Personal Finance Habits of Salaried Professionals in India

Personal Finance Habits of Salaried Professionals in India
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Table of Contents
Summary 1. Introduction 2. Research Methodology 3. Findings 3.1 Retirement Planning 3.2 Do you have enough savings to counter any emergencies? 3.3 How frequently do you keep track of your expenses 3.4 How are the nancial decisions made? 3.5 How much do you invest in section 80C 3.6 Major tax saving Investments 3.7 Most common goals 3.8 Personal Finance Readiness 3.9 View of Professionals and HR on Personal Finance 4. Reasons for current Financial State of the Salaried Professionals 5. Conclusion
4 7 8 9 10 11 13 14 15 17 19 21 22 23 25
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Table of Figures
Figure 1: Distribution of Professionals considered for the research Figure 2: Retirement Planning 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 nancial 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 benet Figure 19: HR professionals view on Financial education on work place benet
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Summary
Personal Finance Habits
Summary : The research aims to understand and analyze the personal nance habits of the middle income professionals in India. Their nancial decisions today would determine their future nancial strength. The study was conducted on over 2000 salaried professionals. The professionals participated in the study were classied 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 nance. Summary of each aspect is shown below. Are you preparing yourself for retirement? : Based on the current personal nance 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 fth of the professionals (20.20%) review their nancials rarely.
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Summary
Who is advising you in making your nancial decisions? : The poor nancial decisions being made by majority of the professionals can be attributed to the kind of nancial advice they get. Friends and Colleagues act as nancial advisors for 35.40% of the professionals. Family members are the prime source of nancial advisory 30.97% of the professionals. 13.27% of the professionals make nancial 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 nancial advisor before making an investment. How well are the taxes being planned? : Tax savings is the nirvana of nancial 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 benets 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 benets 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 nancial 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 nancial advice from their colleagues. NSC is chosen by 3.45% of the professionals where as xed 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.
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Summary
Personal Finance Readiness : The personal nance readiness of a salaried professional denes the likelihood of one meeting all his goals in life. It denes: How efciently the cash ows are being tracked. How well the investments are being planned. How comfortable the retirement phase is going to be. How efciently one can handle any unforeseen/unfortunate events in life. Only 2.43% Entry Level professionals can be rated high on their personal nance readiness. Only 7.19% of the Mid Level professionals and 11.48% of the Senior - Level professionals can be rated high on their personal nance readiness.
View of Employees and HR on Personal Finance : Many studies have often stated that providing nancial education at work place is directly proportional to their nancial well being. As per the research, the salaried professionals prefer to get nancial education as a workplace benet. More than half (56.97%) the professionals stated that providing nancial education at work place is highly important while 33.38% of the professionals rated nancial education at workplace as important. One tenth (9.65%) of the professional felt that nancial education at work place is not important. When the same question was posed to the HR professionals, 73.06% of them stated that nancial 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.
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Introduction
Introduction : Most professionals generally relate nancial well being to either their income or the accumulated assets. However, planning for the future nancial needs is often ignored. The nancial life cycle of a salaried professional follows a specic pattern. At a young age, the salaried professionals rely on loans and other forms of debt to fulll 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 nances better. Today, the salaried professionals are expected to make more nancial decisions than ever before. It is also important that the decisions being made are nancially prudent as well. They are being presented with a gamut of nancial 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 nances also becomes more important than ever. This research by ArthaYantra is intended to analyze the current personal nance habits of the Salaried Professionals and the effect of such habits on their nancial well being in the future. More than 2000+ professionals across different industries with varied work experiences are studied to capture their current nancial habits. The survey captures the sources of nancial advice of these professionals. This is used to analyze the impact of nancial advice source on the individual nancial decision making process. The research captures tax planning habits of the individuals and the avenues of tax saving investments.
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Research Methodology
Research Methodology : The study by ArthaYantra is aimed at understanding the current personal nance 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 nance practices. The survey questionnaire for professionals covers a wide range of personal nance 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 nancial advice. Priority of employee benets.
The ndings are then analyzed to know the impact of their current nancial 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 benets.
Figure 1: Distribution of Professionals considered for the research
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Findings
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 ination 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 exibility 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.
Figure 2: Retirement Planning Status of Entry Level Professionals
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Retirement Planning
