Only 38% Indians debt-free, 40% lack emergency fund: What a survey reveals

About 40% of affluents and HNIs in India lack a sufficient emergency fund, and 27% haven't planned their taxes effectively

How financially savvy do you think you are? Go on, give yourself a score out of 10. Hopefully, you’ve rated yourself better than the results of a recent survey by Finnovate, a financial fitness platform. Their survey revealed an average financial fitness score of just 5.29 out of 20, suggesting that many of us might not be as financially prepared as we'd like to think.

It’s surprising, given the wealth of information available online about saving, investing, and planning.

The survey collected responses from 1,727 individuals, split into four age groups: 18-30, 30-45, 45-60, and 60+. It assessed knowledge and habits across six key areas of personal finance: goal planning, budgeting and taxation, loan management, insurance planning, investment planning, and estate planning.

"Despite some awareness of financial goals and net worth, there is a significant shortfall in retirement planning, investment deployment with the right asset mix, and adequate insurance coverage," said Nehal Mota, Co-Founder and CEO of Finnovate.

Key findings of the Financial Fitness Survey

Goal planning:

The survey found that while 63% of affluents and affluents and High Net Worth Individuals (HNIs) in India have clear financial goals and 69% are aware of their net worth, a troubling 65% haven’t set aside enough for retirement. This highlights a worrying gap in long-term financial security.

Budgeting and tax planning:

About 40% of respondents lack a sufficient emergency fund, and 27% haven’t planned their taxes effectively.

Loan management:

Only 38% of respondents are debt-free, and alarmingly, 31% of those aged 60 and above are still dealing with EMIs.

Insurance planning:

A staggering 73% of respondents are either uninsured or underinsured for health, and 74% lack adequate life insurance. This leaves many vulnerable to financial shocks due to unexpected events.

Investments:

While 81% of respondents invest in equities, 53% invest less than 30% of their savings in equity. Moreover, 54% don’t know the CAGR (Compound Annual Growth Rate) of their investments.

Estate planning:

40% of respondents haven’t compiled their financial documents, and among senior citizens, this figure is still 26%. Additionally, 36% haven’t fully assigned nominees and beneficiaries to their assets.

Age group breakdown

For those aged 18-30, financial fitness scores were the lowest, largely due to a lack of planning. In the 30-45 age group, 58% are investing less than 30% of their income, risking an insufficient retirement fund. The 45-60 group also shows signs of inadequate savings and poor tax planning. For those above 60, 29% are unaware of their current net worth, which is crucial for managing post-retirement finances.

But why is the financial fitness score so low?

Despite a wealth of experts in the field of financial literacy—through online videos, social media events, and live investment workshops—there remains a stark gap in financial knowledge. Many still prefer investing in property and gold over financial assets like mutual funds and equities. According to a research paper by Priyadarshi Dash and Rahul Ranjan, "Considering India’s population, less than 4% choose mutual funds or equity-linked assets. Among major global economies, India has the lowest household exposure to equities at 4.7%. The number is three times more for Europe and four times for the US."

Financial Literacy Index (FLI) across States (NSS 77th round of the All India Debt and Investment Survey):

Low (<=0.33): Arunachal Pradesh, Assam, Bihar, Jharkhand, Manipur, Meghalaya, Nagaland, Uttar Pradesh.

Medium (0.34 to 0.53): Andhra Pradesh, Chhattisgarh, Gujarat, Haryana, Jammu & Kashmir, Karnataka, Madhya Pradesh, Maharashtra, Mizoram, Odisha, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, Uttarakhand, West Bengal.

High (>=0.53): Chandigarh, Delhi, Goa, Himachal Pradesh, Kerala, Pondicherry.

Urban India:

Low: Assam, Bihar, Manipur, Meghalaya, Mizoram, Nagaland, Uttar Pradesh.

Medium: Andhra Pradesh, Arunachal Pradesh, Chhattisgarh, Delhi, Gujarat, Haryana, Jharkhand, Kerala, Madhya Pradesh, Maharashtra, Odisha, Pondicherry, Punjab, Rajasthan, Sikkim, Tamil Nadu, Telangana, Tripura, Uttarakhand, West Bengal.

High: Chandigarh, Goa, Himachal Pradesh, Karnataka.

According to Nehal Mota, "mass affluents and HNIs make several mistakes in their personal finance."

The common ones are

(1) investing without considering financial goals

(2) inadequate term and health cover

(3) underperforming investments

(4) Not knowing the right benchmark and most significantly

(5) poor planning for legacy transfer.

The key reasons for lacking financial fitness are

(1) Low awareness of financial products

(2) Not seeking professional advice at the right time and

(3) Disproportionate time and efforts invested towards speculative trading.

Financial literacy enables individuals to make informed decisions, create effective household budgets, plan savings, manage debt, and prepare for life events and emergencies without unnecessary debt. Government bodies like the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (Irdai), along with industry groups, are actively conducting financial literacy programmes. These initiatives aim to educate the public about various financial products and raise awareness through events across the country.