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

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HDFC Life, in association with ValueNotes, launched its inaugural Life Freedom Index report. The Life Freedom Index assesses the current state of financial freedom of Indian consumers, their awareness about available products, sufficiency and adequacy of financial planning, and their current state of financial freedom. The Index at 58.3 on a scale of 0-100 shows that Indian consumers’ sense of financial freedom is low and is yet to reach a state of financial nirvana.

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

  1. 1. 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 1
  2. 2. PrefaceHDFC Life is pleased to launch the first Life Freedom Index in India, which will serve as the primary indicator of how truly free anindividual, is from a financial perspective.Macroeconomic scenario is yet to be positive, household savings seem to have gone down because families have less money toput away in a year of high inflation. Moreover, lack of social security benefits in a country with a majority of young populationincreases 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 financialchoices on a shaky foundation. The degree of freedom and liberty that consumers perceive themselves to have, appears to beover-estimated on a rather contrasting backdrop of low financial awareness - either on account of limited awareness of the risksor 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 ratesetc as important enough to be accounted for in his/her financial plan. It is surprising that they do not acknowledge that theseexternal 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, December2011 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 thatcollectively 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 2
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  4. 4. Life Freedom Index Chapter 1: IntroductionThe Life Freedom Index is made of up the following five 3) Young Aspirant: A person who is aged 20 to 30 yearssub-indices: and falls under the Socio Economic Classification (SEC) groups A and B. 1) Financial Awareness Index (FAI): Captures the finan- cial product knowledge and the awareness level of events 4) Urban Woman: A woman aged 25 to 40 years and falls that can have a significant impact on current and future under the Socio Economic Classification (SEC) groups A financial needs of the Indian Urban consumers. and B. 2) Financial Planning Index (FPI): Reflects the existence The Socio Economic Classification (SEC), groups urban In- of a comprehensive financial plan, which is regularly dian households on the basis of education and occupation reviewed and realigned to address evolving financial of the Indian Urban consumers into five segments (SEC A, needs. SEC B, SEC C, SEC D and SEC E households). 3) Financial Sufficiency Index (FSI): Reflects the state of The key objectives of the survey are to measure the follow- Indian Urban consumer’s on the sufficiency of their finan- ing, across cities in India: cial plan to meet immediate financial needs . • Awareness levels of major events and various investment 4) Financial Adequacy Index (AI): Reflects the level of products confidence of the Indian Urban consumer’s financial man- agement practices being adequate to live life with dignity, • Level of financial planning independently and meet the desired standard of living • Sufficiency of financial plans throughout his lifetime. • Adequacy of financial plan to live life with dignity 5) Financial Liberty Index (FLI): Reflects the psychologi- cal feeling of ‘Financial Freedom’ and ‘Financial Security’ of • Psychological feeling of financial freedom and security Indian Urban consumers in India. Over 1,600 respondents were interviewed in separate These five sub-indices together measure the state of finan- surveys conducted between November, December 2011 cial freedom of the following four consumer segments: and January 2012 across 11 Indian cities; Ahmedabad, 1) Chief Wage Earner (CWE): A person who contributes Bengaluru, Bhopal, Indore, Bhubaneswar, Chennai, Delhi, the most to the household income and is the key financial Kochi, Kolkata, Ludhiana and Mumbai. The findings from decision maker of the family, in the age group of 30 – 45 the survey were distilled into various specific measurement years and falls under the Socio Economic Classification indices that collectively form an overall Life Freedom In- (SEC) groups A and B. dex. 2) Wisdom Investor: A person who is aged 45 years or above and falls under the Socio Economic Classification (SEC) groups A and B. 4
