83% households save up for emergencies, study reveals

NEW DELHI -- Saving for contingencies is forcing over 81 percent of Indian households to keep their earnings at home, right from labourers to large landowners and salaried individuals. This was revealed in the survey -- 'How India Earns, Spends and Saves'.

The survey, conducted in 2005 by NCAER-Max New York Life, released on Wednesday, was aimed at gaining deeper insights into the motives for financial savings, the degree of financial security of Indian households and the degree of sophistication that households bring to bear in their savings and investment decision.

But why do Indians save? While different households had different reasons for keeping away some money as savings -- ranging from emergencies to marriages and social events, children's education and gifts -- saving for old age was not the most important factor for setting aside some cash, though India does not have a social security system.

Interestingly, 83 percent of the households surveyed saved for emergency, while children's education (81 percent) was the other key priority. Only 69 percent households saved for old-age financial security, while 63 percent household said they kept aside money to meet future expenses like marriage, births and other social ceremonies.

Nearly 47 percent households saved to buy or build a house and a similar percentage saved to improve or enlarge their business. Only 22 percent households saved to buy consumer durable and 18 percent for meeting expenses towards gifts, donation and pilgrimage.

What this pointed to was good business opportunity for banks to meet the growing demand for houses and durables.

However, despite strong savings tendency, Indian households are still vulnerable to any mis-happenings to their bread-winner or major source of income. According to the survey, 96 percent of households feel that they cannot survive for more than a year on their current savings in case they lose their major source of household income.