MAJOR PROJECT REPORT

ON
FINANCIAL BEHAVIOUR OF INDIAN
HOUSEHOLDS

UNDER THE GUIDANCE OF - SUBMITTED BY-

MS. CHETNA GREWAL JATIN KHANDELWAL
ASSISTANT PROFESSOR 01521201816
BBA (B&I)

SESSION: 2016-2019

MAHARAJA SURAJMAL INSTITUE

Affiliated to Guru Gobind Singh Indraprastha University
Recognised by UGC U/S2 (F)
C-4 JANAK PURI, NEW DELHI-58
 CERTIFICATE OF GUIDE

This is to certify that the project titled “Financial behaviour of Indian household” is an
academic work done by Jatin Khandelwal submitted in the partial fulfilment of the
requirement for the award of the degree of “Bachelors in Business Administration (Banking
and Insurance)” from Maharaja Surajmal Institute under my guidance and direction.

To the best of my knowledge and belief the data and information presented by him in the project
has not been submitted earlier elsewhere.

Name of the Faculty: MS. CHETNA GREWAL

Designation of the Faculty: ASSISTANT PROFESSOR

 ACKNOWLEDGEMENT

The success and the final outcome of the assignment required a lot of assistance
and guidance from Ms. Chetna and I am extremely fortunate to have been under
the light of her supervision during the completion of the assignment on the topic
“FINANCIAL BEHAVIOUR OF INDIAN HOUSEHOLD” All the work that has
been done is because of the guidance and I would not forget to thank her.

I respect and thank for giving me an opportunity to this assignment and provide
me with complete support, due to which I am able to complete this assignment
on time.

Jatin Khandelwal
 TABLE OF CONTENTS

S.NO PARTICULARS PAGE NO.

Chapter 1 1-6
1.
INTRODUCTION
1.1. WHAT IS FINANCIAL 1
BEHAVIOUR?
1.2. OBJECTIVES OF STUDY 3
1.3. RESEARCH 4-5
METHODOLOGY
1.4. LIMITATIONS OF STUDY 6

Chapter 2 7-15
2.
PROFILE OF THE STUDY
2.1 BACKGROUND OF 8-9
INDIAN ECONOMY
2.2 WHERE HOUSHOLDS
INVEST 9-12
2.3 INSURANCE 13-14
2.4 WHAT IS RETIREMENT
PLANNING 15

Chapter 3 16-18
3.
LITERATURE REVIEW
CHAPTER 4 19-44
4.
DATA ANALYSIS AND
INTERPRETATION
4.1 BASIC FINDINGS AND
ANALYSIS 20-25
 4.2 HOUSEHOLD 26-28
SAVINGS

4.3 HOUSEHOLD 29
LIABILITIES

4.4 HOUSEHOLD RISK

MANAGEMENT 30-33
BEHAVIOUR

4.5 RERTIREMENT
PLANNING BEHAVIOUR 34-35

4.6 INTERNATIONAL
COMPARISON 36-42

4.7 FACTORS WHICH

INFLUENCE
43
HOUSEHOLD
PREFERENCES

CHAPTER 5 44-48
5.
CONCLUSION AND
RECOMMENDATION
5.1 CONCLUSION 45-46
5.2 RECOMMENDATION 47-48
 CHAPTER-1
INTRODUCTION

1
 WHAT IS FINANCIAL BEHAVIOUR?

It is a normal tendency amongst most of us that every purchase we do or produce made is not
meant for an immediate consumption. There is always a provision or a scope for certain future
period. We also have a tendency to save certain amount of money and this saving is done
mostly for fulfilling future needs or unknowingly or knowingly it is made as a hedge against
expected inflation for coming period. The process of increasing wealth actually starts with
savings. Savings are also essential for the nation’s growth. If the savings are not properly
channelized it will not give us the desired fruits. For all the above-mentioned activities
appropriate decisions have to be taken. And these decisions which individuals or households
have to take can be defined as their financial behaviour.

In the old era also people knew the importance of savings, they use to save but the savings were
mostly in the form of hard cash, gold/silver ornaments, precious stones etc and all savings may
be of any current period or cumulated were either kept at home specially in underground castles
or with some acquaintances on whom people could trust. The basic reasons for such acts could
be non-availability of proper banking system or investment alternatives. The amount of
expenditure and proportion of savings largely depends upon the income levels of people. It is
also seen that people also saves when they get some surplus from occasional events like amount
of some capital gain received from sale of some property, share from some ancestral property
or some bonus, commission, prize money etc. The propensity to spend and save depends upon
personal nature, future needs, present financial status and risk taking capacity of an individual.
It may be found out that people with superior income might not be interested to save or if found
interested the amount of saving might be minimal. On the contrary, there will be some people
who will like to save maximum amount of what they earn. It is the savings which lays down
the foundation stone and create the path for investment and it would be an injustice to attach
words like spendthrift or miser to such investors. The reason for such behavior might be
personal beliefs/requirements or it could be educational background, lack of knowledge about
investment avenues or inadequate understanding about financial instruments and markets.
Those who are investing are always interested to see that their savings are safe and profitable
and are growing in a systematic manner as it was perceived before making any form of
investment.

2
 OBJECTIVES OF STUDY

 To find out where Indian households allocate income across various assets both along life
cycle as well as wealth distribution
 To find the level of financial inclusion
 To find out how Indian households take on liabilities both along the lifecycle and across
the wealth distribution
 To find out how Indians plan for retirement
 To find Indian households retirement planning behaviour as well risk management by
households
 To compare these patterns of Indian households with advanced and emerging economies.

3
 RESEARCH METHODOLOGY

Achieving accuracy in any research requires a deep study regarding the subject. The prime
objective of the project is to analyse the extent and awareness of Financial Inclusion in India.

The research methodology adopted is basically based on primary data via which the most recent
and accurate piece of first-hand information could be collected. Secondary data has been used
to support primary data wherever needed.

Type of research carried out was exploratory in nature; the objective of such research is to
determine the approximate area where the limitation of the financial inclusion lies and also to
identify the course of action to solve it. For this purpose, the information proved useful for
giving right suggestion to the concerned Authorities.

Data Collection Method

There are two types of methods of data collection

 PRIMARY DATA

 SECONDARY DATA

Primary data was collected using the following techniques

 Questionnaire Method (Research Instrument)

 Observation Method

The main tool used was, the questionnaire method. Further observation method has been
continued with the questionnaire method, as one continuously observes the surrounding
environment he works in. Data used for the research work was primary in nature.

Primary data

Primary data is that which is the collected for the first time and thus happen to be originated in
character.

4
Questionnaire survey

In the studies, a questionnaire is prepared. The questionnaire consists of 14 questions.

Secondary data

Secondary data refer to the data that has been already collected. The secondary data, which has
been used to carry out this study area as follow:

 Books, journals, magazines, newspapers

 Industry reports
 RBI’s internet site
 Some other relevant study material and websites.