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  6. 6. State of Life Freedom of IndianUrban Consumers Chapter 2: Key FindingsNot financially free Most concerned about child’s educationThe various findings of the survey build up quite an inter-esting picture of Indian Urban consumers and the state While drawing up a financial plan, no other financial eventof freedom they currently enjoy. The survey resoundingly appears as important for Indian Urban consumers as his/shows that Indian Urban consumers’ sense of financial free- her child’s education. Children’s education is the most sig-dom is low and is yet to reach a state of financial nirvana. nificant financial event considered in the Indian Urban con-The lack of financial freedom can be attributed to many fac- sumer’s household. Health and retirement, in that order aretors -- low financial awareness, inadequate planning and a the next two concerns for Indian Urban consumers.general feeling that they need to do more to increase theirfinancial sufficiency and adequacy. What this translates into Sense of liberty inflatedis that they may not be able to meet their various short andlong-term needs. Indian Urban consumers do acknowledgethat more needs to be done to improve their current state The sense of financial liberty of Indian Urban consumersof freedom. appears inflated, given the inadequacy in their financial planning and awareness levels. The state of mind of Indian Urban consumers represents two contrasting sentiments.Making inappropriate financial choices On one hand, they have realized the incomprehensiveness and insufficiency of their financial plans and are not veryIndian Urban consumers are making financial choices on a confident about living life with dignity. However, on theshaky foundation. The degree of freedom and liberty that other hand, their sense of financial liberty does not reflectconsumers perceive themselves to have, appears to be a similar sentiment and score much higher. Thus, it clearlyover-estimated on a rather contrasting backdrop of low suggests that this sense of liberty is not in line with theirfinancial awareness - either on account of limited aware- financial planning, sufficiency, and adequacy.ness of the risks or on account of low product knowledge.Consumers are chalking out financial plans, despite limitedknowledge about financial goals and various investment Appetite for financial planning prevalentoptions available. Indian Urban consumers across all segments have realized the necessity of financial planning. They are already chalk-Not planning actively for unexpected events ing out financial plans and are generally disciplined in ad-and external forces hering to them. However, on the flip side, these plans lack comprehensiveness and need to be realigned with theirThe implications of the above is that the current degree of desired financial goals.freedom and security of Indian urban consumers is stem-ming mainly from investments and risk managementmeasures undertaken to cover known / expected events. Tier 2 cities more free than Tier 1Consumers are actively recognizing the need to manageexpected events such as child’s education, retirement or Indian Urban consumers residing in Tier 2 cities mirror ahealth expenses, but are failing to account for the arguably higher sense of financial freedom than their Tier 1 city coun-larger threats to freedom including unexpected life events terparts. Tier 2 consumers across all segments, except Wis-such as accident/ critical illness, death or damages due to dom Investors, perceive themselves better-off in terms ofa natural calamity. Indian urban consumers do not con- planning, sufficiency, adequacy and hence a higher sensesider external economic factors such as inflation, govern- of liberty. It is possible that relatively low cost of living andment regulations, interest rates etc as important enough to low financial stress associated with a Tier 2 city contributebe accounted for in his / her financial plan. It is surprising to higher sense of financial freedom among consumers re-that they do not acknowledge that these external factors, siding in Tier 2 cities compared to Tier 1 cities.given the frequent interest rate hikes, rising inflation and In terms of socio-economic classification, SEC A consumerseconomic downswings can significantly impact his / her across all segments, except Young Aspirants, have a mar-financial needs. 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. 6
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  8. 8. Low Financial Freedom Chapter 3: Life Freedom Index and its ComponentsThe Indian Urban consumers’ Life Freedom Index at 58.3 on Financial Awareness Index (43.3) -a scale of 100 is low, denote that they are not completelyinsecure financially, but still have a long way to go before The financial awareness of Indian Urban consumers is poorachieving a complete state of financial freedom. Indian – there is a lack of awareness around all three key aspectsUrban consumers score the least on financial awareness – the “expected” events, which need to be planned for, un-(43.2), suggesting that the other key factors viz, financial expected life risks and most importantly external economicplanning, sufficiency, liberty and adequacy are possibly forces. Awareness around the latter two are much lowerover-estimated. Financial Awareness Index being signifi- than awareness around expected events. This is concerning,cantly lower than the Financial Planning Index implies that as the latter two pose greater threat to life freedom thanfinancial choices are being made in an environment of lim- the expected events do. Product knowledge and productited awareness regarding both; the risks which need to be awareness is also low, which can be worrisome as it impliesmanaged as well as awareness around the various financial that financial plans are being drawn with only incompleteoptions available to manage these risks. knowledge.On a positive note, the survey indicates that the Indian Financial Planning Index (62.7) –Urban consumers definitely understand the need to planfinances. However, as they