Money problems during the Covid-19 pandemic

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The Aspiration Index is a survey of India’s aspirations seen through the lens of personal finance. The 2021 survey covers five aspirations – Health, Wealth, Relationship, Personal Growth, and Fame. These aspirations subsume material and non-material goals, such as buying a home, saving for children’s education, starting a business, or eating a nutritious diet.

The 2021 and 2020 surveys have revealed to us the impact of the pandemic on Indians. Much has been written about economic challenges caused by the pandemic. This year’s survey will also help quantify those challenges. Let’s take a quick look at the things the survey’s respondents said the pandemic made difficult for them, and what we could do to never be put in this situation again.

In the survey, 33% of our respondents reported a loss of income during the pandemic while Twenty one percent reported a loss of employment. A whopping 42% suffered a loss of savings and investments during this period. The pain was spread evenly in metros and non-metros. Twenty four percent of the respondents said they had to borrow to sustain themselves and their family during the pandemic. The number was slightly higher in non-metros at 27%. Events that cause fear, uncertainty, and doubt at a global scale come every few years, and the outcomes are normally the same. People lose their livelihoods. One of the best ways to prepare for such periods is to create an emergency fund that keeps you going through income and job loss. An ideal emergency fund can be 3-6 times your monthly income, but you could go bigger depending on your needs. The fund will help you meet your essential expenses such as rent, EMIs, groceries, utilities etc. While the world around you may plunge into chaos again, you will be financially protected with your emergency savings. It would also ensure that you don’t need to borrow for sustenance.

Not being able to get health and life insurance

In the survey, 20% of our respondents said they couldn’t get the above-mentioned coverage during the pandemic. The numbers were 24% in Bangalore and 23% in Hyderabad. Insurance companies have had a very difficult time during the pandemic, having to settle an unusually large number of health and life claims. People who’ve been unwell during the period would have also been refused coverage because of heightened risks. The lesson here is that we must not wait for an emergency to strike us before buying coverage, because by then, it may already be too late.

High medical expenses

No surprises here that a whopping 43% said they struggled with big medical bills. In Kolkata, the number was 54%. Those who didn’t have health insurance coverage would have suffered the worst. When you have a disease that could quickly spread to all members of a household, you’re at serious risk of losing your savings in a hurry. Therefore, ensure that all members of your household have health coverage which is large enough to take care of potentially expensive hospitalizations. Ideally, a cover worth 100% of your annual income should be purchased. You could also go higher by buying a super top-up cover which is an inexpensive way of ensuring large coverage.

Loss of primary wage earner

This was a shocker. Eighteen percent of our respondents said they had lost their primary wage earner during the pandemic. In Bangalore, this number was 23%. Death and disease can strike at any moment. The loss of the primary earner can leave a family financially vulnerable and unable to achieve its aspirations. Therefore, every person with financial dependents must own term coverage that can help replace their income in their untimely death. The coverage needs to take care of the dependents for the foreseeable future.

Not being able to get credit

Obtaining credit is easier for those with stable income and high credit scores. But with ongoing problems with income stability, credit-related difficulties can’t be far behind. Not surprisingly, 18% said they couldn’t get a loan or credit card during the pandemic. While an emergency fund would lower the need for borrowing in an emergency, another way to improve chances of getting credit is maintaining a good credit score while the going is good. It would help your finances immensely if you do not enter an emergency with too many costly debts. For example, credit card dues should not be allowed to snowball due to their high costs. Keeping your debts under control during the good times would ensure you don’t encounter hardship in difficult times.

The pandemic has exposed the vulnerabilities in our finances. We would do well to remember the lessons learnt in this period and apply them religiously for the years to come.