Some 76% of Indian respondents say that they have a financial plan in place, according to a recent global study done by HSBC Bank. But are Indians really financially prepared to handle their finances after retirement?
In a recent global survey by HSBC Bank called 'The Future of Retirement', 76% of the Indians surveyed said that they have a financial plan in place. However, despite this majority saying that they have a plan in place, there seems to be a glaring contradiction-51% of the respondents were worried about being able to cope financially in their old age and 10% felt that they would need to work in their life after retirement to be able to finance themselves. Indian respondents may have a financial plan in place, but their plan not being good enough is causing them to worry.
The 1,028 respondents from India were mostly between 30 years to 60 years, living in urban areas and having a decent education. For a country where just 30% of the population are from urban areas, the sample size of the survey may not adequately represent the views of the entire country-but the figures are still a cause for concern. If the sample size was larger, considering all income groups, the picture would have been more worrying.
As per the report, "A key challenge in encouraging households to start planning remains the need to raise basic levels of financial literacy. The level of awareness is low and some don't even know how to find a good advisor."
Though Indians are positive in their approach towards financial planning, there seems to be a lack of proper guidance. There maybe over 20,000 independent financial advisors (not including bankers and the mass of insurance agents). How many of them are trained and qualified to sell financial products?
Financial products are being sold as consumer goods. Consumer products are standardised, while financial products are not. The way they are being sold is equally important. Each person is different, with different kinds of plans and objectives and a different set of financial product to suit his/her needs. Most agents just push whichever product earns them a higher commission.
Apart from this, there have been numerous counts of mis-selling.
The Certified Financial Planner (CFP) is a certification which is administered globally by the Financial Planning Standard Board (FPSB) and by Certified Financial Boards of Standards in the US and its territories. India became a CFP council member in 2001. But till 2010, there are just 1,285 CFP professionals in India. The US has the highest with 61,951 CFPs. China and Japan have 9,034 and 17,109 professional planners respectively. China, which has a population close to ours, became a council member much later in 2006 and has seven times more financial planners than India.
Retirement planning is essential. Many fail to plan for the 30-35 odd years of retirement, now that longevity is increasing. The key to making your financial savings outlive you is to make wise investment decisions. Most people are starved for time and need quick and to-the point investment advice. But, how reliable this advice is, is a cause for concern.
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In my opinion and observations, more than 70% of the Insurance policy holders are Over Insured. They have bought the Insurance (Mis Sold to them) thinking that if they buy more insurance they would get more money. (when they die of course).
People often miss the other aspect of personal financial planning like General Insurance, health Insurance, Estate Planning, Tax Planning, Inflation, Budgeting and Cash Flow etc.
The peculiar issues in India are:
1. We are saving a lot, but good amount is invested in Bank Deposits which gives very poor return that too taxable.
2. We spend lot of money in Gold, which has a sentimental value. Eventhough the prices have increased a lot in the recent past, we cannot book profit in gold by selling it. Investments in EGold and Gold ETFs are yet to pick up in India.
3. We invest heavily in Real Estate. With a huge home loan and ever increasing interest rates, we will be fully loaded with the EMI burden all through our working life. This will not permit us to invest in any other avenues.
4. If at all, we want to invest, there are so many financial products available, which are complex to an ordinary investor.Even the distributors will find it difficult to explain the schemes. Most of these products are loaded with agent's commission.The moment, the customer feels cheated, he discountinue the investment!
5. When most of the foreign pension funds are investing in Indian Equities, we invest in post office(8%),bank deposit(7-9%) because of the saftey factor. In a fast developing country growing at around 8% pa, the equity returns will be around 15% atleast for the next 15-20 years. If we are not participating in equities, we will have a tough time in the long run, with ever increasing inflation.
The only solution to all these issues will be to consult a genuine and unbiased financial planner before making any investments in life. The fee paid to the financial planner will ensure that, you are on track to your goals in life including your retirement.
But you must know how to avoid your uncle coming to sell some policies to you. Beware, he is doing his retirement planning not yours!