. The various segments of Indian Urban consumers have a good sense about their financial freedom, while their feeling of fi-nancial security is relatively measured. This measured sense of financial security reaffirms the earlier finding that Indian Urban consumers have recognized the shortfall in their fi-nancial plan.

It is a little worrisome to note that there is a considerable gap between financial freedom and financial security for Indian Urban consumers. This gap suggests that the higher sense of financial freedom is not completely supported by adequate plans and resources and may probably be ill-judged.

The chart below represents the overall FLI and its underlying indices.

Fig. 30 Indian Urban consumers feel somewhat financially free but not as secure

The individual FLI reading of the various Indian Urban consumer segments suggest that their sense of Financial Liberty needs improvement. Wisdom Investors score the highest on Financial Liberty Index, followed by Urban Women. Both Chief Wage Earn-ers and Young Aspirants are at par in terms of FLI.

Wisdom Investors are comparatively more free and secure than the rest as they have been following their financial plan well before the other segments. Though the FLI score for Urban Women is higher than that of the Chief Wage Earners and Young Aspirants, it still needs improvement. Again, the survey findings suggest that the overall sense of financial liberty is higher in married Urban Women as compared to their unmarried counterparts, restating the fact that this is a result of the financial secu-rity provided by the income of the chief wage earners (mostly the spouses/partners). Further, the survey reveals that the sense of financial security is high in Urban Women who are working vis-a-vis non-working Urban Women.

Young Aspirants are at a stage in life where they are interested in acquiring wealth and other comforts/ luxuries for living a com-fortable life. Thus their desire to fulfill these aspirations lowers the sense of financial liberty in them.

Fig. 31 Wisdom Investors feel most financially liberated; CWEs least liberated

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1.5.6 FLI by sub components

The scores of FLI and its sub components for each consumer category indicate that, Wisdom Investors are the most financially free and secure category. However a gap between financial freedom and security exists across all the categories, with financial freedom being higher than security in all cases. This indicates that the feeling of liberty among Indians is more of a description of their state of mind rather than that of their financial planning and reserves.

Fig. 32 Wisdom Investors followed by Urban Women enjoy highest financial liberty

Deeper reading of the financial freedom and security reveal that Indians are generally liberated, but only a few feel completely liberated. For instance, while 92% CWEs have some sense of liberty, only a quarter feel completely liberated. In terms of financial security, Indians have a measured sense of security. While 81% of CWEs have some extent of security, only 15% feel completely secure. The situation is almost similar for other categories, where the majority has a moderate sense of security, while only a few feel completely secure financially. The chart below represents the breakup of responses for the level of confidence among customer segments on their sense of financial freedom and financial security.

Fig. 33 Financial freedom: Urban Indians have a fair sense of liberty

Fig. 34 Financial security: Urban Indians have a measured sense of security

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Methodology Survey Structure

Indian Urban consumer segments from SEC A and SEC B were surveyed across Metros and Tier 1 and Tier 2 cities viz. Ahmeda-bad, Bengaluru, Bhopal , Indore, Bhubaneswar, Chennai, Delhi / NCR, Kochi, Kolkata, Ludhiana and Mumbai through a combina-tion of telephonic and face to face interviews.

The survey questionnaire consisted of three sections.

a) Screeners to capture the profile of the respondent. The questions captured sector / industry of employment, age group, prime wage earner confirmation, gender, marital status, family structure, education level, number of assets possessed, occupa-tion, likely retirement age and annual household income.

b) Index questions to capture the feeling and sense of freedom from the financial perspective to compute the Life Freedom Index. Eight close – ended questions and two open – ended questions asked were,

1. Which of the statements best describes your current state of Financial Freedom?

2. Which of the statements best describes your current state of Financial Security?

3. What are the major financial responsibilities that should be considered while planning?i. Expected eventsii. Unexpected eventsiii. External factors

4. What are the different types of financial instruments available for financial planning and management, and what is your level of knowledge of these instruments?

i. Fixed income instrumentsii. Market linked instrumentsiii. Insuranceiv. Other assets classes like property, gold and others

5. Which of the statements best describes your comprehensiveness is defining the goals for financial planning and man agement to meet your own and your family’s needs?

