As World Savings Day is celebrated, a pressing concern is emerging: India’s household savings rate is declining amid tough economic realities. According to the National Accounts Statistics 2024 of the Ministry of Statistics and Program Implementation (MoSPI), household net savings have fallen by a huge margin. ₹9 trillion over the three years leading up to FY23 is now up ₹14.16 trillion. As a result, the household savings ratio fell from 22.7% of GDP in FY21 to 18.4% in FY23.
Read this | Mint Explore: What declining household savings mean for the economy
Securing individual wealth requires proactive measures – starting with building emergency funds, diversifying investments and effectively managing personal debt.
Rising costs and easy credit effects have financial security
India’s annual inflation rate rose to 5.49% in September from 3.65% the month before, based on the consumer price index (CPI). Rising inflation, coupled with increased accessibility to credit, has redefined personal financial habits.
With easy access to loans and credit cards, many people assume that saving is not necessary. As of March 2023, unsecured personal loans have more than quadrupled ₹13.32 trillion, compared to ₹4.26 trillion as of March 2017, according to the CareEdge Rating Report. This false sense of security often leads to overspending and a cycle of debt, which shifts the focus from the importance of saving for future needs.
More here | Indian banks are staring at worrying savings and investment trends
Why saving is essential for financial stability
Savings act as a financial cushion and provide resilience during unexpected economic downturns or emergencies. Without sufficient savings, individuals are forced to rely on loans, incurring high costs to cover unforeseen expenses.
For many lower- and middle-class families, limited discretionary spending options mean they prioritize essential needs over wants. In such contexts, saving becomes crucial: it serves as a buffer against economic shocks and ensures long-term financial stability.
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Small steps towards investments
Starting small with investments not only builds a safety net for emergencies, but also opens up opportunities to grow prosperity. Smart investments offer the potential for higher returns, promote confidence and drive better financial decisions. Developing even a basic understanding of markets and investments can lead individuals to sustainable financial security and growth.
Financial literacy encourages a savings culture
To address financial challenges in India, financial illiteracy must be tackled. Many people still view saving and investing as secondary rather than essential tools for building wealth. Promoting a proactive approach to financial planning can enable individuals to avoid economic vulnerabilities and seize opportunities in a dynamic marketplace.
Several platforms have made it easier to learn about saving and investing. These apps not only track savings against personal goals, but also offer courses and tutorials that simplify complex financial concepts. By fostering these supportive learning environments, they increase users’ financial confidence and knowledge, putting them on the path to starting saving and investing.
A call to action
World Savings Day emphasizes the importance of financial education in addition to saving and investing. Understanding these concepts equips individuals to deal with personal financial challenges.
Also read | How financial planning helped this Mumbai family
Financial literacy increases resilience and promotes responsible investing – crucial for economic growth. Taking the first step towards financial stability ensures a sustainable future for individuals and the wider economy.
Ajay Lakhotia is the founder and CEO of StockGro.
