Low-income households see incomes stagnant for five years: survey

Chennai: Low-income households in India have been facing stagnant income over the past five years, finds a survey. Around 77 per cent of low-income households reported no increase in income over the past five years, finds a survey done by RedSeer Consultants across metro, tier 1, and tier 2+ geographies. Any slight increases in income were often offset by rising inflation, particularly in essential areas like food, housing, healthcare, and transportation.

The majority of low-income individuals work in informal or unregulated sectors and have irregular income streams, leading to instability in their financial situation. Limited access to formal banking and financial services further intensifies their challenges, preventing efficient saving and investment.

Further, the survey found that low, emerging, and middle-income households manage to save less than 20 per cent of their income, in contrast to the national average of 30 per cent. The majority of savings for lower and middle-income households go into essential needs like food, medical costs, and housing costs.

The households also showed a strong preference for traditional saving methods like bank savings, fixed deposits, and post office schemes. About 81 per cent of middle-income, 78 per cent of emerging-middle-income, and 79 per cent of low-income households opt for these low-risk options over riskier investments such as stocks and mutual funds.

When expenses exceed income, one in every four individuals with zero savings opts for formal lending options like micro-credits, bank loans, and credit cards. About 65 per cent of households turn to friends and family for financial support while 6 per cent resort to depleting their savings or selling/mortgaging assets to cover their expenses. The survey also found a rise in the adoption of formal lending options among low, emerging, and middle-income households, signifying a huge opportunity for growth in this sector.

Medical emergencies turn out to be a major factor for savings depletion for 30 per cent of households. About 22 per cent of households said children’s education expenses contribute to the depletion of savings for the family. Other factors for the depletion of savings include marriage costs, job losses, and debt repayments.

"The findings point to the urgent need for improved financial products and services. Access to affordable health insurance, educational loans with favourable terms, and robust financial planning services could alleviate financial stress for families. Additionally, promoting financial literacy and providing emergency financial solutions can help households build more resilient financial strategies," said Jasbir S Juneja, Partner at Redseer Strategy Consultants.