Sample unit: - DELHI

The research process was done by interacting with number of customers during the activities
performed, which included, markets, cold calling, canopies, etc. Sample design consists of
random sampling

Sample size: -100 people

Type of Sampling: Random sampling

The Questionnaire was formulated by keeping in mind the following points: -

 Giving the respondents the clear comprehension of the question.

 Giving as to what is needed.

 Inducing the respondents to cooperate.

 Identifying the needs to be known.

5
 LIMITATIONS OF STUDY

No project is without limitations and it becomes essential to figure out the various constraints
that underwent during the study. The following are the limitations which I came across during
the making of this report: -

 Not having much experience hence, the study is subject to some error.
 It was difficult to find data which supports my study.
 Also at some point of time I reach a position when same material is appearing and was
not able to find any new data related to my study.
 It was difficult for me to manage time for undertaking this report.
 The analysis and interpretation part of the study was time consuming and is subject to
errors.

6
 CHAPTER-2
PROFILE OF THE
STUDY

7
 BACKGROUND OF INDIAN ECONOMY

India has emerged as the fastest growing major economy in the world as per the Central
Statistics Organisation (CSO) and International Monetary Fund (IMF). The Government of
India has forecasted that the Indian economy will grow by 7.1 per cent in FY 2016-17. As per
the Economic Survey 2016-17, the Indian economy should grow between 6.75 and 7.5 per cent
in FY 2017-18. The improvement in India’s economic fundamentals has accelerated in the year
2015 with the combined impact of strong government reforms, Reserve Bank of India's (RBI)
inflation focus supported by benign global commodity prices and changing behaviour of Indian
households.

India's consumer confidence index stood at 136 in the fourth quarter of 2016, topping the global
list of countries on the same parameter, as a result of strong consumer sentiment, according to
market research agency, Nielsen.

Moody's has affirmed the Government of India's Baa3 rating with a positive outlook stating
that the reforms by the government will enable the country perform better compared to its peers
over the medium term. In India, both investment and consumption are largely driven by
households. Household consumption accounted for 59.4% of the GDP in 2016, according to
the World Bank. In comparison, government expenditure was just 11.65% of the GDP. Total
savings, which are vital for investment, amounted to 32.5% of the GDP, of which household
savings alone contributed 23.6% to the GDP, according to NITI Aayog. Private companies’
savings contributed 8.5% to the GDP.

The RBI’s Preliminary Estimates indicate that household financial savings rose to 8.1% of

the Gross National Disposable Income – which is the Gross National Product plus secondary

income from abroad – in 2016-’17. This followed a rise in financial savings to 7.8% in 2015-

’16 and 7.2% in 2014-’15. In absolute terms, household financial savings were Rs 12,82,600

crore in 2014-’15,

Rs 15,14,200 crore in 2015-’16 and Rs 18,20,400 crore in 2016-’17. That is a growth of

roughly 22% compounded for three years.

8
In the same period, while currency and Provident Fund holdings declined a little, investments

in fixed deposits, insurance, and shares and debentures rose. Bank deposits rose from Rs

6,20,000 crore in 2015-’16 to Rs 10,95,700 crore in 2016-’17 while exposure to stocks and

debentures rose from Rs 41,300 crore to Rs 1,82,500 crore. Alongside, household financial

liabilities rose on account of increase in retail loans. The total financial liabilities of
households rose from Rs 4,31,700 crore in 2015-’16 to Rs 5,74,700 crore in 2016-’17.

WHERE HOUSEHOLDS INVEST?

A combination of physical assets such as real estate, gold, diamonds, precious metals, and
financial assets such as fixed deposits, debentures, equity, mutual funds.

The growth potential of physical assets is less but they are also less risky. They can fuel

growth to only some extent. Real estate development, for example, means construction

activity and off take of cement, paint and such. A property can generate rental income, or the
owner saves rent. Gold, though, is just a store of value rather than a driver of growth.

Financial investments can fuel higher growth and yield higher returns, but they are riskier.

Their value can collapse dramatically and there is no tangible asset left after a crash. If a

company goes bankrupt, its shares are worthless and any debt it owes may be unrecoverable.

Of course, real estate can also collapse and so can gold, but there is a tangible asset left that
could recover its value, or be of some residual use.

There are broadly three basic asset classes considered by most investment experts: (i) Equity
securities (ii) Fixed Income or Debt securities and (iii) Cash equivalents. In addition to this,
(iv) Real Estate and (v) Commodities are also considered by many as important asset classes
given their characteristics and penetration among investors.

Equity:

Long term equity as an asset class has outperformed other asset classes in India as well as in
more developed economies. Equity basically enables efficient movement of funds from people
having excess to businesses that need it to fund growth and business operations. Equity is a

9
risky asset class and investments should be made for long term. The returns from such
investments are in form of capital gains by price appreciation and/or dividend payments by
companies.

In India, the equities are largely held directly through stock exchange or indirectly through
mutual fund equity schemes. Exposure to equity can also be made through Exchange Traded
Funds (ETFs) and Portfolio Management Schemes (PMS) and indirectly through pension
schemes / plans that invest in equities. Insurance products, especially Unit Linked Plans
(ULIPs) is an another well known route. Equity can also be held in form of stakes or Private
Equity in businesses. This option, however, is limited super HNI and corporate investors.

Debt:

Debt is another asset class which you would be very familiar with. Some of the popular avenues
of debt investments are through Fixed Deposits of banks & corporates and bonds issued by
governments, RBI and the likes. Small Saving schemes and pension plans by government are
another major avenues for investing. Mutual funds schemes are lately becoming popular with
retail investors too. The mutual funds offer a wide variety of products to suit every need and
risk profile of the customer. It is a relatively less risky asset class and returns are generally in
form of interest payments and/or capital gains due to impact of interest rates changes over time.

Commodities:

Commodities may be treated as a distinct asset class since their nature and behaviour differs
from the other asset classes. Indians have been traditional investors in 'gold' as a commodity.
Other commodities are now finding a favour with investors, albeit slowly. Precious metals like
Gold & silver remain the biggest avenue for investment and awareness & exposure to other
commodities is very low. The impressive performance of these metals over past few years have
made them as asset class hard to be ignored by investors.

The commodity prices tend to follow the cyclical pattern of underlying commodities which is
why it is important to understand the demand-supply factors. Needless to say, this is not an
asset class for the less informed or the faint hearted, especially for agro-commodities & base
metals. Investment is generally for short to medium term and the idea is to profit from price
movements or hedge against actual exposure. As an asset class, commodities have been
observed to have low correlation with the other asset classes and hence offer excellent potential

10
for portfolio diversification. Investments into Gold specially has also become more convenient
& practical for investors with the launch of Gold ETFs and mutual fund schemes.

