How Indians will spend their money in the next decade even as their goals change

Economic growth and technological advancements would reflect in the way Indians live, set goals, and spend in the next decade, say two separate studies.

How Indians will spend their money in the next decade even as their goals change

In a report titled Envisioning India 2030, industry lobby FICCI notes that if India were to emerge as a $9 trillion economy as targeted by policymakers, it's per capita income, with a population of 1.5-1.6 billion by then, would be almost $6000.

However, FICCI noted that India would still not become an advanced industrial economy. It would, in fact, still remain below the Thailand and China of today. But what would be achieved is a ‘change in people’s lives within a generation’.

Also, it seems these changes would reflect in the way India lives – and spends – in the next decade, according to two separate studies.

These studies, by the World Economic Forum (WEF) and financial publication ET Wealth, say Indians will spend much more than they do now, but that spending will be more value-based. Alongside, their goals too would evolve.

Changing spends

According to the WEF, nearly 80% of Indian households will comprise the middle-income group by 2030; a section that makes up around 50% of the population now. This huge consumer base will drive 75% of India’s spending through the next decade. 

In the bargain, the spending on essentials (food, clothes, transport, and housing), will be more than doubled. Expenses on services (healthcare, education, entertainment etc.) will be 3–4 times more.

ET Wealth suggests these expenses will also witness subtle changes in terms of the future goals of Indian households. For instance, the top goals of an average Indian family in 2009 were investing in their children’s education, arranging their wedding, buying a house and a car, and saving for retirement. 

Ten years later, only three of these goals – children’s education, buying a house, and retirement – remained in the top priority list.

What would change?

According to financial planners that ET Wealth spoke to, what is deemed as a luxury today (such as an independent room during a hospital stay, high-end gadgets, and even pet care) will be seen as essential in the coming days.

Therefore, the growing trend of spending more without ascertaining the ‘necessity’ would likely continue in the next decade. According to financial experts, the main driver to spend more – often without checking the necessity – are the online providers of services or merchandise.

Related: What’s in store for potential homebuyers in the coming years? 

Shifting goals

Some interesting trends emerge as one studies the way goals have changed over the past decade, as shown in data collected by ET Wealth. Children’s education topped the list of goals in 2009, and it did so in 2019 as well.

Similarly, the least important goal in a list of 10 remained constant at the beginning and end of the decade: paying off debts. It would seem that Indians consider living in debt more acceptable than not being able to ‘upgrade one’s lifestyle’, which has gained in importance over the same period.

Overall, it seems Indians have turned more fun-seeking and less cautious if one were to go by the survey results of what constituted the top 10 goals for Indians.

Holidays abroad gained acceptance in Indian households, even as funding children’s weddings – which for many years ranked high on the average Indian’s priority list – slipped. So much so that vacations displaced buying a house as the second-most important goal between 2009 and 2019.

Other high-priority issues to lose their criticality are retirement, health issues, and support of ageing parents. In fact, supporting parents did not even figure in the list.

Financial planners that the Economic Times (ET) spoke to as a follow-up to the ET Wealth study said that in the monthly expenses of an Indian household, the share of discretionary expenses (such as an international vacation and eating out) has likely skyrocketed from 10-20% in 2009 to 25-60% in 2019.

They claimed that people have got into the habit of spending more without ascertaining the necessity because of online cab services, shopping, and food delivery.

Related: 5 ways to assess your finances this New Year

How Indians will spend their money in the next decade even as their goals change

Digital push

The WEF too feels this digital ‘degree of connectedness’ is an important influencer, and will drive ‘a significant difference’ in preferences in India in the coming decade. Simply put, it thinks that the more a product or service is available online, the more it will be preferred by consumers. In other words, the traditional drivers of preferences (income and age) will be less of a consideration for consumers.

So, if there are two people from the same income group, the more digitally connected of the two will be aware of the most suitable brands and spend well. In contrast, the less connected person is likely to continue buying more of the same. This trend would cut across income strata and irrespective of region, helping to bridge the rural-urban divide in online sales.

Online shopping will be enabled by companies with relatively lower assets and running on the e-commerce model. They will seek out newer consumers, dispersed across ‘tens of thousands’ of urban and rural areas, to meet their growing aspirations. These consumers, enjoying more income than ever before, will be tempted by affordable and innovative digital options. 

They will also look for value for money. The WEF predicts that ‘new variants of consumption’ will be created in many existing categories. For instance, app-based meal deliveries will be preferred over home-cooked food, while the popularity of digital video-streaming services will also go up. 

Overall, the WEF says that more than 40% of all purchases will be digitally influenced by 2030, up from today’s 20-22%.

Financial future

The FICCI study says India’s ‘aspirational’ young population will increasingly demand economic progress, job creation, and delivery of basic services. A political party that can deliver on these will be elected and those that cannot have to give way.

This seems to be reflected in the lifestyle and spending habits noticed in the last decade and predicted for the next. In fact, the financial planners that ET spoke to predicted that ‘absolute increase in discretionary expenses over 10 years would be 100%’. 

Naturally, this would also necessitate changes in the way Indians invest in the coming years. Despite being financially literate, they do not take lifestyle inflation into consideration when saving or investing.

Currently, the younger set also tends to underestimate the importance of retirement savings. They are impatient in the face of market turbulence and want immediate fulfilment of short-term goals. But this approach can lead to erosion of wealth, the financial planners warn.

On the bright side, they said, financial planning could become the norm in future rather than the exception. People will realise that in the current times, job losses are a real possibility and one will have to plan for contingencies. Further, they have their regular goals to meet.

Advice for them from the experts? Target an asset class with the highest return-generating ability over the long term; namely, equity. This will help build a bigger kitty. Alongside, saving in tax-efficient avenues like the National Pension System will help build a decent retirement corpus. 

Then there’s health insurance for oneself and ‘non-negotiable’ expenses on parents’ welfare. Taken together, the savings required for this will ideally be around 30% of a person’s monthly income. This would prepare one for a high-cost future.

Take a look at the investment instruments  which can you help you to kick start a Prosperous New Year. 

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