Consumer confidence low on financial preparedness for future: HDFC Life

From a financial standpoint, how truly free is an individual? The Life Freedom Index measures urban Indian consumers’ present financial freedom, their awareness of available products, the sufficiency and suitability of financial planning, and, most importantly, their current financial freedom.

Established in 2011, the Life Freedom Index (LFI) is a unique survey conducted by HDFC Life that quantifies consumers financial freedom’ across four essential segments: proud parents, wise investors, young aspirants, and smart women. The LFI’s previous edition took place in 2019, assessing consumer confidence in their financial preparation for the future.

The LFI’s consist of four sub-indices, i.e., financial awareness index, financial planning index, financial sufficiency and adequacy index, and financial liberty index.

Key findings

-The Life Freedom Index decreased by 4.8 points in 2021 compared to 2019, demonstrating the influence of Covid-19. Consumer confidence has remained low in the aftermath of the two waves. Current funding plans appear to be insufficient. As a result, the most severe decline in the financial sufficiency and adequacy index is noticed.

-Covid-19 has a more significant influence on metro areas than on Tier 1 and Tier 2 cities.

-Nuclear families have been disproportionately hit, with an LFI decline of 10.5 points, -while joint families have remained steady, probably due to a more robust support structure during times of crisis.

-Almost 90% of customers have experienced some form of salary reduction or business loss, which explains why respondents remain apprehensive about Covid-19.

-The top three future fears – economic slowing, job uncertainty, and fear of debt due to a lack of income – are contributing to low financial preparation.

Increase awareness on financial planning and life insurance

– Financial literacy has improved significantly during the last two waves. Consumers seek self-empowerment through a greater grasp of financial planning.

– Maintaining one’s level of living in the face of unforeseen and unfavorable circumstances has been a significant driver of the desire for financial stability.

– The percentage of respondents who are familiar with term insurance has climbed by 11 points. It has increased by 10 points for both endowment and unit-linked schemes.

– Covid-19 has emphasised the critical nature of life insurance. 41% of respondents obtained a life insurance policy following the first wave, which helped them to plan more effectively for the second wave.

Trends at the segment level

-Covid-19 has the most significant impact on financial preparedness on proud parents, followed by smart women. This is primarily motivated by a sense of inadequacy.

-The most negligible impact has been felt by wise investors and young aspirants. This is most likely attributable to factors such as investment maturity and the absence of dependents, lesser financial responsibility, respectively.

“Life Freedom Index is our barometer for measuring the levels of financial awareness, the planning, and the adequacy of the plan. Over the last few years, we have seen changing trends. What makes the report different this time is the pandemic and its impact on consumer confidence,” said Vishal Subharwal, Head – Marketing, Digital Business & E-commerce – HDFC Life.

“The 4.8 point drop in the index indicates that the health pandemic has turned into a financial concern with various challenges surfacing. Better financial planning with life insurance has emerged as the need of the moment. We hope individuals with responsibilities will see value in securing themselves financially, thereby protecting their families from unforeseen events,” he added.