fail to review and realign their Although Indian Urban consumers have chalked out a fi-plans as per the changing events of their lives, their sense nancial future, their plan suffers from serious gaps in termsof Financial Sufficiency and Financial Adequacy is mis- of comprehensiveness and its realignment with identifiedjudged. Moreover, this gap in their planning and financial goals. Furthermore, consumers are also not very active inmanagement activity fails to give consumers the confi- reviewing their plans and the frequency of review needsdence required for meeting immediate or long term goals significant improvement.for leading a life with dignity. It is alarming to note thatIndian Urban consumers score highest in terms of finan-cial liberty (68), much higher than financial planning and Financial Sufficiency Index (62.7) –awareness and even Life Freedom Index, indicating thatthis sense of liberty rests on a very shaky foundation. The The lack of comprehensiveness in financial plans is reflect-survey findings reveal that only 27% of the consumers seek ed in the sufficiency scores of Indian Urban consumers. Theprofessional advice for financial planning. This points out shortfall in financial plans does not accord Indian Urbanto a latent need for professional financial advice, which will consumers enough confidence for meeting immediate fi-help Indian Urban consumers in overcoming gaps in finan- nancial commitments.cial planning and management. Adequacy Index (63.5)Fig. 1 Life Freedom Index 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-Fig. 2 Life Freedom Index and its components 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. 8
  9. 9. 1.1 LFI by consumer segments 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,Among all categories of Indian Urban consumers, Wisdom which is focused around traditional forms of investmentInvestors (63.0) are the most financially free, followed close- such as property, gold and insurance products. He seemsly by Chief Wage Earners (CWEs). Young Aspirants have tak- to have made these long term investments, but is not keep-en the first steps to financial planning but their plans need ing track of events, which may dilute his return on invest-significant improvement in all aspects to provide them with ments.the requisite level of financial freedom and confidence tolive life with dignity. On the other hand, Wisdom Investors, The Wisdom Investor scores poor on financial awareness,backed by experience, have stronger financial plans. Finan- implying that the perception about his financial liberty, suf-cial freedom of CWEs and Urban Women is low, suggesting ficiency and adequacy is not well-founded and probablythat India’s Generation X is striving to find a balanced plan, inflated. Interestingly, despite being conscious about thewhich is capable of meeting immediate, and future finan- shortfalls, his financial plans still provide him with a certaincial commitments and provides them with enough confi- level of confidence about his financial sufficiency, adequa-dence to live life with dignity. The chart below represents cy and liberty.the LFI scores for each of the consumer segments.Fig. 3 Life Freedom Index by each consumersegment 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.Chief Wage Earner (CWE): The judicious planner However, the Young Aspirant is also aware of other bigger responsibilities such as child’s education and health ex-The Indian CWE scores the highest on self-assessment of his penses. He is conscious of life’s major responsibilities andfinancial planning and management activity. He definitely is keen to fulfill them without compromising on the fununderstands the need to plan finances and is indeed doing quotient of life. His desire to fulfill these aspirations andsignificantly better off in terms of aligning his finances with the need to meet his responsibilities has made the Younggoals as compared to other consumer categories. The CWE Aspirant realize the importance of financial planning. Con-is bound by a number of financial responsibilities, of which sequently, he has also developed a habit of adhering tohe considers his child’s education, retirement and health these plans. However, the Young Aspirant is a novice whenexpenses as the most important. However, the survey re- it comes to goal-based financial planning and is not ablesoundingly shows that the Indian CWE’s sense of financial to use his financial know-how to realign his plans and ar-freedom is low and he senses some shortfall in his financial rive at a comprehensive plan, which can cover all his shortplanning due to which he is not very confident about meet- and long term financial goals. The Young Aspirant’s senseing his immediate and future financial commitments. of financial sufficiency, liberty and adequacy appears to be marginally over-estimated, given his low financial planning score and poor awareness levels.Wisdom Investor: The traditional investorIn comparison to other consumer segments, the IndianWisdom Investor is comparatively closer to achieving finan-cial freedom than the other consumer segments. However,he is not completely financially free and needs significantimprovement on the aspects of financial planning, aware- 9
