How covid harmed financial freedom and financial security of Indians: investigation

The Freedom of Life Index developed by HDFC Life fell by 4.8 points in 2021, indicating that the financial security of Indians had been affected.

The freedom of life index is made up of four indices. Each of the four sub-indices has a different weighting in the composite index. Scores are based on responses from 1,987 people in six metros (Ahmedabad, Bengaluru, Chennai, Delhi, Kolkata, Mumbai), four Tier I cities (Kochi, Indore, Ludhiana, Bhubaneshwar) and four Tier II cities (Rohtak , Jalgaon, Ballari, Rae Bareli). This is what the sub-indices measure.

Index of freedom of life
This year has been calamitous for many people. The freedom of life index fell by 4.8 points in 2021 compared to 2019, largely due to the impact of covid-19.

The fall was not as steep in Tier I (down 2.7 points) and Tier II (down 2.6 points) cities as it was in metros.

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Nuclear families are the most impacted with a Life Freedom Index down 10.5 pts. In comparison, mixed families (down 3.3 pts) are more stable, perhaps due to a better support system in times of crisis.

Financial Adequacy and Adequacy Index

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The largest drop is in the Financial Adequacy and Adequacy Index, which fell by 8.7 points. Consumer confidence was low after the second wave and nearly 90% of respondents suffered pay cuts or business losses to some degree. The top three concerns for the future—the economic downturn, job insecurity, and the fear of going into debt due to a lack of income—led individuals to feel they were unprepared financially. . Many feel that their current financial plans might not be adequate. Since the sub-index has a 50% weighting in the freedom of life index, it lowered the overall score.

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Financial Planning Index

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The disruption caused by covid has upended people’s financial planning. The Financial Planning Index, which has a 20% weighting in the Freedom of Life Index, is down 4.2 points. While metros saw a drop of 4.9 points, Tier I cities saw a steeper drop of 6.1 points. Tier II cities fare better with a marginal drop of 0.1 points. Mixed families (down 2.2 points) were not so badly affected, but parents saving for children and women were the most affected segments, down 5.9 points and 4, 1 points respectively.

Financial Awareness Index

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The silver lining of the financial impact of covid is that consumers have become more aware of financial products and the need for adequate safeguards against uncertainty. There is a marked increase of 10 pts in familiarity with endowment life insurance policies, 11 pts for term plans and 10 pts for Ulips compared to 2019. Tier I cities show the most jump high with an increase of 7 pts. The decline in financial planning, sufficiency and adequacy has led to increased awareness among nuclear families. They now prioritize medical insurance as protection against medical emergencies, compared to 2019.

Financial freedom index

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This index is based on the perceptions of the respondents and therefore presents wide variations. When it comes to feeling “financially free and secure”, there is a sharp increase of 7.2 points in Tier II cities, while metros saw a drop of 7.3 points. There are also wide variations within the nuclear family segment. Nuclear families of couples see a drop of 11.7 points, nuclear families with children only see a 4.6 point drop while nuclear families with parents see a drop of 4.9.

Sarah J. Greer