CCopyright 2012Cwww.arthayantra.comPersonal Finance Habits ofSalaried Professionalsin IndiaArthaYantraA CFO FOR EVERYONE
Table of ContentsCCopyright 2012Cwww.arthayantra.comCCopyright 2012Cwww.arthayantra.comSummary 41. Introduction 72. Resear...
Table of FiguresCCopyright 2012Cwww.arthayantra.comCCopyright 2012Cwww.arthayantra.comFigure 1: Distribution of Profession...
Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comSummary :The research aims to understand a...
Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comWho is advising you in making your financia...
Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comPersonal Finance Readiness :The personal fi...
Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comIntroduction :Most professionals generally...
Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comResearch Methodology :The study by ArthaYa...
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PERSONAL FINANCE OUTLOOK 2013Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCo...
PERSONAL FINANCE OUTLOOK 2013Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCo...
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Personal Financial Planner

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Arthayantra a pioneer in online personal financial Planner and management services brings world class personal financial management software platform for all.

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  1. 1. CCopyright 2012Cwww.arthayantra.comPersonal Finance Habits ofSalaried Professionalsin IndiaArthaYantraA CFO FOR EVERYONE
  2. 2. Table of ContentsCCopyright 2012Cwww.arthayantra.comCCopyright 2012Cwww.arthayantra.comSummary 41. Introduction 72. Research Methodology 83. Findings 93.1 Retirement Planning 103.2 Do you have enough savings to counter anyemergencies? 113.3 How frequently do you keep track of your expenses 133.4 How are the financial decisions made? 143.5 How much do you invest in section 80C 153.6 Major tax saving Investments 173.7 Most common goals 193.8 Personal Finance Readiness 213.9 View of Professionals and HR on Personal Finance 224. Reasons for current Financial State of the SalariedProfessionals 235. Conclusion 25
  3. 3. Table of FiguresCCopyright 2012Cwww.arthayantra.comCCopyright 2012Cwww.arthayantra.comFigure 1: Distribution of Professionals considered for the researchFigure 2: Retirement Planning Status of Entry Level ProfessionalsFigure 3: Retirement Planning Status of Mid – Level ProfessionalsFigure 4: Retirement Planning Status of Senior Level ProfessionalsFigure 5: Emergency Fund Status of Entry Level ProfessionalsFigure 6: Emergency Fund Status of Mid – Level ProfessionalsFigure 7: Emergency Fund Status of Senior Level ProfessionalsFigure 8: Budgeting Frequency of ProfessionalsFigure 9: Sources of financial advice for ProfessionalsFigure 10: Distribution of amount being invested in section 80C byprofessionals with an annual income of INR 2 - 5 lakhsFigure 11: Distribution of amount being invested in section 80C byprofessionals with an annual income of INR 5 - 10 lakhsFigure 12: Distribution of amount being invested in section 80C byprofessionals with an annual income of above INR 10 lakhsFigure 13: Distribution of different kinds of tax saving investments beingmade by Professionals.Figure 14: Most common goals of Entry Level ProfessionalsFigure 15: Most common goals of Mid – Level ProfessionalsFigure 16: Most common goals of Entry Level ProfessionalsFigure 17: Personal Finance readiness of the ProfessionalsFigure 18: Salaried Professionals view on Financial Education as workplace benefitFigure 19: HR professionals view on Financial education on work placebenefit
  4. 4. Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comSummary :The research aims to understand and analyze the personal finance habits of the middleincome professionals in India. Their financial decisions today would determine their futurefinancial strength. The study was conducted on over 2000 salaried professionals. Theprofessionals participated in the study were classified 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 finance. Summary ofeach aspect is shown below.Are you preparing yourself for retirement? :Based on the current personal finance habits of the professionals, 91 % cannot afford toretire at the age of 60. The probability of extending the retirement age is higher for suchprofessionals owing to lack of enough retirement corpuses.Only a tenth of Entry Level Professionals have started investing in a retirement plan. Amongthe Mid – Level Professionals, only 20% have an investment plan for their retirement. Morethan half the Senior Level Professionals 71% havent 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 inlarge portion of the population. An emergency fund should account for 3-6 months ofexpenses. In the segment of Entry Level professionals, 58% do not have a fund set aside foremergencies 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 as19.23% hold savings which can fund their expenses for 1 – 2 months. One- third (33.33%) ofSenior Level professionals hold savings can fund their expenses for 1 – 2 months where as37.50% do not have an emergency fund in place. This current state of the employees wouldforce them to liquidate their existing investments or assets in order to fund theiremergencies.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 muchthey spend.Only 26.26% of the professionals are maintaining a healthy track of all theirexpenses. Nearly one – tenth (10.61 %) of them review their expenses frequently. Majority ofthe professionals (42.93%) review their expenses only occasionally. A fifth of theprofessionals (20.20%) review their financials rarely.Summary Personal Finance HabitsPage No:4
