High inflation, particularly in food and fuel prices, has eroded purchasing power and squeezed budgets. This has forced many households to cut back on non-essential spending and prioritise necessities.
However, India’s middle class remains resilient, weathering challenges and adapting to changing circumstances. The year 2023 has highlighted the need for proactive financial management, diversification of income sources, and responsible borrowing.
S. Ravi, former BSE chairman and promoter and managing partner, Ravi Rajan & Co., underlined various aspects of the lives of the Indian middle class and how they redefined finance this year. He also highlighted challenges ahead in 2024 and investment ideas to strengthen the personal finance of middle class Indians.
Edited Excerpts;
How the economic situation in India impact the spending habits of the middle class in 2023?
The financial standings of India’s middle class have undergone a significant transformation driven by digitalisation, changing aspirations, and global economic trends.
With rising incomes, the middle class is redefining its spending habits, shifting towards an aspirational lifestyle that includes investments in education, health, and travel.
Digital penetration has immensely impacted financial management, fostering cashless transactions and greater financial inclusion. Inflation remains a challenge though due to rising costs of all products and services.
Aspirations for a better lifestyle are shaping financial goals, and driving individuals towards wealth creation and long-term security. India’s attractiveness for foreign direct investments (FDIs) is bolstering economic growth, job creation, and infrastructure development, with the middle class playing a crucial role as consumers and contributors to the workforce.
New product launches, spurred by innovation and changing consumer preferences, are enhancing options across various sectors.
The growing consumerism and changing buying patterns reflect a shift toward brand consciousness and an experiential approach. The growing disposable income of the middle class, propelled by economic growth, offers financial flexibility to a certain extent and this segment of people will always be the propellers of growth and change for the Indian eco-system.
What are the biggest financial concerns facing India’s middle class as we enter 2024?
The middle class in India has always borne the weight of aspirations, striving for stability in an ever-evolving economic environment, and has been grappling with several significant financial concerns that impact their daily lives and long-term financial stability.
Inflation remains a prominent worry, as rising prices for essential goods and services erode the purchasing power of their income. The inflation rate in the year 2021 was 5.13% which increased to 6.7% in 2022 and this year the inflation rates are at 5.51% (Jan. to May average).
Job security is another pressing issue, with economic uncertainties and technological advancements posing potential threats to traditional employment.
Housing affordability is a persistent concern, especially in metropolitan areas, where property prices often outpace income growth. Delhi witnessed the highest growth in Housing Price Index this year followed by Mumbai.
Additionally, healthcare expenses have become a substantial burden, as quality medical care costs continue to rise. As per the ‘Health Report of Corporate India 2023,” India has one of the highest medical inflation rates in Asia reaching 14%.
Education expenses for children further contribute to the financial stress faced by the middle class.
The middle class has been navigating the physiological and safety, security needs and these challenges require thoughtful financial planning and government support.
What are some key financial tips that can help middle-class families in India improve their financial health in the coming year?
Indian middle-class families can secure a better financial future by adopting practical strategies. Firstly, planning and creating a monthly budget and adhering to it helps manage expenses effectively. Saving regularly and prioritising building an emergency fund to tackle unforeseen circumstances is important.
One can also invest wisely in avenues like mutual funds and fixed deposits for wealth accumulation. Opt for adequate insurance coverage to mitigate risks, ensuring financial stability in times of need.
Embrace a disciplined savings habit for children’s education and future needs and this can be taught to children as well as ‘a penny saved is a penny earned’.
Additionally, consider exploring government-sponsored savings schemes for tax benefits and secure returns. For some financial planning means getting embroiled in financial jargon but one can continually indulge in simple financial education and staying informed about crucial investment opportunities.
Lastly, strive for a debt-free life by managing loans responsibly, fostering a financially secure foundation for both the present and future generations.
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