Real Estate:

Real Estate is a piece of land, including the air above it and the ground below it, and any
buildings or structures on it. Real estate can include business and/or residential properties, and
are generally sold either by a Realtor or directly by the individual who owns the property (for
sale by owner)

Real estate is the original idea of creating assets before the other asset classes become popular
among investors. Real estate, especially residential / commercial units, unlike other asset
classes, except gold, gives the owners a sense of emotional satisfaction and confidence.
Holding physical property has also its own share of social acknowledgment of your financial
standing. Land is also treated more than an asset in the largely agrarian economy of India.

From an investor's perspective, the investment in physical real estate has its own share of
challenges w.r.t. clear titles, transparency, transaction costs, etc. Emergence of new avenues
for investments has, to some extent, made it feasible to get exposure to this asset class with less
risks. The returns in this asset class is in form of rental/ lease payments and price appreciation.
Real estate are the least liquid of all the asset classes and investment horizon is generally long-
term to very long term in nature.

Cash:

As an asset class, cash and cash equivalents is unlike any other asset class. The purpose of
holding cash is either for transaction / payment reason or as a precaution for any eventuality or
as a buffer for taking advantage of opportunities in other asset classes/ products. Cash is the
least productive of all asset classes and delivers little or no returns and over time looses out its
real value as well. Cash equivalent holdings are dictated by convenience, comfort and cash
habits of people. As an investor, one should try to minimise cash equivalent holdings to an
optimum level that strictly meets your needs. Mutual fund liquid funds is considered as the
ideal avenue for putting aside money for short durations, giving advantages of superior post-
tax returns, high liquidity, very low costs & convenience.

11
Other asset classes:

Apart of the above major asset classes discussed, there are also some more asset classes
considered by few investment experts. You may come across asset classes like currency,
derivatives and collectibles. Currency, as an asset class is distinct in nature and it derives its
existence because of the exchange rate fluctuations between countries. Currency is something
of great interest to governments, banks, multinational corporates having business incomes
arising in different countries, and even to individuals where source of income and consumption
are in separate countries. Derivatives is an asset class that 'derives' its value from the actual
underlying asset class. It is more of a hedging and trading tool and fraught with very high risks,
something which is suited only for the experts. Collectibles is an emerging asset class where
investments are made in art, antiques & other collectibles. This asset class is now finding more
favour with HNI investors who are looking for some diversification & spice in their portfolio.

12
 INSURANCE
Insurance is a means of protection from financial loss. It is a form of risk management primarily
used to hedge against the risk of a contingent, uncertain loss.

An entity which provides insurance is known as an insurer, insurance company, or insurance

carrier. A person or entity who buys insurance is known as an insured or policyholder. The
insurance transaction involves the insured assuming a guaranteed and known relatively small
loss in the form of payment to the insurer in exchange for the insurer's promise to compensate
the insured in the event of a covered loss. The loss may or may not be financial, but it must be
reducible to financial terms, and must involve something in which the insured has an insurable
interest established by ownership, possession, or pre-existing relationship.

The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insured will be financially compensated. The amount of money
charged by the insurer to the insured for the coverage set forth in the insurance policy is called
the premium. If the insured experiences a loss which is potentially covered by the insurance
policy, the insured submits a claim to the insurer for processing by a claims adjuster.

Types of Insurance

 LIFE INSURANCE

Life insurance (or life assurance, especially in the Commonwealth of Nations), is a

contract between an insurance policy holder and an insurer or assurer, where the insurer
promises to pay a designated beneficiary a sum of money (the benefit) in exchange for
a premium, upon the death of an insured person (often the policy holder). Depending
on the contract, other events such as terminal illness or critical illness can also trigger
payment. The policy holder typically pays a premium, either regularly or as one lump
sum. Other expenses, such as funeral expenses, can also be included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of
the insured events. Specific exclusions are often written into the contract to limit the

13
 liability of the insurer; common examples are claims relating to suicide, fraud, war, riot,
and civil commotion.

 NON-LIFE INSURANCE

General insurance or non-life insurance policies, including automobile and home

owners policies, provide payments depending on the loss from a particular financial
event. General insurance is typically defined as any insurance that is not determined to
be life insurance. It is called property and casualty insurance in the United States and
Canada and non-life insurance in Continental Europe.

General insurance can be categorised in to following:

Motor Insurance: Motor Insurance can be divided into two groups, two and four
wheeled vehicle insurance.

Health Insurance: Common types of health insurance includes: individual health

insurance, family floater health insurance, comprehensive health insurance and critical
illness insurance.

Travel Insurance: Travel insurance can be broadly grouped into: individual travel
policy, family travel policy, student travel insurance, and senior citizen health
insurance.

Home Insurance: Home insurance protects a house and its contents.

Marine Insurance: Marine cargo insurance covers goods, freight, cargo, and other
interests against loss or damage during transit by rail, road, sea and/or air.

Commercial Insurance: Commercial insurance encompasses solutions for all sectors

of the industry arising out of business operations.

14
 WHAT IS RETIREMENT PLANNING?

Retirement planning is the process of determining retirement income goals and the
actions and decisions necessary to achieve those goals. Retirement planning includes
identifying sources of income, estimating expenses, implementing a savings program
and managing assets. Future cash flows are estimated to determine if the retirement
income goal will be achieved.

In the simplest sense, retirement planning is the planning one does to be prepared for life after
paid work ends, not just financially but in all aspects of life. The non-financial aspects include
lifestyle choices such as how to spend time in retirement, where to live, when to completely
quit working, etc. A holistic approach to retirement planning considers all these areas.

The emphasis one puts on retirement planning changes throughout different life stages. Early
in a person's working life, retirement planning is about setting aside enough money for
retirement. During the middle of your career, it might also include setting specific income or
asset targets and taking the steps to achieve them. Once you reach retirement age, you go from
accumulating assets to what planners call the distribution phase. You’re no longer paying in;
instead your decades of saving are paying out.

There are many different types of retirement plans available, including an Individual
Retirement Account (IRA) and a 401(k) plan. In most cases, employees are provided with a
retirement plan by their employer, and contributions to the plan are deducted from the
employee's paycheck. Some employers will match a certain percentage of an employee's
contributions, adding more money to their account.

15
CHAPTER -3
REVIEW OF
LITERATURE

16
The glimpses of prior studies made in relation to the current study undertaken are enumerated
here. An attempt has been made to review researches covering different categories of investors
of different areas and different factors as far as possible are covered.