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.
Figure 3: Retirement Planning Status of Mid Level Professionals
Neglecting retirement planning during early or mid phases of the career will result in inadequate funds for retirement. This will force the professionals to either increase their saving rates during the last few working years or work for longer periods. Based on the retirement planning status of the professionals studied, only 18.64% can afford to retire at the age of 60.
Figure 4: Retirement Planning Status of Senior Level Professionals
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Emergency Fund
Do you have enough savings to counter any emergencies? :
35.75% of the Professionals Majority of Personal Finance experts advocate to maintain an are 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 prepared emergency fund prevents professionals to spiral into nancial distress during difcult times. It also reduces dependency on loans or liquidation for an of other assets. 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.
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 nancial disaster because of any unforeseen or unfortunate events in life.
Figure 5: Emergency Fund Status of Entry Level Professionals
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Emergency Fund
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
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Budgeting Frequency
How frequently do you keep track of your expenses : One of the best practices of personal nance 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 nancials 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 efcient use of the income received by the family.
Budgeting frequency habits of professionals is summarized in Figure 8. One out of ve Professionals (20.20%) review their nancials 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 their expenses. 10.61 % of the professionals review their expenses frequently. This signies 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
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How are the nancial decisions made
How are the nancial decisions made?
Only 4.42% of the Professionals said they seek advice from an expert before making an investment.
The long term nancial impact of every nancial decision can be signicant. Financial decision making process is often viewed in isolation, rather than holistically. The benets of a good nancial decision can continue for many years and similarly a bad decision can hurt both short and long term nancial prospects. There is always a wide impact of a nancial decision, which is often ignored. The ecosystem of that supports the nancial decision making of the professionals includes ofce, family and friends. It is this ecosystem that most of the professionals rely upon for any nancial advice. Off late ofce colleagues has emerged as critical resources of nancial advice for the salaried professionals. Friends and Colleagues act as nancial advisors for 35.40% of the professionals. Family members are the prime source of nancial advisory for 30.97% of the professionals. 13.27% of the professionals make nancial 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 nancial advisor before making a nancial decision. The composition of sources of nancial advice for professionals is shown in gure 9. Every major decision in life be it buying a home, moving into a new city, education of the children, everything has a nancial implication associated with it. The nancial implications of such decisions should be discussed with a nancial advisor. Lack of access to quality advice is the prime reason behind individuals making some nancially bad decisions.
Figure 9: Sources of nancial advice for Professionals
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How much do you invest in section 80C
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 t 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 nancial 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 Figure 10: Distribution of amount being invested in section 80C by professionals with an annual income of INR 2 - 5 lakhs lakh under In the segment of professionals whose compensation package lies between 5 10 lakhs per annum, 37.18% make investments worth INR section 80C. 10,000 INR 25,000. Nearly a fth (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 benets under section 80C and 16.67% of them are over doing the tax saving investments.
Figure 11: Distribution of amount being invested in section 80C by professionals with an annual income of INR 5 - 10 lakhs
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How much do you invest in section 80C
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 benets 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 benets 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 nancial 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 nancial advice. Especially in the case of professionals who over do the tax savings, their major source of nancial 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 nancial year. This piles up the burden on the professionals during the end of nancial 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 nancial year with 20.83% starting during October to December and 29.17% during January to March.
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When do you make tax saving investments
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 benets of tax savings. The challenge however lies in picking in suitable products. It is important that the professionals analyze their risk prole 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 nance practice. Amoing the professionals professionals who prefer insurance as their tax saving investment, 95.86% receive their nancial advice from family or neighborhood friends. These are esentially the agents who have a vested interest of lling 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.
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When do you make tax saving investments
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 nancial advice from their colleagues. NSC is preferred by 3.45% of the professionals where as xed deposits is preferred by 4.28%. Majority (83.26%) of such professionals get their nancial advice from Family. It is tricky to determine the investment product suitable for the individual without assessing their current nancial 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 ne tuned.
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Most common goals