  10. 10. Urban Woman: An active contributor to her Fig. 4 Sec A consumers more financially freefamily’s incomeUrban 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, theUrban Woman is becoming financially independent andhas a higher sense of financial liberty. She is actively plan-ning for her child’s education, health expenses and EMIpayments, while her financial freedom also allows her theliberty to indulge in other luxuries like family holidays anddurables. The working single Urban Woman is ready to facethe financial challenges of her life independently. A deeperreading of the findings reveals that due to higher financialsecurity provided by the income of the chief wage earner, 1.3 LFI by Citythe overall sense of financial adequacy and sufficiency iscomparatively higher in married Urban Women as com- The LFI for Tier 2 city consumers (59.3) is higher than thatpared to that in their unmarried counterparts. for Tier 1 cities (57.8). Reduced financial stress of Tier 2 cities is probably offering the former a relatively better sense ofHowever, the Urban Indian Woman is not completely finan- financial freedom. However, Tier 1 Wisdom Investors (63.6)cially free and needs improvement on aspects such as fi- score better than their Tier 2 peers (60.4).nancial planning, sufficiency and adequacy and has a longway to go when it comes to goal-based financial planning.Given her poor financial awareness levels, she is unable to Fig. 5 Tier 2 Cities score higher on LFI than Tieruse her financial know-how to review and realign her plans 1 Citiesand arrive at a comprehensive plan, which can cover all hershort and long term financial goals.1.2 LFI by SEC classificationSEC A Indian Urban consumers score marginally higherthan their SEC B counterparts. The SEC A Wisdom Investor(64.0) is the most financially free across all consumer seg- 1.4 Importance of life insurancements, while SEC A Young Aspirants (53.8) have the lowest among Indian Urban consumerslevel of financial freedom. Relatively more comprehensivefinancial plans and greater sense of liberty make SEC A con- All consumer segments were asked to rate the importancesumers more financially free. However, LFI scores of both of life insurance in covering risks to financial freedom. 44%SEC A and SEC B Urban Women are at par, indicating that Indian Urban consumers feel life insurance is very impor-women across India are skeptical about the comprehen- tant to cover the risks to financial freedom, while 23% feelsiveness and sufficiency of their financial plans. 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.10
  11. 11. Fig. 6 Indian Urban consumers consider life insurance as an essential risk cover1.5 Preferred source of advice for financial decision makingThe survey asked Indian Urban consumers about their preferred source of advice for financial decision making. While 35% ofthem 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 properprofessional 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 11
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  13. 13. Not Actively Planning for UnexpectedEvents and External Factors Chapter 4: Financial Awareness Index (FAI)Financial Awareness Index (FAI) captures the financial prod- Fig. 8 Awareness about future financial needsuct knowledge and the awareness level of events that can is poorhave a significant impact on future financial needs of theIndian Urban consumers. These events are classified intoexpected events, unexpected events and other externalfactors, while products have been defined as those finan-cial instruments such as market linked, insurance and fixedincome products that can be used to cover risks arising outof occurrence of these events.The survey throws up the low levels of financial literacy inIndia, both in terms of events that need to be consideredfor sound financial planning and the product choices avail-able to mitigate the various life risks. A deeper reading ofthe findings reveals that the consumers’ awareness about Financial awareness of all Indian Urban consumer segmentsimportant events around which they need to plan finances, ranges between poor and low. The Indian CWE scores theborders on being extremely poor. Although they score bet- highest in terms of financial awareness, while Young Aspi-ter in terms of knowledge about the various financial in- rants are the least aware category of consumers. The Youngstruments available, the score still falls in the low range. The Aspirants are relatively novices in the domain of financialsurvey also highlights a glaring gap between event aware- planning and management and hence they are yet to com-ness and product knowledge. This indicates that although pletely familiarize themselves with the various aspects ofIndian Urban consumers have some level of knowledge, financial planning, such as significant events around whichthough limited, about various financial products, they ap- finances need to be planned as well as the various financialpear completely out of sync when it comes to deciding instruments available. Interestingly, despite having morewhere, when and how they need to allocate their finances. investment and planning experience the Wisdom Inves- tors’ awareness is lower than that of CWEs, but at par withIndian Urban consumers are making financial choices on a that of the Urban Women. This clearly indicates that India’sfoundation based on low awareness of their future financial Generation X is relatively more conscious about the signifi-needs. They do not appear to be fully aware