 Das Kanti Sanjay (2012) studied the middleclass household’s investment behavior and
found that the trends of investment by households are not similar in nature and they
vary between several financial instruments. The study reveals that amongst other
avenues the bank deposits remain the most popular instrument of investment followed
by insurance and small saving scheme with maximum number of respondents investing
in fixed income bearing option.
 Chaturvedi Meenakshi & Khare Shruti (2012) studied the Saving Pattern and
Investment Preferences of Individual Household in India found out that most investors
preferred Bank Deposit as the first choice of investment and next to bank deposits small
saving schemes constitutes the second choice of investment.
 Geetha N, & Ramesh M. (2012) studied the Relevance of Demographic Factors in
Investment Decision and reveals that there is significant relationship between the
demographic factors such as gender, age, education, occupation, annual income and
annual savings with the sources of awareness obtained by the investors.
 Rakesh Dr. K and Shrinivas V.S.M (2013) with his study on individual investment
behavior in mutual funds on 400 investors covering the categories of Executive & Non-
Executives and observed that 185 investors are interested in investing in bank
sponsored mutual funds because of security and 126 investors are interested in investing
in institutions because of their returns, remaining 89 investors are interested in investing
in private sector & joint venture to maximize their returns and to hedge against risk.
 Shaik Pasha Majeeb Abdul, Murty Dr. T. N., R.Vamsee Krishna, Gopi Kiran
V.Hemantha (2012), the study examines that the level of importance assumed by the
retail equity investors on various investment objectives based on the socio economic
variables and selective investment profile factors. With the help ofaverage score
analysis with the help of Kruskal Wallis H-Test found out that the investors
attach/attract more importance to liquidity, quick gain, capital appreciation and safety
in equity investments compared to others.
 Bhat Abass Mohd, Dar Ahmad Fayaz (2013) studied the role of emotions in individual
investment behavior describe and conduct a research on what factors, investing

17
 characteristics, and decision-making processes affected individual investors and
analyzed the emotional factors that are in the back of an investor when he makes an
investment decision.
 Kumaran Sunitha (2013) has explored whether there was a link between an individual’s
personal epistemology, such as Locus of Control, and the mechanism of stock market
decision-making (using gambler’s fallacy versus hot-outcome). The primary outcome
of the paper, has confirmed that an individual’s personal epistemology does have an
effect on the investment decisions .
 Harikant Dr. D & Pragathi B. using the principles of Behavioral Finance the study
explores the psychological concept of individual attachment style, especially individual
investors to different available investment avenues and their investment preference
process. This study indicates that there is a significant role of income and occupation
in investment avenue selection by the male and female investors.
 Panda Dr. B.N. & Panda J.K (2013) made an analytical study on perception of risk and
return for individual investment which aims to put on some knowledge about key
factors that influence investment behavior and ways these factors impact investment
risk tolerance and decision making process in this analysis it was presented that higher
returns are expected on Mutual Fund followed by Postal deposits and Insurance
Schemes than other types of investment.

On going through the above review of literature it is found that there are number of factors
which affect the investment decisions of an individual and the scope for the research in this
area is wide and not conclusive.

18
 CHAPTER - 4
ANALYSIS AND
INTERPRETATION
OF DATA

19
 BASIC FINDINGS AND ANALYSIS

Do you have bank account

Reasons for not having a bank

account

20%
40%
95% 5%
40%

Not important to me
I have no money/little money to put in
Lengthy process

Yes No

As the above graph shows that 95% people own a bank account.

Whereas only 5% of the People do not have bank account.

When surveyed, these people gave different reasons for not having a bank account
such as:

 Not important for them

 They do not have money to put in

 They have little money to put in

 They consider the process as lengthy

20
 Which type of account do you have

77% Savings Bank a/c

Current a/c

11%
7% Recurring Deposit
5%
a/c

Fixed Deposit a/c

What were the reasons that your household

opened the account

19%
63%
14%
4%

To receive Govt. payments For receiving remittances

For saving money To request a loan

77% people own a saving bank account and 11% own a current account.

Whereas only 7% and 5% was the share of fixed and recurring deposit account.63%
own bank a/c for saving purpose whereas 19% owns it to request a loan. On the other
hand, only 4% people owns account for receiving remittances and 14% for receiving
govt. payments.

21
 LOAN ANALYSIS

Have you ever borrowed or

taken a loan
If yes,from where
4% 1%

25%
18%
82% 70%

Moneylenders Relaives/Friends
Banks Others

Yes No

As we can see from the above graph, 82% of the people surveyed have never taken
a loan.

Whereas on the hand, 18 % people have taken loan for various purposes such as
housing loan, education loan, personal loan, business loan, vehicle loan etc.

These people have taken loan from different sources such as Banks, Money lenders,
relatives, friends, etc.

Most of the people (around 70%) opted banks as the primary option for taking the
loan.This clearly shows that government is successful in creating awareness about
financial services among different sections of the society.

22
 Awareness regarding No Frills Account

Not aware
11%
Aware
Not aware
Aware
89%

How did you find out that banks were

opening such "NO FRILLS" accounts

5%

21% Bank Officials

71% Neighbours
3% Newspapers/Advt.
Others

As the above chart shows that 89% people are aware of No Frills Accounts whereas
only 11% people are not aware of it.
Newspaper and Advertisements played vital role in creating awareness among
people. 71% people watched adverts regarding such accounts. Whereas 21% said
bank officials told them about No Frills Accounts.

23
 EMERGENCY FUND ANALYSIS

What would you do if you would need

money in an emergency?

28%

5%
44%

23%

Ask family or friends Sell something

Take out a bank loan or overdraft Draw on savings

Out of the 100-people surveyed, 44% said that they would resort to draw their
savings in case of an emergency such as an accident or natural calamity.

Another major portion would resort to take loan for the same case stated above.

23% people would ask their family or friends in case of an emergency and only 5%
would sell their assets for the same.

This shows trust in banking system of the country.

24
 Are you using any other form of Financial
service or product?

YES
10%

NO
90%

As the above data shows that 90% people uses financial services other than bank.
This shows the reach and extent of financial inclusion in India.

PEOPLE USING SERVICES OR

PRODUCTS OTHER THAN BANKING
90

80

70

60

50

40

30
20
10
0
Insurance Debit/Credit Card Others

Out of the 90 people, 85 people use insurance policies such as vehicle insurance, life
insurance etc., 58 people avail services such as Debit card or credit card or ATM
cards etc. and 23 people use other financial services such as net banking, phone
banking, NEFT, RTGS etc.

25
HOUSEHOLD SAVING: FINANCIAL ASSETS VS. PHYSICAL ASSETS

SOURCE: RBI REPORT 2017

The above figure shows a clear substitution effect between real estate and gold as households
become richer. Conditional on age levels and other demographic characteristics, households in
the top quintile of wealth have a 50% higher share of real estate and a 30% lower share of gold
in their portfolio of assets. Interestingly, holdings of financial assets only play a relatively
modest role, even for the wealthiest Indians. This is an important finding, and raises multiple
challenges in the context of the future development of the Indian economy. NHC also note here
that this may well be a symptom of income diversion, in addition to more standard cultural and
behavioural factors.3 In particular, richer households may find it easier to place illicit earnings
or engage in tax evasion by investing in real estate wealth, thereby avoiding the scrutiny
associated with investments in the formal financial sector.