  5. 5. Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comWho is advising you in making your financial decisions? :The poor financial decisions being made by majority of the professionals can be attributedto the kind of financial advice they get. Friends and Colleagues act as financial advisors for35.40% of the professionals. Family members are the prime source of financial advisory30.97% of the professionals. 13.27% of the professionals make financial decisions based ontheir self research. Friendly Neighborhood agents advise 15.93% of the professionals. Only4.42% of the professionals seek advice from an expert financial advisor before making aninvestment.How well are the taxes being planned? :Tax savings is the nirvana of financial planning for majority of the professionals. But manybad decisions are being made even in the process of tax planning. At least 8% of the EntryLevel professionals are over doing the tax saving investments. Among the Mid – Levelprofessionals, 37% under utilize the tax benefits under section 80C and 17% of them are overdoing the tax saving investments. In the segment of Senior Level Professionals, 27% underutilize the benefits 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 ones ability to achieve lifesgoals. For 77.46% of the professionals, Insurance is their primary choice as 80C investmentinstrument. Among such professionals, 95.86% of them receive their financial advice fromfamily or neighborhood friends.Only 6.86% of the professionals invest in Equity Linked Saving Schemes. PPF or EPF is theprimary choice of tax saving investment for 7.95% of the professionals. Among suchprofessionals, 76.85% of the employees who invest in PPF or EPF stated that they receivetheir financial advice from their colleagues.NSC is chosen by 3.45% of the professionals where as fixed deposit is the primary choice for4.28%. 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 theprofessionals.Summary Personal Finance HabitsPage No:5
  6. 6. Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comPersonal Finance Readiness :The personal finance readiness of a salaried professional defines the likelihood of onemeeting all his goals in life. It defines:· How efficiently the cash flows are being tracked.· How well the investments are being planned.· How comfortable the retirement phase is going to be.· How efficiently one can handle any unforeseen/unfortunate events in life.Only 2.43% Entry Level professionals can be rated high on their personal finance readiness.Only 7.19% of the Mid – Level professionals and 11.48% of the Senior - Level professionals canbe rated high on their personal finance readiness.View of Employees and HR on Personal Finance :Many studies have often stated that providing financial education at work place is directlyproportional to their financial well being. As per the research, the salaried professionalsprefer to get financial education as a workplace benefit. More than half (56.97%) theprofessionals stated that providing financial education at work place is highly importantwhile 33.38% of the professionals rated financial education at workplace as important. One– tenth (9.65%) of the professional felt that financial education at work place is notimportant.When the same question was posed to the HR professionals, 73.06% of them stated thatfinancial education at work place is not important. 18.99% of the HR professionals felt it isimportant and 7.95% of the HR professionals felt that it is highly important.Summary Personal Finance HabitsPage No:6
  7. 7. Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comIntroduction :Most professionals generally relate financial well being to either their income or theaccumulated assets. However, planning for the future financial needs is often ignored. Thefinancial life cycle of a salaried professional follows a specific pattern. At a young age, thesalaried professionals rely on loans and other forms of debt to fulfill their dreams of buying acar, home etc. During the peak earnings phase they pay off their debts and start savingtowards retirement. Once retired, they draw the money from their savings to take care oftheir everyday expenses.Personal Finance remains one of the most ignored aspects of life. Ideally people would liketo see their hard earned money compliment the hard work they put behind