of future events, cance of planning finances around life’s significant eventswhich can have a significant financial impact, whether it and has comparatively sounder financial knowledge thanbe unexpected (death, accidents or critical illness), exter- the other segments.nal (inflation, market volatility, economic downswings) orexpected events (children’s education, retirement, depen-dent’s marriage etc.). This is worrisome as it indicates that Fig. 9 CWEs most financially aware, YoungIndian Urban consumers are significantly underprepared Aspirants the leastfor events, which could potentially derail their financialsituation.The overall Financial Awareness Index (FAI) for Indian Urbanconsumers’ reads 43.3, suggesting low levels of financialawareness. Event awareness (28.2) is poor, while productknowledge (58.3), though significantly higher, is still lowand needs considerable improvement.The chart below represents the overall FAI and its underly-ing indices. 13
  14. 14. 1.5.1 Financial event awareness and its componentsThe survey findings reveal that all categories of Indian Urban consumers assign more importance to expected events (child’seducation, 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 adequatesteps to shield themselves and their dependents from these unexpected or external forces. It is worrisome to note that IndianUrban consumers are not conscious about unexpected events and macro-economic forces, which pose a greater threat to theirfinances.Awareness score for each consumer category reveals that Indian CWEs are the most conscious about all types of financial events thatneed 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 planningAs 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 aboutretirement is understandably the least among Young Aspirants and Urban Women. Concern over health expenses is relativelyhigh across all categories, implying that the growing number of lifestyle related diseases are hurting the finances of IndianUrban consumers. Young Aspirants as well as Urban Women, although aware of the other major responsibilities in life, accountrelatively 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 Investorsare 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 planningfinances. The survey findings reveal that only 30-36% consumers take into account inflation during financial planning. CWEs andYoung Aspirants are relatively more concerned about Government regulations. The recent volatility in stock markets appears tohave the least bearing on the financial planning activity of Indian Urban consumers. The charts below represent the breakup ofresponses for expected, unexpected and external events.Fig. 11 Expected events: Child’s education a top priority across the boardFig. 12 Unexpected events: Consumers most concerned about accident/illness14
  15. 15. Fig. 13 External forces: Consumers least concerned about stock market volatility1.5.2 Financial product knowledge and its componentsA 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, derivativesetc.) 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 belowshow the overall financial awareness of the four consumer segments and the level of knowledge about the different financialinstruments. These scores have been used to arrive at the overall financial product knowledge.Fig. 14 Financial product knowledge highest for Urban WomenFig. 15 Indian Urban consumers most knowledgeable about insurance products 15
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  17. 17. Not Actively Realigning orReviewing Plans Chapter 5: Financial Planning Index (FPI)Financial Planning Index (FPI) reflects the existence of a financial planning, indicating that their plans are still in acomprehensive financial plan, which is regularly reviewed nascent stage and need to be reviewed and realigned moreand realigned to suit evolving needs. The three compo- frequently for achieving a higher level of comprehensive-nents of FPI are Plan Comprehensiveness, Plan Realign- ness. Wisdom Investors are relatively more sound financialment and Plan Review. A comprehensive plan is one, which planners in comparison to Urban Women and Young Aspi-covers all short term and long term financial goals, while rants, but are yet to match up with CWEs.realignment indicates if the consumer realigns his financialplans according to significant events occurring in his or his Fig. 17 CWEs are the most judiciousfamily’s life. Plan review refers to the frequency with whichthe consumer reviews his financial plan. planners, while Young Aspirants are novicesThe current FPI (62.7) indicates that although Indian Urbanconsumers are fairly conscious about the necessity of afinancial plan, they are not very well acquainted with themerits 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 recognizethat it’s not comprehensive and does not account for allshort term and long term goals. The Indian Urban consum-er appreciates the benefits of a financial plan but knowsthat more needs to be done to ensure its overall compre- 1.5.3 FPI by sub componentshensiveness. Consumers are not realigning these plans formost significant events but appear to be realigning plans Deeper analysis of the FPI scores by each consumer catego-for “some” significant events such as marriage of a depen- ry reveals that although CWEs are the most judicious finan-dent, birth of a child, higher education, etc. Indian Urban cial planners, Wisdom Investors score best in terms of planconsumers are also not very active in reviewing their finan- comprehensiveness. However, they fall behind in terms ofcial plans and there is a need to increase the frequency of plan realignment and reviewing.review significantly. Urban Women score reasonably well in terms of plan com- prehensive, but like Wisdom Investors, their plans are notFig. 