Irregular cash flows, flexibility in tenure make Bharat rely on informal mechanisms for saving money: Survey

The study also revealed that the low income group cohort prioritized flexibility, security, trust and ease of use over return on investment while choosing their savings product.

Being reluctant to use formal mechanisms due to irregular cash flows and facing lack of accessibility and tech-savviness, a majority of low-income group people rely on informal mechanisms for saving money for their future needs. This fact was revealed during a recent survey carried out by PayNearby, a leading hyperlocal fintech startup.

The report, titled ‘India Savings Behaviour’, reveals that over 80 per cent of India today has bank accounts, yet a large chunk – accounting for more than 70% of people falling under the low-income group — still relies on informal arrangements such as chit funds and cash under mattress to park their savings. Among the key reasons cited for this trend are the strong social contract that chit funds nurture in this cohort and a combined effect of lack of awareness, tech intimidation and accessibility challenges of formal financial systems. The trend was observed across both urban interiors and rural India.

The nationwide survey of nearly 10,000 low-income group people conducted by PayNearby through field detailed interactions and a digital survey highlighted several insights into the factors that influence the cohort’s saving habits. 47% of people who responded said that flexibility in tenure and no restrictions on the amount to be saved played a decisive role while making a choice about the financial offering.

The need for flexibility was further highlighted when more than 65% of respondents said that they shied away from saving through formal mechanisms as they were unable to maintain regular cash flows. The respondents revealed that uncertainty in income flow and large household expenses were big deterrents for them to commit to any fixed value regular savings product. A strong present bias was observed in this cohort and priority was given to current liquidity needs over future returns.

More than 35% of the respondents said that their primary objective while saving was to stop themselves and the household from making unnecessary expenses. When prodded further on this topic, 65% of the respondents revealed that they wanted to accumulate any surplus money that they had to create a lump sum and help them meet short and medium term life goals. The short and medium term goals differed significantly by gender and age groups, and were as diverse as buying a bike to funding a child’s education. Buying jewellery, land or setting up a house were other popular life goals.

49% of the respondents also spoke about building a safety net that would help them deal with emergencies. The pandemic has thrown millions of people into chaos, affecting their financial well-being due to soaring unemployment rates and insecurities around regular salary payments. There seems to be a heightened awareness among citizens to save for crisis, like the current COVID-19 situation, and ensure financial security.

The study also revealed that the low income group cohort prioritized flexibility, security, trust and ease of use over return on investment while choosing their savings product. More than 40% of the respondents cited fear of documentation and processes being a primary reason for not choosing a formal savings product. The feeling of alienation in structured set-ups, documentation hassles, operational timings, waiting time, amongst others, were cited as the key reasons for the hesitance.

Commenting on the same, Anand Kumar Bajaj, MD & CEO, PayNearby, said, “Our greatest learning from the pandemic has been the need to invest in our health and economic infrastructure, so that we are better prepared to meet challenging situations like the current one. While we rely on government, civic and regulatory bodies to do their bit, it is important that individually we play our part in ensuring the security of people around us. One of the most important steps to ensuring economic security is to build the discipline of savings amongst the masses.”