Where does Financial Planning take a Toss? Series -1

 

Often, we hear that the new generation, those born between 1995 and 2003, save less and spend more. They don’t have the habit of saving and investing. But do we ever get concerned about the expenses they have to bear with the current cost of living?

Recent data from the Reserve Bank of India says India's net household savings stood at a 47-year-old low..  A major reason for this decline mentioned by the report is the drop in household financial savings, which fell from 10.1 %of GDP in FY00 (Year 2000) to just 5 %in FY23. At the same time, financial liabilities rose sharply from 2 %to 5.8 %of the GDP over the same period. According to the report, the share of consumer loans in total credit has surged from 21 %in FY16 to 34 %in FY24.

Household savings have dropped significantly from 84% of total savings in 2000 to 61% in 2023. The Reserve Bank of India (RBI) recently reported that net household financial savings slightly increased to 5.3% of the GDP in FY24, up from a 47-year low of 5% in FY23. This follows a sharp decline from the peak of 51.7% during the Covid pandemic to 36.1% in FY22 and 28.5% in FY23.

City-Wise Cost of Living and Impact on Savings

 

High-Cost Cities (Mumbai, Bangalore): Newcomers face a savings squeeze (0-20% of income at 6 LPA) due to rent (30-50% of income) and lifestyle inflation. Social media pressure fuels spending on dining, travel, and gadgets, delaying wealth-building. Sharing accommodation or living farther from city centers helps, but long commutes add stress.

Mid-Cost Cities (Delhi, Hyderabad): Savings of 20-40% are achievable, but only with discipline. Newcomers often underestimate transport or EMI costs, which can cut savings by half. Hyderabad’s balance of jobs and affordability makes it a sweet spot.

Low-Cost Cities (Pune, Chennai, Kolkata): Savings potential is high (30-70%), ideal for building emergency funds or starting SIPs. However, lower salaries in some sectors (especially Kolkata) may offset gains, and newcomers may splurge on non-essentials to “fit in.”

 Common Traps: Across cities, newcomers fall for “Instagram delulu” lifestyles—expensive cafes, vacations, or financed purchases. Inflation (6-7% annually) erodes savings if not invested. Lack of budgeting leaves many living paycheck to paycheck, even on 12 LPA.

 Hence, savings are becoming a myth day by day when you add up the EMI component.

India’s population is approximately 1.44 billion as of 2025. There’s no precise figure for how many are actively paying EMIs, but consumer credit trends give clues. Reports suggest that salaried individuals in India allocate about 33-45% of their income to EMIs and other obligatory expenses, with loan penetration higher in urban areas and among middle- to high-income groups.

 

• Urban population: 35% of India’s population (500 million) lives in urban areas, where EMI usage is more common due to higher incomes and access to credit.
• Credit penetration: Around 107 million credit accounts existed in 2018, and with a CAGR of 28%, this could be ~300 million accounts by 2025, covering loans and credit cards. Assuming multiple accounts per person, roughly 100-150 million people (7-10% of the population) might be paying EMIs, mostly for home loans (30-40%), personal loans (20-25%), auto loans (10-15%), and consumer durables (5-10%).

Average cost per person:

• Income context: Average monthly per capita income in India is ~₹12,000 (urban: ~₹20,000, rural: ~₹8,000). If 33% of income goes to EMIs for those using them, the average EMI burden for an urban salaried person might be ₹6,600/month.

• Loan specifics:
• Home loans: Average EMI for a ₹50 lakh loan (20 years, 9% interest) is ~₹45,000, but only ~5% of the population has such loans.
• Personal loans: Average ₹5 lakh loan (5 years, 12%) yields ~₹11,000/month.
• Consumer durables: A ₹1 lakh purchase (6 months, 0% interest) costs ~₹17,000/month.

 Tips for Newcomers to Save

• Live Within Means: Choose PGs or shared flats initially (₹8,000-₹15,000/month) over solo apartments.
• Budget ruthlessly: Use apps like Moneycontrol or Walnut to track expenses. Aim for 20% savings minimum.
• Invest Early: Start a mutual fund SIP (₹5,000-₹10,000/month) or RD for compounding. PPF for tax savings.
• Limit EMIs: Avoid loans for depreciating assets (phones, cars). Pay credit cards in full.
• Cook More: Batch-cook meals to cut food costs by 30-50%. Limit eating out to once a week.
• Use Public Transport: Metros and buses save ₹3,000-₹5,000/month vs. cabs.
• Emergency Fund: Save 3-6 months’ expenses (₹ 1- 3L) in a liquid fund to avoid debt.

 If maximizing savings is the goal, Pune, Chennai, or Hyderabad offer the best balance of job opportunities and low costs for newcomers. Mumbai and Bangalore demand higher salaries (15+ LPA) to save meaningfully, while Kolkata’s affordability is offset by fewer high-paying jobs. Delhi NCR works if you avoid Gurgaon’s glitz.