in earning it. Butthey often fail to take necessary actions to set their money on a growth path. Mostprofessionals assume that money management is necessary only when they have a lot ofsurplus. But regardless of income level and age, anyone who has income needs to have awell sketched plan to manage their finances better.Today, the salaried professionals are expected to make more financial decisions than everbefore. It is also important that the decisions being made are financially prudent as well.They are being presented with a gamut of financial products for every aspect of their dailylife, be it bank account, credit card, loans, insurance or retirement. Choosing a best suitedproduct becomes a challenge for the professionals. So managing personal finances alsobecomes more important than ever.This research by ArthaYantra is intended to analyze the current personal finance habits ofthe Salaried Professionals and the effect of such habits on their financial well being in thefuture. More than 2000+ professionals across different industries with varied workexperiences are studied to capture their current financial habits. The survey captures thesources of financial advice of these professionals. This is used to analyze the impact offinancial advice source on the individual financial decision making process. The researchcaptures tax planning habits of the individuals and the avenues of tax saving investments.Introduction Personal Finance HabitsPage No:7
  8. 8. Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comResearch Methodology :The study by ArthaYantra is aimed at understanding the current personal finance habits ofthe salaried professionals. The data analyzed for the survey is collated from: :· ArthaYantras interactions with its current base of clientele.· Survey conducted by ArthaYantra on salaried professionals across different salaryranges and different industries.· Survey conducted by ArthaYantra on 200+ Human Resource professionals acrossdifferent industries.The questionnaire drafted for professional survey was designed to capture the generalpersonal finance practices. The survey questionnaire for professionals covers a wide rangeof personal finance 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 financial advice.· Priority of employee benefits.The findings are then analyzed to know the impact of their current financial habits on theirpotential 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 reasonsbehind employee attrition patterns and the priority of employee benefits.Research Methodology Personal Finance HabitsFigure 1: Distribution of Professionals considered for the researchPage No:8
  9. 9. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comFindings :Are you preparing yourself for retirement? :The changing socio economic structure of the country increases theimportance of the retirement Planning. Indians no longer have the socialnet of joint families, nor do the majority of them work in governmentorganizations that provide pension post retirement. The new dynamics ofnuclear family, lack of social security and inflation driven economy hasmade funds for retirement important for the professionals and theirfamily. The adequacy of the retirement funds is dependent on:· Design of the retirement Plan :The complexity of designing a retirement plan lies in determining therequired 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. Thetime at which one starts planning for retirement, determines how long itwould take to achieve the required retirement corpus.Early planning for retirement is important because it typically takes yearsof systematic saving in order to accumulate the ideal amount of fundsfor the post retirement phase. Additionally, power of compounding alsoworks in favor of the early starters. The interest accumulated over theyears also gives the flexibility of investing lesser amounts if started early.As observed in Figure 2, only 9.29% Entry Level Professionals have startedinvesting in a retirement plan other than mandatory retirement relatedoptions like PF provided by their organizations.“18.64%CanAffordto retireat theage of60”Findings Personal Finance HabitsFigure 2: Retirement Planning Status of Entry Level ProfessionalsPage No:9
  10. 10. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comThe retirement planning status of Mid – level and Senior Level Professionals is represented byFigure 3 and Figure 4 respectively. Only 19.23% of Mid – Level Professionals and 29.63% ofSenior Level Professionals started planning for their retirement.Neglecting retirement planning during early or mid phases of the career will result ininadequate funds for retirement. This will force the professionals to either increase theirsaving rates during the last few working years or work for longer periods. Based on theretirement planning status of the professionals studied, only 18.64% can afford to retire atthe age of 60.Retirement Planning Personal Finance HabitsFigure 3: Retirement Planning Status of Mid – Level ProfessionalsFigure 4: Retirement Planning Status of Senior Level ProfessionalsPage No:10
