P E R S P E CT I V E S
Old is gold even in today’s world
INDIA’S demographic dividend is a phenomenon that contributes to the growth of our nation. The age of the chief earner is an important factor that determines household earning, spending and patterns, and per-capita income levels. There is, however, a paradox: although the country’s demographic profile is getting younger, it is the older age groups that earn more. Savings patterns too show a marked difference across age groups. Households whose chief earners are in the 56-65 years age bracket, for instance, comprise 8.9% of the population at the all-India level and contribute 10.4% to total income, whereas the 66+ group with 2.6% population share contributes 3% to total income. Those in the 46-55 years age group comprise 21.9% of total population and contribute 25.3% to total household income. Average household incomes, at the all-India level, rise from Rs 47,745 per annum in the case of households where the chief earner is below 25 years old, to Rs 55,830 in the 26-35 years age group, and maintaining an upward trend reaches the level of Rs 80,964 per annum in households where the chief earner is above 66 years old.
Middle-aged chief earners are the ones that form the bulk of earners. In both rural and urban areas, households with chief earners in the 36-45 years age group account for the highest share of the total population as well as total income. At the all-India level, 36.5% households are headed by a person in the 36-45 year age group — these households account for 34.9% of the total household income. The average household income for this age group is Rs 62,231. In rural areas, such households account for 36.4% share of total population and 34.5% share of household income. For urban areas, the figures are 36.9% and 35.3% respectively. As the chief earner (across households) gets older, two trends emerge. One, the motivation to save tends to change. Increasingly, the householder feels the need to save for old age. Two, in absolute as well as relative terms, the saving level increases. Households whose chief earners are in the 36-45 years age group form the major bulk of households (35%) followed by those in the 26-35 years age group are the next biggest group (22%). Households with chief earners in the age group of 66 years and above (66+) constitute just 3% of the population but they have the highest level of savings, Rs 21,196 per annum, which is 25% of their annual income.
Savings, both absolute and proportionate, steadily increase up to the 36-45 years age group, followed by a sharp decline in the 46-55 years age group that is followed by a sharp rise in the 56-65 years age segment. The savings of the 66+ years age group is only marginally higher. Interestingly, in all the categories except the second and last categories (66+), the proportionate savings in three modes — cash, financial investments and physical investments — are almost identical: nearly 68% cash savings and 22% physical investments. In the 26-35 years age group, corresponding shares are 60% and 28% respectively, and for the 66+ age group, 57% and 25% respectively. All the groups except the 56-65 years age group invest 22-23% of their savings in life insurance policies. The 56-65 years age group invests only 13% of its savings in life insurance, but this is more than compensated by its higher investment (16%) in shares and debentures. Households headed by younger chief earners (less than 25 year olds) as well as the 26-35 year olds and 36-45 years group invests in consumer durables: investment in this mode ranges between 32-39%. The 36-45 year olds, however, invest more in debentures (10%) than 56-65 year olds. The 66+ age group invests the largest share in consumer goods (52%) compared to shares and debentures.
In percentage terms, the youngest chief earners and the 56-65 years age group invest more in jewellery (20%) than other age groups (12-15%). As the chief earners grow older, their percentage share of savings that is kept at home as cash declines: from 45% for the youngest group to 29% for the 56-65 year old age group. Conversely, bank deposit percentages increases, from 41% to 60%. At the same time, the 66+ group holds 32% as liquid cash and 57% as bank deposits.
These trends are an indication that despite the focus on youth, Indian households are dependent on the middle-age earners for a large chunk of the total household income as well as savings. Indian households are said to be the most frugal in the world, saving a large proportion of their income. Analysts have predicted a decline in the savings rate in the future from the current rate of 28% of disposable income to about 22% by 2025. As poverty declines and as more households join the bracket of middle-class households, and the thrust shifts to increased spending, there could well be a change of emphasis towards younger chief earners. But for now, middle-aged chief earners are making the largest contributions to total household income as well as savings.
(The author is Senior Fellow at NCAER)
Rajesh Shukla