16 Indian Urban consumers not actively appropriately aligned with all of life’s significant events, norrealigning financial plans 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.Financial planning scores of each of the consumer seg-ments indicate that CWEs are the most active financialplanners. Greater financial responsibilities in comparisonto other consumer segments have influenced CWEs to plantheir finances more judiciously. On the other hand, theyounger generation (Young Aspirants), currently free frommajor financial responsibilities, scores the least in terms of 17
  18. 18. Fig. 18 Young Aspirants least aggressive in plan realignmentA closer look at the state of plan comprehensiveness shows that majority of Indian Urban consumers across all categories havechalked out financial plans, but only a few are sure about their comprehensiveness. For instance, 95% of CWEs have drawn afinancial plan, but only 29% believe that they have a comprehensive plan, which covers all their short and long-term financialgoals. 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 thattheir plans lack comprehensiveness and cover only a few short and long term goals. In terms of plan realignment, Indian Urbanconsumers 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. Youngconsumers are the least active in aligning finances with goals. Interestingly, Wisdom Investors, despite having the maximuminvestment 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 isthat only 5% consumers across all categories “do not update” their financial plans, indicating that Indian Urban consumers havedeveloped 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 theirfinancial plansNote:Comprehensive plan: Covers all short and long term goalsSomewhat comprehensive plan: Covers most of the short and long term goalsBasic plan: Covers a few short and long term goalsPlan in progress: Identified short and long term goals, but no plan in placeNo financial goals: No short and long term goals 18
  19. 19. Fig. 20 Plan Realignment: Less than 16% Indians align their plans to ‘all significant’ eventsNote:Significant Events refer to situations or instances that can impact the consumers’ ability to meet financial responsibilities for himself and hisfamily. These events can be expected, unexpected or external events like marriage of a dependent, birth of a child, higher education, accidentor disability, inflation, economic slowdown, etcFig. 21 Plan Review: Financial plans reviewed only ‘somewhat regularly’ in India 19
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  21. 21. Sufficiency needs significantimprovement Chapter 6: Financial Sufficiency Index (FSI)Financial Sufficiency Index (FSI) reflects the perception of perception about the sufficiency of their financial plansthe Indian Urban consumers on the sufficiency of their fi- needs significant improvement. It also appears that Indiannancial plan to meet their recognized financial goals and Urban consumers are conscious about the insufficiencyimmediate unexpected events that could occur in the span of their financial plans to meet their immediate financialof two to three years. It also reflects how disciplined they needs and are thus trying to discipline themselves finan-are in adhering to their financial plans, which in turn affects cially in order to achieve a better level of sufficiency.the sufficiency of their financial plans. The chart below represents the overall FSI and its underly-The FSI level suggests that Indian Urban consumers’ ing indices.Fig. 22 Indian Urban consumers sense insufficiency in their financial plansFSI readings of all Indian Urban consumer segments range between low and needs improvement. Wisdom Investors have acomparatively 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 andthus 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 havesensed 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 meettheir immediate financial needs.Fig. 23 Wisdom Investors feel most sufficient; Young Aspirants least confident about it 21
  22. 22. 1.5.4 FSI by sub componentsFSI 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 Aspirantsappear to be moderately confident about the sufficiency of their financial planning and management activities. Urban Womenappear to be generally confident about the sufficiency of their financial plans. However, majority of Urban Women have realizedthat 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 planningA 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) . Highestnumber 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 moreconfident 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 financialmanagement activity. Young Aspirants follow a general level of financial discipline; with 16% of them believing that, they areextremely disciplined. It is interesting to note that at this young age, Young Aspirants show a moderate level of discipline in theirfinancial management activity.While a majority of CWEs believe that they have some amount of discipline in adhering to their financial plans, only 10% believethat they are extremely disciplined.The charts below represent the breakup of responses for the level of confidence among customer segments with respect totheir plan sufficiency and the level of discipline followed by them.Fig. 25 Plan sufficiency: Indians moderately confident of their plan sufficiencyFig. 26 Plan discipline: Majority of Indians believe they are financially disciplined22