  11. 11. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comDo you have enough savings to counter any emergencies? :Every individual on an average faces at least three emergencies duringtheir life time between the age of 30 and 45. These emergencies couldrange from a job loss to a health scare. It is important to make sure thatmoney is the last thing one has to worry about during such stressful times.Building an emergency fund is the primary step to avoid any financialdisaster because of any unforeseen or unfortunate events in life.Majority of Personal Finance experts advocate to maintain anemergency fund which accounts for 3-6 months of expenses.Emergency fund should be held in assets which guarantee capitalpreservation and can be converted to cash quickly. Having anemergency fund prevents professionals to spiral into financial distressduring difficult times. It also reduces dependency on loans or liquidationof other assets.The emergency fund status of Entry Level Professionals is summarized inFigure 5. More than half the Entry Level Professionals (57.47%) do nothave enough savings to support their expenses for at least a month.More than a quarter of Entry Level Professionals (28.30%) has savingswhich account for only 1 – 2 months of their expenses.“35.75%of theProfessionalsarepreparedfor anemergency”Emergency Fund Personal Finance HabitsFigure 5: Emergency Fund Status of Entry Level ProfessionalsPage No:11
  12. 12. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comAmong the Mid – Level Professionals, 42.31% do not hold a emergency fund where as19.23% hold savings which can fund their expenses for only 1 – 2 months. The detailed standof Mid – Level Professionals with respect to their Emergency Fund is shown in Figure 6.Emergency Fund Personal Finance HabitsFigure 6: Emergency Fund Status of Mid – Level ProfessionalsFigure 7: Emergency Fund Status of Senior Level ProfessionalsPage No:12The 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 awaymoney dedicated only for emergencies does not exist in large portion of the salariedprofessionals. This current state of the professionals would push them to liquidate theirexisting investments or assets in order to fund their emergencies.
  13. 13. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comHow frequently do you keep track of your expenses :One of the best practices of personal finance includes designing a house hold budget andmonitoring it regularly. The most simple and effective home budgeting technique is to listdown all expenses incurred. This helps in identifying the major expense heads wherespending can be minimized. This aids in building a healthy monthly surplus. The homebudgets are to be reviewed at regular intervals to make sure that the financials are ontrack. Budgeting frequency can play an important role in identifying ad curbingunnecessary spending that happens in the family. It would also result in efficient use of theincome received by the family.Budgeting frequency habits of professionals is summarized inFigure 8. One out of five Professionals (20.20%) review theirfinancials rarely where as Majority of them (42.93%) reviewthem occasionally. Only 26.26% of the Professionals aremaintaining a healthy frequent track of all their expenses. 10.61% of the professionals review their expenses frequently. Thissignifies the fact that most of us generally do not keep a track ofwhere we spend and how much we spend.“Only 26.26%of theProfessionalsaremaintaining ahealthyfrequent trackof all theirexpenses.”Budgeting Frequency Personal Finance HabitsFigure 8: Budgeting Frequency of ProfessionalsPage No:13
  14. 14. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comHow are the financial decisions made?The long – term financial impact of every financial decision can besignificant. Financial decision making process is often viewed in isolation,rather than holistically. The benefits of a good financial decision cancontinue for many years and similarly a bad decision can hurt both shortand long term financial prospects. There is always a wide impact of afinancial decision, which is often ignored. The ecosystem of that supportsthe financial decision making of the professionals includes office, familyand friends. It is this ecosystem that most of the professionals rely upon forany financial advice. Off late office colleagues has emerged as criticalresources of financial advice for the salaried professionals.Friends and Colleagues act as financial advisors for 35.40% of theprofessionals. Family members are the prime source of financial advisoryfor 30.97% of the professionals. 13.27% of the professionals make financialdecisions based on their self research. Friendly Neighborhood agentsadvise 15.93% of the professionals. Only 4.42% of the professionals seekadvice from an expert financial advisor before making a financialdecision. The composition of sources of financial advice for professionalsis shown in figure 9. Every major decision in life be it buying a home,moving into a new city, education of the children, everything has afinancial implication associated with it. The financial implications of suchdecisions should be discussed with a financial advisor. Lack of access toquality advice is the prime reason behind individuals making somefinancially bad decisions.“Only 4.42%of theProfessionalssaid theyseek advicefrom anexpert beforemaking aninvestment”.How are the financial decisions made Personal Finance HabitsFigure 9: Sources of financial advice for ProfessionalsPage No:14
