God Saves, Shouldn't We?

Anything that we can do to raise personal savings is very much in the interest of this country.

                                                                                                                                   ~Alen Greenspan

"My life is nowadays just economically substantial", said one of my friends about a couple of months ago while we're having a casual chat. The statement might be out of context but it led me to think about most of the Indian households who are struggling to make the ends meet in the time of continuously growing inflation, falling value of Rupee (Indian currency) and stable (or even decreasing) income. Savings percentages are going southward.

In a survey, we collected data from the participants living in Delhi (National Capital), Mumbai (Maharashtra), and Patna (Bihar) on the following points:

• The size of household (how many people are there in the household?)
• Number of earning members (How many people are earning money and contributing to the household income?)
• Gross Annual Income (Since this is a very confidential issue, we provided them the choice of ranges of income to chose from.)
• Estimated expenditure in managing the household (as a percentage of gross household income)

What follows is the result of a small survey of about 100 households spread across Delhi, Mumbai and Patna; the choice of cities and respondents was random and based on the ease of access to the respondents and collect the data. Reading through the Figures 1 and 2 (a) & (b) gives us an idea about how households in cities are spending a big part of their earnings and saving very little. It is another issue of how much of the savings are further converted into investments, as the survey did not specifically cover the casual expenditure such as hospital expenses, school admission charges, holidaying, festivals, family functions such as marriages, birthdays, etc.

Results in Figure 1 indicate that smaller households with say 2 or 3 members have relatively higher savings than the households with say 4 or 5 members, which is well justifiable given the marginal increase in household expenditure with an increase in number of family members. What is more surprising is families with 2 members are savings less than families of 3 members. Here it may be assumed that a household of 2 members consists of a husband and a wife. This may be, therefore, attributed to the tendency of urban couple to live on edge. They tend to live a leveraged life in sense of spending more than earning (given the rise in use of credit card and other such instruments!). The survey statistics support this observation. The reason of low savings by bigger households may be attributed to the high cost of living and managing households. It is observed that people are living on edge. In fact most of the smaller households appeared to be living paycheck to paycheck life. This means that they are fully dependent on their salaries for running their households. This situation is very risky, for the households as well as the economy, as it leaves little room for any sort of financial odds,be it sudden hospitalization or a family function. In such case, they would be relying on credit which further deteriorate their family economics and finances.

A close look at the Figure 2 (a) & (b) suggests that households of small size have less savings rate than the big households. Savings rate based on household size is almost equal in all the three cities. The data also suggests that people living in bigger cities such as Delhi and Mumbai are savings less that those living in smaller city, Patna. For a family with 2 earning members, savings percentage is more or less equal in all three cities, but the families with single earning member living in Delhi and Mumbai are saving significantly less than their counterparts in Patna. This may be attributed to the fact that the cost of livings including rental expenses, food items, traveling, etc are relatively cheaper in small cities such as Patna.

Before I conclude the post, let me quote someone saying, "The reason savings come before investing and spending is that you need to have seeds before you can sow it and expect it to grow a good harvest."

Author's note: Since the results are not presented here in a very structured manner, as I am still trying to figure out the details from the survey data. Also, the survey is carried out in a very small scale, it lacks some statistical robustness, sampling issues and so on. But given an interesting finding (at least I believe so, not sure how others will take it!), I would further this in more detailed manner.

Feedback and suggestions are always welcome!

PS: All the figures are author's calculation. Errors remain my responsibility.