Frugality plays a pivotal role in supporting the economic growth of emerging economies that are catching up with culture of innovation. This reflects the importance of capital accumulation in driving emerging market economic growth, compared to advanced markets’ heavier reliance on productivity growth. India is known as a country of savers, however, there is a shift in the profile. Until the previous decade, the sandwich generation, that consisted of middle-aged individuals supporting their elderly parents and their young children emotionally, physically, and financially in India is now gradually dwindling Anil Kumar (2024). Members of the sandwich generation described India as a developing nation with limited choices, where even basic amenities like a home telephone were considered a luxury. Hariharan Iyer, an author, noted that their parents instilled in them values of loyalty and financial security, which shaped their cautious approach towards money. Balancing the responsibility of providing for their children and aging parents, they prioritized financial safety, often parking their savings in bank deposits against risky assets to prepare for unexpected health or emergency expenses.
The 2019 Cigna survey on well-being pointed out that 89% of the respondents from the sandwich generation experienced a certain amount of strain on their finances, while less than half felt that they were financially doing well. Financial advisors have often recommended prudence in spending and opting for health insurance to overcome their predicaments.
However, there has been a tectonic shift in the country’s demographics and socio-economic conditions. Many young earners in India are no longer burdened with providing financial support to their elders. Over the years, seniors have secured themselves financially, relieving the younger earning generation of this responsibility. The surplus funds place them in a comfortable position with an appetite for trying their hand at risky assets. Additionally, innovative financial products such as SIPs and online investment platforms have paved the way for the capital markets, leading to a fall in savings bank balances. Unlike in the past, household consumption is also supported by loans. While many see the inclination to borrow for consumption as a signal of optimism. However, a few economists view this as a recipe for economic stress.
As per the Reserve Bank of India report, FY23 witnessed a decline in overall household savings, which stood at 18.4 percent of GDP against the average of 20 percent of GDP in the past decade, ending 2022. The net financial savings of Rs 14.16 Lakh Crores were 5.3 percent of GDP versus 7.2 percent in the last year of 2022. At the same time, the household liabilities grew by 30 percent Year on Year. The household liabilities have been on an increase since fiscal 2018, coinciding with the trends in retail credit growth CRISIL (2024); this can be attributed to the easy credit provided by the Non-Banking Finance Companies (NBFC), fintech, and private banks Jain, et al (2019).
In a recent interview, Ms. Arundathi Bhattacharya, former Chairperson of the State Bank of India (SBI), highlighted this shift and advised the banking sector to address the evolving needs of young professionals. She also emphasized the importance of ending “lazy banking”—a low-risk, passive strategy that many Indian banks have long followed—and called for more dynamic strategies, including a balanced approach between deposits and loans to maintain healthy net interest margins (NIM).
It is to be noted that the global markets influence the domestic markets, evidenced when the recent announcement of the rate cut by the Fed on 18 September 2024 fuelled the Indian capital markets, quite likely to attract extensive retail participation, which in turn may move the savings to risky assets.
As the sandwich generation recedes and younger professionals take on more financial risk, banks must adapt to these shifting dynamics to sustain growth. A renewed focus on balancing innovative products with traditional savings will be crucial to supporting India’s long-term economic development. Both consumers and institutions must evolve to navigate this new financial landscape.
Reference :
- Anil Kumar, A. H. S. (2024). Navigating the caregiver’s strain: psychosocial well-being among sandwich generation caregivers in India. International Journal of Community Medicine and Public Health, 11(2), 841–850.
- RK Jain, etal.,(2019). Determinants of Profitability of Indian Commercial Banks, Indian Journal of Finance, Vol 13 (1)
– Thayeseen Begum
Indians are adept at saving money by valuing natural resources and minimizing waste.
Very well put up!
Well written!
Great insights captured.