6. Do you realign your plan as per the significant events in your own and your family’s life?

7. How often do you monitor or review your financial plan?

8. How confident are you in the sufficiency of your financial planning and management to achieve your own and your family’s immediate financial needs?

9. How disciplined are you in adhering to the financial plan and management defined by you for meeting your own and your family’s needs?

10. How confident are you in the adequacy of your financial planning and management to independently achieve your own and your family’s desired standard of living throughout your lifetime?

c) Non Index questions to capture the importance of Life Insurance in covering the risks to financial freedom among Indian Urban consumers and their preferred sources for financial planning advice.

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GraphsThroughout the report, a combination of bar graphs and pie charts has been used to elaborate on the survey findings.

1. Bar graphs have been used to show the index readings of the Index, various sub-indices and for questions, where the respondents had multiple choice answers.

2. Pie charts and column graphs have been used to represent the percentage of respondents who have selected the respec- tive answer options for an index question.

Index construction methodology:

Life Freedom Index is a range bound index, and at any given point of time can vary between 0 and 100.

• 100 denotes the highest level of “financial freedom”• 0 denotes the most negative outlook

The Index is made up of five sub-indices, which are as below:

1) Financial Liberty Index (FLI)

FLI sub index is the arithmetic mean of two questions reflecting the feeling of financial freedom and financial security. Response to each question is rated on a scale of 0 to 100, 100 being the most positive outlook/indicator and 0 being the most negative outlook/indicator.

2) Financial Awareness Index (FAI)

FAI sub index is the arithmetic mean of seven questions reflecting the awareness level of three types of events and knowledge of four types of products. Each response is rated on a scale of 0 to 100, where 100 denotes 100% events awareness and 100% product knowledge, whereas, 0 denotes 0% events awareness and 0% product knowledge.

3) Financial Planning Index (FPI)

FPI sub index is the arithmetic mean of three questions reflecting the financial planning type, financial plan realignment fre-quency and financial plan review frequency. Response to each question is rated on a scale of 0 to 100, 100 being the most posi-tive outlook/indicator and 0 being the most negative outlook/indicator.

4) Financial Sufficiency Index (FSI)

FSI sub index is the arithmetic mean of two questions reflecting the sufficiency of financial plan and discipline to adhere to the financial plan. Response to each question is rated on a scale of 0 to 100, 100 being the most positive outlook/indicator and 0 being the most negative outlook/indicator.

5) Financial Adequacy Index (AI)

AI sub index reflects the adequacy of financial plan. Response to each question is rated on a scale of 0 to 100, 100 being the most positive outlook/indicator and 0 being the most negative outlook/indicator.

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The Index is made up of weighted mean of five sub-indices as shown below:

Fig. 35 Calculation of Life Freedom Index

Sample Profile

The Index reflects the feeling of financial freedom of Indian Urban consumers from the 10 selected cities.

Sampling Technique: Random Sampling

Sample size: 1,649 respondents

City wise breakup of sample**

Tier 1 cities: Chief Wage Earners- 211, Wisdom Investors- 207, Young Aspirants- 203, Urban Women - 219

Tier 2 cities: Chief Wage Earners- 208, Wisdom Investors- 199, Young Aspirants- 202, Urban Women - 200

SEC wise breakup of sampleSEC A: 828 respondents

SEC B: 821 respondents

**Tier 1 cities include Bengaluru, Chennai, Delhi, Mumbai and Kolkata,Tier 2 cities include Ahmedabad, Bhopal, Indore, Bhubaneswar, Kochi and Ludhiana

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1.5.7 Sample Profile for CWEs

Fig. 36 Profile – By SEC Fig. 37 Profile – By City

Fig. 38 Profile – By Gender Fig. 39 Profile – By Likely retirement age

Fig. 40 Profile – By Marital status Fig. 41 Profile – By Family Structure

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1.5.8 Sample Profile for Wisdom Investors




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1.5.1 Sample Profile for Young Aspirants




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1.5.2 Sample Profile for Urban Women


Fig. 56 Profile – By Likely retirement age Fig. 57 Profile – By Marital status

Fig. 58 Profile – By Family Structure

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About us

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Economy & Finance

Indian consumers’ sense of financial freedom is low, Life Freedom Index