  15. 15. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comHow much do you invest in section 80C:One of the major components of tax savings in India is investments that are part of section80C of the income tax code. These investments bear the advantage of decreasing taxliability of the individual. However, it is also important to make sure that the professionals donot exhaust their available surplus in the pursuit of saving tax.Among the professionals who fit in the salary bracket of 2 – 5 lakhs per annum, 67.96% makeinvestments 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 INR75,000 – 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 suchprofessionals 98.85% get their financial advice from friendly neighborhood agents andfamily and 87.75% of them said insurance is their primary tax saving instrument.In the segment of professionals whose compensation package liesbetween 5 – 10 lakhs per annum, 37.18% make investments worth INR10,000 – INR 25,000. Nearly a fifth (17.95%) of the professionals makesinvestments worth INR 25,000 – 50,000 where as 15.38% of them makeinvestments 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 theprofessionals are not utilizing tax benefits under section 80C and 16.67%of them are over doing the tax saving investments.“Nearly14.97% of theProfessionalsare investingmore than 1lakh undersection 80C.”How much do you invest in section 80C Personal Finance HabitsFigure 10: Distribution of amount being invested in section 80Cby professionals with an annual income of INR 2 - 5 lakhsPage No:15Figure 11: Distribution of amount being invested in section 80C by professionals with anannual income of INR 5 - 10 lakhs
  16. 16. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comAmong the professionals who earn more than INR 10 lakhs per annum, 13.33% makeinvestments worth INR 10,000 – INR 25,000. Another 13.33% of them make investments worthINR 25,000 – 50,000. 6.67% of them make investments worth INR 50,000 – 75,000. 13.33% ofthem make investments worth INR 75,000 – 1, 00,000 where as 53.33% of them makeinvestments worth more than INR 1 lakh. So, 26.66% of the professionals are not utilizing thetax benefits under section 80C and 53.33% of them are over doing the tax savinginvestments.So among the 2000+ salary professionals studied, most of them either under utilize thebenefits of section 80C or over do the tax saving investments due to their habit of failing tokeep a track of their investments. Lack of financial awareness can be the prime reasonbehind under utilization or over doing the tax investments. The second attribute for thesepatterns can be the source of financial advice. Especially in the case of professionals whoover do the tax savings, their major source of financial advice is either friends and family orsome neighborhood friendly agent.The other important aspect of making tax saving investments is the time during which theinvestments are made. The best practice of planning taxes is to distribute the payments fortax saving investments evenly across the year. It is advisable to avoid concentrating orpostponing all the tax saving investments towards end of the financial year. This piles up theburden on the professionals during the end of financial year, especially if they start taxsaving investments post November. Tax Saving Investments by 28.85% of Entry LevelProfessionals are made during January to March. October to December is the preferredtime 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 toDecember and 18.57% during January to March. Majority of Senior – Level professionalsstart making tax saving investments in the second half of the financial year with 20.83%starting during October to December and 29.17% during January to March.How much do you invest in section 80C Personal Finance HabitsFigure 12: Distribution of amount being invested in section 80C by professionals with anannual income of INR 2 - 5 lakhsPage No:16