Interestingly, the picture is very different if we turn to the role of education. Higher education
is unambiguously associated with a lower share of real estate, and higher shares of both
pensions and financial wealth. This finding suggests that education more generally (rather than
financial education more specifically) has the potential to improve financial allocations, but
may also be a proxy for the fact that higher education is correlated with employment in the
formal sector - with fewer opportunities for tax evasion, and more exposure to formal financial
markets.

26
Regional Variation Of Household Balance Sheets

This table presents the average share of wealth in each asset type across Indian states (in rows),
listed in the increasing order of the financial assets ratio. Real estate includes all land and
buildings owned by the household. Gold includes jewellery, bullion, ornaments and coins.
Financial assets include bank deposits, publicly traded shares and government securities,
mutual funds, managed accounts, and informal loans receivable. Retirement accounts include
private pension accounts, provident funds, annuity certificates, and life insurance accounts.

27
Mortgage debt includes loan using land or real estate as collateral. Gold loans use bullion and
ornaments as collateral. Unsecured debt includes all loans classified as personal security. Non-
institutional debt includes loans from family, friends, and money lenders.

India has enormous heterogeneity in a number of dimensions: geographical, linguistic, and

cultural. There are significant differences across households located in different states, even
after controlling for households’ demographic characteristics.

In both participation and allocation, we can see substantial heterogeneity in the patterns of
assets and liabilities in household balance sheets across Indian states. For example, a (relatively
poor) state like Bihar has households with barely no financial assets, while cities/union
territories such as Chandigarh have the highest levels of financialization of the household
balance sheet. Another important example is that in Tamil Nadu, households hold relatively
large amounts of gold, followed closely by Andhra Pradesh. These high gold holdings in
Southern Indian states suggest that strong cultural factors may also be at play in these cross-
state patterns.

Large differences can also be observed in patterns of debt allocation. While poor states such as
Bihar have nearly all of their loans as unsecured debt and almost all of it originated from non-
institutional sources, states such as Goa have only small amounts of unsecured loans, as well
as low fractions originated from non-institutional sources. Moreover, in states such as Tamil
Nadu, where households store a high fraction of their wealth in gold, they also have more than
40% of their total debt in the form of gold loans – further suggesting that gold plays multiple
roles in household balance sheets, and that solutions to sub-optimally high.

28
HOUSEHOLDS LIABILITIES: SECURED VS UNSECURED DEBT

SOURCE: RBI REPORT 2017

In the above figure we can easily see that as the people becomes more richer they prefer to go
for mortgage loans. Mortgage can be defined as keeping something as security in order to take
loans for different purpose. Or in other we can say mortgage loan is a secured loan. The reason
why households with more wealth going for mortgage loans is that they are offered at cheap
rate of interest and they have some assets with them against which they can take loans. Gold
loan more or less remains contant through all income group.

It is not of much surprise that share of unsecured and non-institutional debts goes on decreasing
as wealth increases. As there is no point of going towards non-institutional debts and end up
paying high rate of interest for no good reason. There is only one good reason which one could
argue that these loans are offered without any security. But there are many reasons which
support that one should avoid going for non-institutional debts. The common example can be
given of our Indian farmers households who are exploited and are trapped in vicious cycle.

In the right figure we can see that the percentage of mortgage loans rises to almost 15% with
the increasing level of education . The main thing is that as people become more educated then
they are aware of all the factors associated with different types of loans. And they can very
well compare the implications of going for different types of loans.

29
 HOUSEHOLD RISK MANAGEMENT BEHAVIOUR

SOURCE: RBI REPORT 2017

The above figure describes the sources of major financial vulnerability for Indian households,
the events that have had the largest financial impact on the family are the loss of crops or
livestock due to bad weather, medical emergencies associated with hospitalisation, and damage
to properties, farm equipment or other business capital, due to a natural disaster. Cumulatively,
these events account for the major financial losses in more than 60% of cases.

The next three sources in order of financial vulnerability concern reductions of the income-
generating capacity of the household, due to job loss, an increase in the costs of agricultural
inputs, or a deterioration in overall market conditions. Cumulatively, they account for the major
financial losses of around 25% of households.

Finally, life events such as theft/burglary, family separation, or the death of the main income
earner are also important sources of financial risk, which may affect a considerable part of the
population, but their overall financial impact seems to be much smaller than the other sources
discussed above.

30
How do households cope with these risks?

SOURCE: RBI REPORT 2017

This figure suggests that India is still largely an informal economy. Only a quarter of
households are able to deal with emergency expenses by drawing upon accumulated wealth.
Instead, half of the population counts on help from family, friends and moneylenders. Most
notably, loans from formal financial institutions are virtually irrelevant as a coping mechanism,
which suggests that the financial system fails to achieve one of its most important goals of
helping households smooth cash flows and consumption patterns. The problem seems
particularly acute at medical expenses. 69% of households deal with medical expenses by
drawing upon informal sources of funding, 26% of which are loans from moneylenders.

Hence it can be clearly seen that help from family and friends is generally perceived as benign.
It may indeed be associated with low costs, but payments on such loans are generally non-
pecuniary and involve service delivery by family members, which often goes unreported and
thus leads to an underestimate of true costs. They are also viewed as easy to renegotiate,
although there may be social quid pro quo accompanying such loans. On the positive side, there
is potentially less asymmetric information in such loans, they can be issued at relatively low
ticket sizes, and be accompanied by non-monetary assistance. Overall, though, this type of
informal lending can pose significant pressures on family structures, and likely also lead to
psychological burdens that cannot be ignored.

31
Participation In Life And Non-Life Insurance Policies

SOURCE: RBI REPORT 2017

This turns to another important financial instrument which households also use, and shows that
there is substantial geographic heterogeneity in the uptake of life and non-life insurance
products in India. While some states of India (e.g., Maharashtra, Karnataka and Tamil Nadu)
have higher levels of life insurance participation, states such as Madhya Pradesh and
Chattisgarh have very poor penetration rates for life insurance.

Similarly, non-life insurance products that hedge against common shocks such as accidents and
poor rainfall have literally no take-up in states– for example, despite historical levels of drought
in Andhra Pradesh, non-life insurance levels are abysmally low.

However, solutions are not completely straight forward. The appropriate use of financial
services, in contrast with access, may be far more challenging than simply endowing every
individual in the country with a suite of financial assets.

32
Reasons For Not Having Insurance

SOURCE: RBI REPORT 2017

Importantly, thinking back to the sources of the source of uncertainty that leads to borrowing
from non-institutional sources, the main three risks that households face (i.e. the loss of crops
and livestock, major medical emergencies, and damage to physical assets due to natural
disasters) are all insurable. This opens up the question of why households do not choose
adequate insurance products to cover these risks. The most often stated reason for non-
participation is affordability. 51% of the population indicates insurance products as
unaffordable, and only 16% state a lack of awareness. The most likely reasons are high
transaction costs, a lack of understanding of the details of the products, and the distribution
channel.