  23. 23. 23
  24. 24. Living life with dignity – a distantdream for Indian Urban Consumers Chapter 7: Adequacy Index (AI)Adequacy Index (AI) reflects the level of confidence about that all their current financial management activity is notthe adequacy of the financial plan for living life with dig- enough to provide them with the comfort of knowing thatnity, independently and meeting the desired standard of they can spend their life in dignity. There is a sense of inad-living. equacy around their financial planning and management as it fails to give them the requisite confidence to indepen-The AI level clearly indicates that Indian Urban consumers dently achieve their own and their family’s desired standardare skeptical about the adequacy of their financial plans for of living throughout their lifetime.living life with dignity. Indian Urban consumers still senseThe AI level for Indian Urban consumers in the current survey stands at 63.5.Fig. 27 Indian Urban consumers skeptical about living life with dignityAdequacy 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 UrbanWomen needs significant improvement.Young Aspirants are still striving to achieve a comprehensive financial plan and consequently they sense that they have a longway to go before they achieve a complete sense of living independently with dignity. A deeper reading of the findings revealsthat due to higher financial security provided by the income of the chief wage earners (mostly their spouses/partners), theoverall sense of financial adequacy is comparatively higher in married Urban Women as compared to that in their unmarriedcounterparts.Fig. 28 Wisdom Investors most confident about living life with dignity, Young Aspirants mostskeptical24
  25. 25. 1.5.5 AI by sub componentsFurther 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 planningand management. Majority of Wisdom Investors have some level of confidence but have sensed some gap in their planning andmanagement.Young Aspirants are only fairly confident about living life with dignity, while only 13% of them are extremely confident abouttheir financial adequacy (living life with dignity). Only 13% of Urban Women are extremely confident about the adequacy oftheir financial plan. The survey also reveals that the married Urban Women are more confident about the adequacy of theirfinancial 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 25
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  27. 27. Complete financial liberty eludesIndian Urban Consumers Chapter 8: Financial Liberty Index (FLI)Financial Liberty Index (FLI) reflects the feeling of ‘Financial as in the future.Freedom’ and ‘Financial Security’ of Indian Urban consum- The FLI level (68.0) for Indian Urban consumers, althoughers. bordering on being good, still needs improvement. The various segments of Indian Urban consumers have a goodFinancial Freedom is a state of mind where an individual sense about their financial freedom, while their feeling of fi-is not worried or bothered about his monetary or financial nancial security is relatively measured. This measured senseneeds being met in the present as well as in the future for of financial security reaffirms the earlier finding that Indianhimself and his family. This state of mind is irrespective of Urban consumers have recognized the shortfall in their fi-the individual having a financial plan or enough financial nancial plan.reserves. It is a little worrisome to note that there is a considerable gapWhereas, Financial Security is a state of mind or belief of between financial freedom and financial security for Indianhaving an appropriate financial plan and enough financial Urban consumers. This gap suggests that the higher sense ofreserves to fulfill any needs or wants in the present as well 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 secureThe individual FLI reading of the various Indian Urban consumer segments suggest that their sense of Financial Liberty needsimprovement. 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 wellbefore the other segments. Though the FLI score for Urban Women is higher than that of the Chief Wage Earners and YoungAspirants, it still needs improvement. Again, the survey findings suggest that the overall sense of financial liberty is higher inmarried 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 senseof 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 27