  17. 17. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comMajor tax saving Investments :The intention of government behind giving this dedcution of 1 lakh is topromote 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 amandatory practice for majority of the organisations to provide PF fortheir employees, one can even opt of ELSS and give an exposure toequity for their retirement funds also. So given these options it isimportant to choose the investments which helps the professionalsmaximize the benefits of tax savings. The challenge however lies inpicking in suitable products. It is important that the professionals analyzetheir risk profile and pick the tax saving instruments suitable to them.The tax saving investments choices by professionals is summarized inFigure 20. Among the professionals studied, 77.46% stated that Insuranceis their primary choice as 80C investement vehicle. This implies that mostof the professionals mix their investments with insurance which is not agood personal finance practice. Amoing the professionals professionalswho prefer insurance as their tax saving investment, 95.86% receive theirfinancial advice from family or neighborhood friends. These areesentially the agents who have a vested interest of filling their yearlytargets.When do you make tax saving investments Personal Finance HabitsPage No:17“Only 22.54%of theProfessionalsinvest in taxsavinginstrumentsother thanInsurance.”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 theequity aversion of many of the professionals. Inclusion of equity in the retirement fund is anoption that is ignored more often than not in India.
  18. 18. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comPPF or EPF as a tax saver vehicle is preferred by 7.95% professionals. 76.85% of theprofessionals who invest in PPF or EPF stated that they receive their financial advice fromtheir colleagues.NSC is preferred by 3.45% of the professionals where as fixed deposits is preferred by 4.28%.Majority (83.26%) of such professionals get their financial advice from Family.It is tricky to determine the investment product suitable for the individual without assessingtheir current financial situation and future goals. But as per the research results with theprofessionals favoring insurance over other investments, it can be said that the strategybehind their tax saving investments should be revisited and fine tuned.When do you make tax saving investments Personal Finance HabitsPage No:18
  19. 19. PERSONAL FINANCE OUTLOOK 2013Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comMost common goals :When setting goals, every one holds a different set of expectations oftheir life. Their likelihood of achieving the goals set by is directlyproportional to their financial well being. The financial goals of anindividual can be classified under three segments: Short term goals likebuying a two wheeler buying a car, medium term goals like buying ahome, childrens education and long term goals like retirement. Defininga goal and determining the amount needed and tenure will help insetting a specific investment plan in order to achieve them.In the segment of Entry Level Professionals, the near term goals likebuying a two wheeler, buying a car, buying a home, getting marriedwere on the high priority list. The goals like emergency fund andretirement were rated less on the priority scale.“Savingforretirementis the lastpriorityfor theProfessionals.”Most common goals Personal Finance HabitsFigure 14: Most common goals of Entry Level ProfessionalsPage No:19
  20. 20. PERSONAL FINANCE OUTLOOK 2013Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comAmong the Mid – Level Professionals, child care, childrens education, buying a home andbuying a car were on the high priority list. The goals like emergency fund and retirementplan were rated low on the priority scale even by Mid – Level professionals. The goals likechildrens education, childrens marriage, and retirement were rated as high priority byEntry 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 provecostly for the Entry Level and Mid – Level Professionals.Most common goals Personal Finance HabitsFigure 16: Most common goals of Entry Level ProfessionalsPage No:20Figure 15: Most common goals of Mid – Level Professionals
  21. 21. PERSONAL FINANCE OUTLOOK 2013Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comPersonal Finance Readiness :The personal finance readiness of salaried professionals definesthe likelihood of meeting most of their goals in life. It defines:· How efficiently the cash flows are being tracked.· How well the investments are being planned.· How comfortable the retirement phase is going to be.How efficiently one can handle anyunforeseen/unfortunate events in life.These factors form the pillars of a strong financial foundation forsalaried professionals from which they can reap long termbenefits.Among the Entry Level Professionals, only 2.43% can be ratedhigh on their personal finance readiness.These levels are alarming low especially conisdering theadvantages associated with starting saving for futre at an earlystage of career.Only 7.19% of the Mid – Level professionals can be rated high ontheir personal finance readiness. Generally the professionals inthis segment aspire getting a home and also have the burdenof child maintainance costs. The numbers also explain the overdependence on debt among this segment.Only 11.48% of the Senior Level professionals can be rated highon their personal finance readiness. Especially with high childeducation costs and other forms of debt like home loans in theirname, these professionals should start managing their financialsbetter.Unless the financial readiness increases from the currentlow levels, adverse economic or personal condition cannegatively impact significant percentage of the professionals.“Only6.75% of theProfessionalsare preparedto face anemergency inlife.”Personal Finance Readiness Personal Finance HabitsFigure 17: Personal Finance readiness of the ProfessionalsPage No:21