As we know that insurance is totally based on the concept of large numbers where a large
number of people are willing to cover themselves against a particular risk. So, when more
people will have knowledge about insurance and its uses they will definitely go for insurance.
Insurance is not costly and if it is it should not be seen as costly because the main role of
insurance is just to protect a person from sudden and unexpected financial losses.

33
 RETIREMENT PLANNING BEHAVIOUR BY INDIAN
HOUSEHOLDS

SOURCE: RBI REPORT 2017

First figure shows that 44% of Indian households either do not expect to retire, or have not
actively planned for retirement, while the other 33% households have not made any kind of
retirement planning. It does not come as a surprise that more than 75% of households are not
prepared for their future. Only few households are planning for their future. Only 10%

34
households are actively saving for their future while it should be such that each and every
household plan for their future needs and remove or reduce their dependence on their children
or somebody else for their future needs. It will definitely give them a sense of security in their
mind that their future is safe and they might not have to bear pain and sufferings in their old
age.

The other figure reports the expected sources of funds in retirement. Interestingly, despite the
large share of real estate in household wealth, only very few households expect to benefit from
this part of accumulated wealth to finance expenses in old age. Instead, most households (more
than 50% of the population) expect to rely heavily on help from their children. This suggests
that Indian households actually implement a variant of a reverse mortgage contract, consistent
with the implication of the optimal life cycle model, promising to leave their property wealth
as bequests, and benefiting from the children’s care and monetary support during old age. Of
course, this can have positive externalities for society, helping to maintain strong family
relationships, solidifying cultural norms and fostering social cohesion. Nevertheless, the
enforcement of this informal arrangement can also put substantial pressure on the social fabric
of society, creating inter-generational tensions, limiting the education and productivity
potential of the young generation, and locking up a large part of the nation’s wealth in highly
illiquid assets.

The above stated situation is not only the case of rural households but also of urban households.
People do not understand this thing early in their life that saving for themselves for their future
needs is also as much as important or more important than saving for their children. People
generally say that they are doing for their children and expect the same from their children in
their old age.

Going forward, India faces an ageing population. Indian households seem poorly financially
prepared to deal with the consequences of ageing. The lack of retirement savings and more
generally the predominant reliance on the income-generating capacity of future generations
generates large risks at all levels of the financial sector.

35
 INTERNATIONAL COMPARISON

Cross-Country Comparison: Broad Trends

SOURCE: RBI REPORT 2017

As we can see in the above figure, in India, the average household holds 77% of its total assets
in real estate (which includes residential buildings, buildings used for farm and non-farm
activities, constructions such as recreational facilities, and rural and urban land), 7% in other
durable goods (such as transportation vehicles, livestock and poultry, agricultural machinery
and non-farm business equipment), 11% in gold and the residual 5% in financial assets (such
as deposits and savings accounts, publicly traded shares, mutual funds, life insurance and
retirement accounts). Taken together, non-financial assets therefore account for 95% of the
household balance sheet, which is identical with the 95% for Thai households, and only slightly
higher than the corresponding 91% for Chinese households. However, the average Chinese
household has a relatively lower share of real estate wealth (62%), a higher share of durable
assets (28%), and negligible amounts of gold (0.4%). Furthermore, household allocation
choices are very different in India, Thailand and China when compared with more advanced
economies. On average, holdings of real estate account for low fractions of wealth in countries
such as the US (44%), and particularly Germany (37%).

36
Households in advanced economies hold substantially more financial assets than their Indian
counterparts. In addition, households in these economies allocate a sizeable fraction of their
wealth to retirement savings over the course of their lifetimes, for example, retirement assets
account for relatively large shares of wealth in Australia (23%), and the UK (25%). The two
trends are related, in the sense that state-sponsored schemes appear to act as a substitute for
private savings in retirement accounts, but potentially as a complement to private savings in
non-retirement financial assets. The German case illustrates this effect particularly well. Since
the German retirement system is mostly based on state-sponsored defined-benefit pensions,
households in Germany only save small amounts in private retirement accounts, and invest
larger amounts in financial assets such as sight deposits, government bonds, publicly traded
shares, and mutual funds.

SOURCE: RBI REPORT 2017

The liabilities of Indian households also exhibit distinct patterns relative to other countries. The
above figure reports the average allocation of liabilities across all households that carry a
positive amount of debt. Mirroring the dominance of real estate as the dominant component of
wealth, mortgage loans are households’ largest liability in China, the US, the UK, and
Australia. In these countries, the average household’s mortgage holdings account for close to
60% of their total debt exposure. Germany is an exception to this rule (the share of mortgage

37
debt is 44%), which is not surprising given the low homeownership rate and the relative
preference for renting over owning in the German population. However in India, despite the
prominent role of non-financial assets in the household balance sheet, mortgage loans account
for only a small part of total liabilities (23%) and the role of other secured debt (such as vehicle
loans and instalment credit for durable goods) is well below the levels observed in other
countries, particularly Thailand. The high average level of home equity held by Indian
households is important, and suggests a strong investment motivation for real estate purchases
in addition to the usual consumption motivation. Of course, the consumption motivation may
also be high in an environment of poor contract enforcement, and suggests that measures to
improve the private rental market may have a non-negligible impact on the physical asset share.

Instead of secured debt, most Indian household debt is unsecured (56%), which also reflects an
unusually high reliance of Indian households on informal, non-institutional sources of lending
such as moneylenders and intra-family loans. It is important to note that a non-negligible role
for gold loans (7.6%), which are a unique feature of the Indian market, and absent from other
countries, suggesting that gold plays a dual role as an investment asset as well as a store of
collateral value for Indian households.

These conclusions are also apparent when averages are computed by wealth-weighting across
households rather than equally-weighting across households. This suggests that for India (and
China) unsecured debt (including gold loans, for India) also matter in the aggregate.
Quantitatively, unsecured loans account for 23% of total debt in China and 39% in India, while
they play a negligible role in the financial systems of developed countries (with the exception
of the US, where households rely relatively more on short-term debt for both daily expenses
and for purchases of durable consumer goods).

38
Cross Border Households Asset Allocation

SOURCE: RBI REPORT 2017

The above figures show the different patterns across the age distribution of Indian households.
Only 15% of Indian households in which the household head is younger than 35 years of age
hold any financial assets. This participation rate even decreases to 5% for more mature
households, which is well below the rate of financial asset market participation observed in
developed countries, where close to all households use formal financial products as the
preferred means of savings except in case of Thailand and China where the situation to similar
to India or even worse in case of Thailand where holdings in financial assets remains very less
or negligible across the life cycle of head of the households. The reason behind these little
financial assets holding in India could be the lack of knowledge among the households and the
other reason which one could think of is their lack of trust in financial assets. Germany tops
the list when it comes to holdings in financial assets and pension.

