From Pepper Dabbas to Payday Apps: How We Learned to Spend
This brief story has been prevalent in Indian families for a long time. When younger, children used to sneak into the kitchen, open cupboards, and take the rolled-up banknotes out of the pepper container whenever they needed money. Their parents, in an attempt to teach them financial responsibility, began providing them with a monthly allowance. This allowance then became their responsibility to budget and manage throughout the month.
Remember these days of childhood? These tactics wouldn't fly today. We've gone digital, sending and receiving money with a tap on our smartphones. Although not entirely, these waves have reached rural areas as well, so changes should be evident shortly. The regions have been affected by digital exposure.
So, how did we get here? This shift aligns perfectly with a broader cultural trend – the Western emphasis on spending. It's a stark contrast to the past, where saving half your income was the norm. Although this shift cannot be solely attributed to the influence of Western culture; other contributing factors such as our country's transition to a digital India, the usage of credit cards, our reduced cash-carrying lifestyle, and inflation, have also reduced our disposable income. Given that their recent earnings have been adequate to cover their expenses, how can one possibly overcome such a position and uphold their legacy? If one has to save, how are you expecting to do it?
Why do these savings mean so much now? In reality, where do these savings go?
It's obvious how savings can be applied to various activities, such as investing, where they can increase your capital returns. Having money set aside or saved helps one be ready for unforeseen circumstances. Even inactive funds in a savings account at a bank can generate income annually. Additionally, savings ease the burden of debt and borrowing for the government and help it spend. Crucially, the decline in savings directly impacts our ability to manage debt. This connection is where the conversation about savings should be focused.
As mentioned, it is evident that India has long since inherited a legacy and saw a notable and steady increase in savings. Yet research conducted recently makes it apparent that financial savings have decreased. As stated by the RBI, "India’s net household savings stood at a 47-year-old low in the financial year 2023." Concerns have been expressed by the International Monetary Fund (IMF) over India's debt's long-term viability. It issued a warning, estimating that general government debt in India would shortly surpass GDP.
Why has there been such an abrupt change? This shift can be attributed to several factors, the most prominent of which is the pandemic outbreak. Indeed, COVID-19 has played a significant role in this scenario; the savings held by the households were extensively used during the lockdown; it is clear that the rate of savings following the pandemic received significant attention during this time. In addition, we must remember that following COVID-19, the rate and pattern of consumption reached a new pattern that continues to support our economy.
However, a large portion of these changes are also the result of our debt, which was formerly financed by the growth of our nation but has now reached its current level due to debt from other nations. Keeping this in mind, let's tackle another important concern. Given that, why would someone attempt to bridge the two?
The External Debt Report (2022–23) states that the two are still very much connected. Savings are an essential part of investing because they cover a sizable amount of our debt payments. Only if there are savings to draw from and continue investing, it is evident that debt and savings are tightly related and have a significant influence on an economy. This investment, and hence this relationship, would boost the economy. We used to pay off our bills over a long period with our money. We were therefore not required to concentrate on our debts. Furthermore, after COVID-19, there was increasing pressure to focus on what was needed. We overcame the COVID shutdown in large part because people's funds were forced to be spent.
The Disappearing Act: Why We Spend and Forgot to Save
The rise of digital payments and a focus on immediate gratification suggest a shift in Indian financial habits. While this may seem like progress towards a more modern lifestyle, a crucial element seems to be fading – the importance of savings. This decline in savings goes beyond simply reducing the ability to pay off debt. Savings are the fuel for investments, which drive economic growth. They act as a safety net during unforeseen circumstances, like the recent COVID-19 pandemic. India's robust savings culture allowed many to weather the lockdown storm, highlighting financial preparedness's power.
Redefining Savings for a Modern Legacy
The question remains, how do we bridge the gap between instant gratification and long-term security? Savings are not a punishment, but an investment in our future selves. They are the foundation for a secure financial life, a buffer against unexpected storms, and a legacy we can leave for future generations. Let's move beyond the "Latte vs. Legacy" mentality.
Join the conversation! Share your thoughts on how we can redefine savings for a modern India. Let's choose long-term security over fleeting pleasures. Together, we can build a future where financial preparedness is the norm, not the exception.
S M Indu