  22. 22. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comView of Professionals and HR on Personal Finance :Many studies have often stated that the productivity of asalaried professional is directly proportional to their financialwell being. Financially stressed salaried professionals carryforward the same levels of mental stress to the work whichindirectly affects the productivity of the professionals. Since theproductivity of a professional is affected due to their badfinancial decisions and professionals spend most of their time attheir respective working organizations, HR of the organizationdoes have a role to play in the financial well being of theirprofessionals. Getting a financial education program in place isthe first step in order to make sure that the professionals arefinancially literate. This helps professionals in making betterfinancial decisions and indirectly makes sure that theprofessional is not stressed due to various financial decisionsmade or to be made in the future.The view of salaried professionals and HR professionals isdepicted in Figure 21 and Figure 22 respectively. More than half(56.97%) the professionals stated that providing financialeducation at work place is highly important while 33.38% of theprofessionals rated financial education at workplace asimportant. One – tenth (9.65%) of the professional felt thatfinancial education at work place is not important. Thesenumbers do signify the fact that the salaried professionals preferto get financial education as a workplace benefit.“56.97%of theProfessionalsfeel thatfinancialeducationat work placeis highlyimportant.”Personal Finance HabitsFigure 18: Salaried Professionals view on Financial Education as work place benefitPage No:22
  23. 23. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comWhen the same question was posed to the HR professionals, 73.06% of them stated thatfinancial education at work place is not important. 18.99% of the HR professionals felt it isimportant and 7.95% of the HR professionals felt that it is highly important. This clearly showsthat the view of employees is a lot different from the HR Professionals when it comes tofinancial education at work place.Personal Finance HabitsReasons for current Financial State of the Salaried Professionals :Financial literacy :Financial literacy is defined as an understanding of basic economic concepts which dealwith the art of saving and investments. Lack of financial knowledge and source of financialadvice play a vital role in the sub optimal financial decisions being made by theemployees. The lack of financial literacy is also the driving factor behind the lesser savingrate among the employees. The spending habits instead of saving habits are being directlyproportional with the increasing salaries of the employees. The various socio economicfactors that drive this factor of lack of financial literacy among the employees are :· Personal finance is always given a low priority.· Basics of personal finance are not part of educational curriculum except for somestudents from finance background.· Lack of financial knowledge among family members, especially they being the majordriving force behind financial decision making process.All these factors play a pivotal role in the current financial state of the employees. Personalfinance is being perceived through the color of tax planning or investment planning. Lackof knowledge on various personal finance aspects is affecting the financial decisionmaking process of the employees and their potential financial future. Especially in thecurrent world where one can find many options for every financial need, it is important theyknow the basics of personal finance before making any financial decision.Figure 19: HR professionals view on Financial education on work place benefitPage No:23
  24. 24. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comBehavioral Bias :Ranging from food habits, dressing style to social etiquette, all aspects of life are influencedby the social interactions. People learn and implement all the ideas on the basis of theirinteractions with colleagues, friends and family. Similarly the financial decisions beingmade are essentially controlled by non – financial factors. Individual characteristicscombined with the impact of the society, colleagues, family and friends account for thesemajor non – financial factors.The investment decisions are the ones that are affected most due to this behavioral bias offollowing the people around us. The positive signal about the investment is being conveyedby the friend or colleague but not by the market governing factors of the