In the next figure the holdings in gold and other durables is highest in Thailand and lowest in
Australia. The holdings by Indian households is around 20% where the head of the household
is less than 35 years. While it is interesting to see that holdings slightly decrease with increase
in age.

While the drive to bank the unbanked in India holds great promise, it is worth noting the
massive popularity of physical assets. In both China and India, the rate of participation in land
and housing assets is 60% for the lowest age cohort and increasing to roughly 80% for

39
households that are close to retirement. However, Indian households are exceptional in the
international context, as there is seemingly no reduction in their holdings of real estate as they
pass retirement age, unlike in countries such as the UK, Australia, Germany, and China. This
is probably the consequence of “joint family” households in which multiple-generations co-
exist, in which land and residential properties constitute a significant share of bequests and
inter-generational wealth transfers.

SOURCE: RBI REPORT 2017

The patterns in the assets of Indian households are also distinct across the wealth distribution.
In terms of participation, only 15% of the households with lower income hold any financial
assets. This number falls further for the richest population group, but it is surprising that it is
well below the fraction participating in developed countries. Turning to non-financial asset
holdings, one particular finding stands out.

When it comes to holding in golds and other durable goods in every country it is seen that
holdings decrease with increase in income. The simple reason could be that the people shifts
their income in buying properties as now they are allowed by their pockets. At the very bottom
end of the wealth distribution, 60% of Indian and Chinese households have ownership over
land or buildings, while in Germany, the UK and Australia, this number is less than 1%. At
least part of this observation can be attributed to the very different nature of what is considered
and recorded as ownership of real estate across these countries. In India and China, the
urbanisation rate is much lower, rental markets are virtually absent, and agricultural work is
widely prevalent.

40
Cross Border Households Liabilities Allocation

SOURCE: RBI REPORT 2017

Turning to the liabilities of Indian households, mortgage indebtedness is particularly low across
the age distribution in India in comparison with other countries except Thailand. In India
however, the percentage of mortgage loans is approximately around 20% which is very low in
comparison to other developed nations like UK and China. However, surprisingly, the
participation rate of older households and retirees is comparable to that in Australia and the
UK. This suggests that Indian households take on relatively higher financial burdens towards
the end of life, probably reflecting intergenerational transfers. This under-penetration of
mortgages despite high reliance on real estate is an important issue.

In case of other secured debt India remains at the bottom while surprisingly Thailand tops the
list as we can see in the above figure. The percentage of Indian households is around 18% while
in case of Thailand it is around 60% which is highest among the above-mentioned countries.

In case of unsecured debts India tops the list followed by Thailand. Well it is not that much
surprising for a developing country like India where still a larger part of the economy is a part
of informal sector and this thing also cannot be ignored that a large population of India falls
under below poverty line who do not have access to any kind of financial services. The reason
behind the high share of unsecured debts in India could be because of agricultural lending
activities in rural areas which are mostly unsecured.

41
 SOURCE: RBI REPORT 2017

The above figure shows the distribution among various types of debt with respect to wealth of
households. As it can be clearly seen that in every country the share of mortgage loans increases
with increase in wealth of the individuals. In India the households who opted for mortgage
loans is only 40% and not to forget that this is the case of rich households. And if we move to
households with lower income than the share is only around 5%. By looking at other countries
I found that most of the households with higher level of income favours mortgage loans only.
The simple reason one could think of is that these loans are secured against some assets and
hence the lender is in better position to provide loans at cheaper rates. Also, the share of
mortgage loans in other countries except Thailand, is very high because their economy is a
formal economy and hence favours taking loans from institutions only. Another reason for
direct relationship between wealth of households and share in mortgage loans is that the rich
people require more money to expand their businesses and for other reasons.

While on the other hand the share in unsecured debts is in indirect relationship with the quintiles
of wealth. In other words, as the income rises, household prefer to go for mortgage loans rather
than going for unsecured loans. Hence as we can see in the right most figure the share in
unsecured debt keeps on decreasing in every country except in Thailand where the share in
unsecured debts remains constant throughout all stages. India’s share to unsecured loans is as
high as 80% and hence India is at the top just because of the prevalence of large informal sector
and lack of knowledge mostly in rural areas.

42
 FACTORS WHICH INFLUENCE HOUSEHOLDS’
PREFERENCE

SOURCE: RBI REPORT 2017

The Financial Planning Standards Board India (FPSB), in its submission to the committee,
presented statistics on the stated preferences of Indian households, with respect to their savings
in physical and financial assets. We collect these statistics in the figure below. The results are
based on a survey of CFPCM Practitioners regarding their ranking of drivers influencing
household savings. The total sample comprises 12,000 households, surveyed as of September
2016.

43
 CHAPTER – 5
CONCLUSION
AND
RECOMMENDATION

44
 CONCLUSION

I find several attributes of Indian households that are exceptional in the international context.
Importantly, these distinctive features of Indian household balance sheets cannot be explained
by differences in the demographic characteristics, wealth, or income of Indian households
relative to their counterparts in other countries. I also find that these properties of Indian
balance sheets are difficult to explain using a standard lifecycle portfolio choice model. Taken
together, it appears that these patterns are likely driven by unique aspects of Indian households’
financial decision-making. The distinctive features of Indian household balance sheets are:

1. A large fraction of the wealth of Indian households is in the form of physical assets (in
particular, gold and real estate). This is unusual in the international context, and especially
unusual for younger households, and for households in the bottom 40% of the wealth
distribution, i.e., those with the lowest amounts of gross assets.

2. Despite the high holdings of real estate, mortgage penetration is low early in life, and
subsequently rises as households age. This is also at variance with Indian households’
counterparts in other countries, where debt has a characteristically hump-shaped pattern over
the lifecycle. Indian households tend to borrow later in life and are more likely to reach
retirement age with positive debt balances, which is a source of risk given that they are no
longer earning income during these years.

3. Social arrangements in which households’ bequest housing wealth to future generations and
in turn receive support during retirement are an underlying determinant of these patterns. Such
traditional approaches to household financial management have likely evolved over time as a
rational response to prevailing economic conditions. However, these traditional structures are
increasingly under pressure from shifting demographic patterns, social norms, and changing
economic conditions, introducing risks to economic well-being especially as households age.

4. The Indian household finance landscape is distinctive through the near total absence of
pension wealth. Pension accounts and investment-linked life insurance products exist, but they
are only used frequently by households located in a small group of states, while in most other
states, the contribution of pensions wealth to household wealth is negligible.

45
5. It is observed that high levels of unsecured debt, and perhaps more importantly, debt taken
from non-institutional sources such as moneylenders. Such debt generates high costs for Indian
households, and is likely to lead to households becoming trapped in a long cycle of interest
repayments. This phenomenon has been well-documented over the decades, but nevertheless
remains stubbornly persistent.