PERSONAL FINANCE OUTLOOK 2013 Most common goals :
When setting goals, every one holds a different set of expectations of Saving their life. Their likelihood of achieving the goals set by is directly proportional to their nancial well being. The nancial goals of an for individual can be classied under three segments: Short term goals like buying a two wheeler buying a car, medium goals like retirement home, children's education and long term goalsterm retirement.buying a like Dening is the last a goal and determining the amount needed and tenure will help in setting a specic investment plan in order to achieve them. priority In the segment of Entry Level Professionals, the near term goals like for the buying a two wheeler, buying a car, buying a home, getting married were on the high priority list. The goals like emergency fund and Professionals. retirement were rated less on the priority scale.
Figure 14: Most common goals of Entry Level Professionals
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Most common goals

PERSONAL FINANCE OUTLOOK 2013
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.
Figure 15: Most common goals of Mid 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.
Figure 16: Most common goals of Entry Level Professionals
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Personal Finance Readiness

PERSONAL FINANCE OUTLOOK 2013 Personal Finance Readiness :
The personal nance readiness of salaried professionals denes the likelihood of meeting most of their goals in life. It denes: How efciently the cash ows are being tracked. How well the investments are being planned. How comfortable the retirement phase is going to be. How efciently one can handle any unforeseen/unfortunate events in life. These factors form the pillars of a strong nancial foundation for salaried professionals from which they can reap long term benets. Among the Entry Level Professionals, only 2.43% can be rated high on their personal nance 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 nance 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 nance readiness. Especially with high child education costs and other forms of debt like home loans in their name, these professionals should start managing their nancials better.Unless the nancial readiness increases from the current low levels, adverse economic or personal condition can negatively impact signicant 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
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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 nancial 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 nancial 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 nancial well being of their professionals. Getting a nancial education program in place is the rst step in order to make sure that the professionals are nancially literate. This helps professionals in making better nancial decisions and indirectly makes sure that the professional is not stressed due to various nancial 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 nancial education at work place is highly important while 33.38% of the professionals rated nancial education at workplace as important. One tenth (9.65%) of the professional felt that nancial education at work place is not important. These numbers do signify the fact that the salaried professionals prefer to get nancial education as a workplace benet.
56.97% of the Professionals feel that nancial education at work place is highly important.
Figure 18: Salaried Professionals view on Financial Education as work place benet
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When the same question was posed to the HR professionals, 73.06% of them stated that nancial 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 nancial education at work place.
Figure 19: HR professionals view on Financial education on work place benet
Reasons for current Financial State of the Salaried Professionals : Financial literacy : Financial literacy is dened as an understanding of basic economic concepts which deal with the art of saving and investments. Lack of nancial knowledge and source of nancial advice play a vital role in the sub optimal nancial decisions being made by the employees. The lack of nancial 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 nancial literacy among the employees are : Personal nance is always given a low priority. Basics of personal nance are not part of educational curriculum except for some students from nance background. Lack of nancial knowledge among family members, especially they being the major driving force behind nancial decision making process. All these factors play a pivotal role in the current nancial state of the employees. Personal nance is being perceived through the color of tax planning or investment planning. Lack of knowledge on various personal nance aspects is affecting the nancial decision making process of the employees and their potential nancial future. Especially in the current world where one can nd many options for every nancial need, it is important they know the basics of personal nance before making any nancial decision.
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Behavioral Bias : Ranging from food habits, dressing style to social etiquette, all aspects of life are inuenced by the social interactions. People learn and implement all the ideas on the basis of their interactions with colleagues, friends and family. Similarly the nancial decisions being made are essentially controlled by non nancial factors. Individual characteristics combined with the impact of the society, colleagues, family and friends account for these major non nancial 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 ourish in the coming days. So essentially, the utility curve of nancial 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 nancial 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 gratication. Most of the employees at starting stage of their careers delay the process of planning and do no concentrate on their nances. The results from the study also show that most of Entry Level Professionals neither have a retirement plan nor an emergency fund. Majority 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 reect 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 efcient manner. Lack of Quality Advice : The indirect factor which is affecting the nancial 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 nancial 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 nancial knowledge. A group of these advisors also have a vested interest of selling products and gaining commissions through such transactions. Providing quality nancial advice for vastly diversied salaried professionals is a concern.
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Conclusion
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 nance solutions through online technology can prove benecial for the professionals. It gives them convenience to plan their nances at their convenient time. The online personal nance management techniques provide access to quality nancial 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 Ination 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 efciently. The ndings of the study show that most of current professionals are living from pay check to pay check basis. The nancial 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 nance habits of the salaried professionals could be catastrophic. It is important to start giving attention to personal nance 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 nancials is evident. They have realized that work place nancial education can prove benecial for them for making nancially well informed decisions. Though realization of importance of personal nance by professionals is a positive take away from the research, failure to act still remains a concern. Lack of nancial 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 nancially.
Copyright 2012
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ArthaYantra
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Copyright 2012
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Personal Finance Habits of Salaried Professionals in India

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Personal Finance Habits of Salaried Professionals in India

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Personal Finance Habits of Salaried Professionals in India

Personal Finance Habits

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Figure 1: Distribution of Professionals considered for the research

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Findings : Are you preparing yourself for retirement? :

18.64% Can Afford to retire at the age of 60

Figure 2: Retirement Planning Status of Entry Level Professionals

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Figure 3: Retirement Planning Status of Mid Level Professionals

Figure 4: Retirement Planning Status of Senior Level Professionals

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Do you have enough savings to counter any emergencies? :

Figure 5: Emergency Fund Status of Entry Level Professionals

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Figure 6: Emergency Fund Status of Mid Level Professionals

Figure 7: Emergency Fund Status of Senior Level Professionals

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Figure 8: Budgeting Frequency of Professionals

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How are the nancial decisions made

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How are the nancial decisions made?

Figure 9: Sources of nancial advice for Professionals

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How much do you invest in section 80C

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How much do you invest in section 80C

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When do you make tax saving investments

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When do you make tax saving investments

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