investment. This issimilar to buying a house in a locality because someone advised that the area is going toflourish in the coming days. So essentially, the utility curve of financial instruments is skewedbecause it is not the individual need or demand that is driving the utility curve but the wildgoose chase of the individuals is driving it.Emotional quotient :Most of the financial decisions made by the individuals are driven by emotions rather thanobjectives. There has always been the social pressure on the middle class to be an owner ofa house rather than a renter. Buying a home is considered, a ticket to a superior standing inthe social circles. Our physiological behavior patterns give us a sense of security, when weown a home. Similarly the emotional quotient attached with a owning a car surpasses thepleasure of investing in a retirement fund.The other underlying emotional factor that can be drawn from the research is instantgratification. Most of the employees at starting stage of their careers delay the process ofplanning and do no concentrate on their finances. The results from the study also show thatmost 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 fortheir bill payments.The investments being made by the professionals studied also reflect the lack of objectivitybehind their decisions. Professionals often make investments and think they have savedenough and are happy about it. Assigning a goal to the investments/savings being made isas important as making savings and investments. Detaching emotions and assigning a goalto investments will make sure that money is channelized in a more efficient manner.Lack of Quality Advice :The indirect factor which is affecting the financial decision making process of theprofessionals is the current market structure. The transactional nature of the market playedits part in supporting the myth among professionals that financial advice is costly andmoney management is only required for the wealthy. This is the major factor behind theprofessionals banking on the advice from their family, friends and colleagues. But majorityof this group of advisors themselves lack the financial knowledge. A group of these advisorsalso have a vested interest of selling products and gaining commissions through suchtransactions. Providing quality financial advice for vastly diversified salaried professionals isa concern.Personal Finance HabitsPage No:24
  25. 25. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comPersonal Finance HabitsNew innovations which can leapfrog the existing system and provide the professionals themuch needed quality advice is the need of the hour. Offering personal finance solutionsthrough online technology can prove beneficial for the professionals. It gives themconvenience to plan their finances at their convenient time. The online personal financemanagement techniques provide access to quality financial advice which is also costeffective.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 salariedprofessionals. Child care and education costs have become costly. Medical Inflation rateremained high during the last few years. Private sector has become major employmentprovider. We no longer have the pensions to ensure that we have a continuous incomestream even during post retirement phase. So the professionals need to manage theirincome between consumption and savings efficiently.The findings of the study show that most of current professionals are living from pay check topay check basis. The financial decisions are being made in isolation and lack a holisticapproach. It is important that they look beyond the short term goals and start preparingthemselves for the long term objectives. The result of current personal finance habits of thesalaried professionals could be catastrophic. It is important to start giving attention topersonal finance when time is on their side.The employee and employer relation goes beyond the pay check. Professionals spendmajority of their active hours of the day at the workplace. The prosperity of the employer isdirectly proportional to productivity of its salaried professionals. Financial distress off late hasproved to be one such factors which is negatively effecting the productivity of the salariedprofessionals. The concern of professionals regarding their financials is evident. They haverealized that work place financial education can prove beneficial for them for makingfinancially well informed decisions. Though realization of importance of personal finance byprofessionals is a positive take away from the research, failure to act still remains a concern.Lack of financial knowledge and access to quality advice are the underlying issues that areto be addressed in order to make sure that the current salaried professionals are futureready financially.ConclusionPage No:25
  26. 26. Copyright 2012C www.arthayantra.com Page No:4Copyright 2012C www.arthayantra.com Page No:3CCopyright 2012Cwww.arthayantra.comArthaYantraA CFO FOR EVERYONE

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