  28. 28. 1.5.6 FLI by sub componentsThe scores of FLI and its sub components for each consumer category indicate that, Wisdom Investors are the most financiallyfree and secure category. However a gap between financial freedom and security exists across all the categories, with financialfreedom being higher than security in all cases. This indicates that the feeling of liberty among Indians is more of a descriptionof their state of mind rather than that of their financial planning and reserves.Fig. 32 Wisdom Investors followed by Urban Women enjoy highest financial libertyDeeper reading of the financial freedom and security reveal that Indians are generally liberated, but only a few feel completelyliberated. For instance, while 92% CWEs have some sense of liberty, only a quarter feel completely liberated. In terms of financialsecurity, Indians have a measured sense of security. While 81% of CWEs have some extent of security, only 15% feel completelysecure. The situation is almost similar for other categories, where the majority has a moderate sense of security, while only afew feel completely secure financially. The chart below represents the breakup of responses for the level of confidence amongcustomer segments on their sense of financial freedom and financial security.Fig. 33 Financial freedom: Urban Indians have a fair sense of libertyFig. 34 Financial security: Urban Indians have a measured sense of security28
  29. 29. MethodologySurvey StructureIndian 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 FreedomIndex. 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 events ii. Unexpected events iii. 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 instruments ii. Market linked instruments iii. Insurance iv. 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 IndianUrban consumers and their preferred sources for financial planning advice. 29
  30. 30. 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 outlookThe 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. Responseto each question is rated on a scale of 0 to 100, 100 being the most positive outlook/indicator and 0 being the most negativeoutlook/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 knowledgeof 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 thefinancial plan. Response to each question is rated on a scale of 0 to 100, 100 being the most positive outlook/indicator and 0being 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 mostpositive outlook/indicator and 0 being the most negative outlook/indicator.30
  31. 31. The Index is made up of weighted mean of five sub-indices as shown below:Fig. 35 Calculation of Life Freedom IndexSample ProfileThe Index reflects the feeling of financial freedom of Indian Urban consumers from the 10 selected cities.Sampling Technique: Random SamplingSample size: 1,649 respondents Tier 1 cities: Chief Wage Earners- 211, Wisdom Investors- 207, Young Aspirants- 203, Urban Women - 219 City wise breakup of sample** Tier 2 cities: Chief Wage Earners- 208, Wisdom Investors- 199, Young Aspirants- 202, Urban Women - 200 SEC A: 828 respondents SEC wise breakup of sample 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 31
  32. 32. 1.5.7 Sample Profile for CWEsFig. 36 Profile – By SEC Fig. 37 Profile – By CityFig. 38 Profile – By Gender Fig. 39 Profile – By Likely retirement ageFig. 40 Profile – By Marital status Fig. 41 Profile – By Family Structure32
  33. 33. 1.5.8 Sample Profile for Wisdom InvestorsFig. 42 Profile – By SEC Fig. 43 Profile – By CityFig. 44 Profile – By Gender Fig. 45 Profile – By Likely retirement ageFig. 46 Profile – By Marital status Fig. 47 Profile – By Family Structure 33
  34. 34. 1.5.1 Sample Profile for Young AspirantsFig. 48 Profile – By SEC Fig. 49 Profile – By CityFig. 50 Profile – By Gender Fig. 51 Profile – By Likely retirement ageFig. 52 Profile – By Marital status Fig. 53 Profile – By Family Structure34
  35. 35. 1.5.2 Sample Profile for Urban WomenFig. 54 Profile – By SEC Fig. 55 Profile – By CityFig. 56 Profile – By Likely retirement age Fig. 57 Profile – By Marital status Fig. 58 Profile – By Family Structure 35
  36. 36. About usHDFC Life, one of India’s leading private life insurance com- ValueNotes is a leading provider of market intelligencepanies, offers a range of individual and group insurance so- and research, with expertise across industries. The firmlutions. It is a joint venture between Housing Development provides a wide range of bespoke business research,Finance Corporation Limited (HDFC), India’s leading hous- financial research and competitive intelligence abouting finance institution and Standard Life plc, the leading markets, industries and companies. Their clients includeprovider of financial services in the United Kingdom. global corporations, consulting firms, research and B2B publishers, PE and VC firms, and money managers. ForHDFC Life’s product portfolio comprises solutions, which more information, please visit www.valuenotes.co.inmeet various customer needs such as Protection, Pension,Savings, Investment and Health. Customers have the addedadvantage of customizing the plans, by adding optionalbenefits called riders, at a nominal price. The companycurrently has 28 retail and 9 group products in its portfolio,along with 10 optional riders catering to the savings, invest-ment, protection and retirement needs of customers.HDFC Life continues to have one of the widest reachesamong new insurance companies with about 500 branch-es servicing customer needs in over 700 cities and towns.The company has a strong presence in its existing mar-kets with a strong base of Financial Consultants. For moreinformation, please visit www.hdfclife.comFor more information, please contact:mbardoloi@hdfclife.com / supriyasaxena@hdfclife.com36

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