6. There are low levels of insurance penetration (life and non-life) despite numerous sources
of risk such as rainfall (leading to income shocks in largely agrarian segments of the
population), health shocks, and catastrophes such as floods or cyclones.

7. There is a strong negative correlation between participation in insurance and the incidence
of non-institutional source debt, suggesting that households are dealing with risks through high-
cost borrowing ex-post as opposed to insuring against such risks ex-ante. I believed that this is
a costly approach for households, as high interest payments on informal debt impose
substantially greater costs on Indian households relative to the (counterfactual) policy of
purchasing actuarially fair insurance.

8.The gold holdings in India appear to be high relative to those observed in other parts of the
world, and notes that Indian households can achieve higher rates of return from reallocating
some portion of these gold holdings towards financial assets. There are multiple reasons that
households hold gold. One possibility is that the high rate of gold holdings is evidence of tax
avoidance, or the hiding of illicit proceeds. A second possibility is that gold is an easily pledged
form of collateral. Third, there may be cultural and behavioural determinants of gold holdings.
Finally, there may just be the desire to hold gold for pure consumption rather than investment
purposes. If this is the case, then there is nothing that can (or should) be done to alter household
consumption preferences.

9. It was also seen that a large fraction of households appears to lack the skills required to
understand the concept of compound insurance, and that this issue is particularly prevalent in
the case of compound interest accruing on debt obligations. This may also result in households
getting into debt traps, especially if they are confused about the details of their liabilities and
the manner in which interest accrues on them.

46
 RECOMMENDATION
In order to cope up with increasing inflation and thereby increasing household expenses each
and every household must do their financial planning. Financial planning is an important aspect
of one’s future goals and planning. Indian households require customised financial products
that account for their unique economic conditions, longstanding traditions, idiosyncratic life
goals, and the complexity of their financial circumstances.

1. People should invest in equity and equity related product with a view of long term
horizon as it is proved to be the best asset class.
2. Such customised financial products are required at low marginal costs of servicing
additional households. That is, they need to be scalable.
3. These products need to be relevant to households, in the sense that they should be
delivered in a manner that is free from incentive problems, at a price that is fair, and
dispensed alongside financial advice that is in the best interests of households.
4. Complicated paperwork and bureaucratic impediments can exacerbate feelings of
embarrassment and shame for low income and poorly educated households in their
initial engagement with financial markets. Financial product terms and conditions
should therefore be explained to households in a manner that is both intuitive and
salient.
5. Indian households can benefit greatly by re-allocating assets towards financial markets
and away from gold. If households in the middle third of the gold holdings distribution
re-allocated a quarter of their existing gold holdings to financial assets, on average, they
could earn an amount equivalent to 0.8% of their annual income per year (on an ongoing
flow basis). Expressed differently, the wealth gain in real present value terms accruing
from this shift would be sufficient to move these households roughly 1 percentage point
(pp) up the current Indian wealth distribution. For households that hold more substantial
amounts of gold, i.e., those in the top third of the cross-sectional distribution, the
ongoing annual income gain from re-allocating a quarter of their gold holdings to
financial assets is 3.4%, which when capitalised, translates into a upwards movement
of roughly 5 pp along the Indian wealth distribution. These projected gains are almost
always above zero, even when we account for volatility which may lead to different
realisations of returns on gold and financial assets.

47
 6. Technological solutions hold significant promise for providing customisation and
scalability simultaneously, and technological interfaces can help in depersonalising
potentially embarrassing face-to-face interactions when households are making
financial decisions.
7. Given the cognitive/behavioural issues that, “nudge” solutions, where sensible default
options are provided to households also appear appealing to improve Indian household
finance outcomes.
8. Recent initiatives by way of issuing sovereign gold bonds are certainly an important
step in the right direction in order to reduce physical holdings of gold on household
balance sheets if they are holding gold as an investment. However, the widespread
acceptance of financial products backed by gold as the underlying asset will require
design features that address deep-seated cultural preference of households.
9. People can hire CFP for financial advices if they are incapable to take financial
decisions on their own.
10.One should invest early as it would help in creating wealth over the time with the help
of compounding effect which work miraculously.
11.One should have proper insurance cover in order to ensure that the family might not
suffer in case of any unfavourable situations.

48
 BIBLIOGRAPHY

1. https://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/HFCRA28D0415E2144A0091
12DD314ECF5C07.PDF
2. https://www.ibef.org/economy/indian-economy-overview
3. http://planningcommission.nic.in/aboutus/committee/wrkgrp11/sub_hhrep.pdf
4. http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/03AFS080612.pdf
5. https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=&ID=877#C3
F32
6. http://ssijmar.in/vol3no2/vol3%20no2.1.pdf
7. http://dx.doi.org/10.5430/ijfr.v4n3p62

49
ANNEXURE

50
 QUESTIONNAIRE

Dear Sir/Madam,

I am a student of Maharaja Surajmal Institute, Delhi and presently doing my project on

“Financial Behaviour of Indian Households”. I request you to kindly fill the questionnaire
below and assure you that the data generated shall be kept confidential.

Q1. Do you have a bank account?

 Yes  No

Q2. No. of accounts in your household:

 2  3  4  More than 4

Q3. Which type of account do you have?

 Savings Bank a/c  Current a/c
 Recurring Deposit a/c Fixed Deposit a/c
 Other___________________________

Q4. What were the reasons that you opened the account?
 To receive Govt. payments from NREGP For receiving remittances
 For saving money To request a loan
 Others ___________________________

Q5. Who helped you open the account?

 Bank Officials Neighbour
 Friends/Relatives Others _____________________

Q6. Reasons for not having a bank account:

 I have no money/little money to put in No bank in this area
 Lengthy processes Not important to me
 Other___________________________

51
Q7. Are you aware that banks are opening zero min. balance accounts for everyone?
 Yes No

Q8. How did you find out that banks were opening such ‘no-frills’ accounts?

 Bank Officials Neighbours

 Newspapers/Advertisements Other_________________

Q9. Have you ever borrowed or taken a loan?

 No

If yes, from where?

 Banks Relatives
 Friends Moneylenders
 Other________________________

Q10. If borrowed from banks, which of the following reasons led to this choice?

 Low rate of interest It is easy

 Was offered/arranged by the banks Trustworthy lender

Q11. If ever borrowed, what was the type of the credit/loan?

 Housing loan Business Loan

 Education loan Vehicle loan
 Personal loan

Q12. Are you using any other form of financial service or product?

 No

If yes, then which one:

 Insurance Credit card/ Debit card
 Other__________________________________

Q13. Is there any financial advice centre/credit counselling centre in your area?

 Yes No

52
Q14. What would you do if you needed money in an emergency?

 Ask family or friends Take out a bank loan or overdraft

 Sell something Draw on savings
 Other__________________________

53