Effect of revenge spending: household savings fall to a five-year low at 2022.

Effect of revenge spending

  • Comparable to 15.9 percent in 2020-21, households’ gross financial savings stood at 10.8 percent in 2021-22. It was 12 percent in the previous three fiscal years.
  • A consultancy firm stated that high inflation is the main reason for the fall in savings. It is important to encourage savings to increase investment.
  • Indian households hold about 60% of savings in India, but this percentage is slowly declining.

As rising inflation took its toll on the purchasing power and savings of Indian households, Indian households saw their savings fall to a five-year low in 2021-22.

household savings, Effect of revenge spending
Effect of revenge spending. Credit: Getty

People were also forced to tap into their savings due to Coronavirus-induced lockdowns. The pandemic caused severe job losses, and people had to save as a last resort to manage their households.

Comparable to 15.9 percent in 2020-21, households’ gross financial savings stood at 10.8 percent in 2021-22. It was 11% in the previous three fiscal years.

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Although people initially saved their money during the lockdowns keeping in mind the possibility of having to pay for healthcare, once the restrictions were lifted, they began to go on a spending spree which economists called “revenge spending”.

This caused them to lose their savings. In some cases, despite having no job, spending rose, and savings were hit hard.

Official data shows that household savings fell to 2.5% of the GDP in 2021-22. However, according to official data, 40% of households saved through other avenues such as insurance, pension funds, and provident funds.

According to reports, the shares and debentures portion reached a 5-year high of 8.9 percent in 2021-22. The share of small savings was at a 16-year high, 13.3 percent.

A consultancy firm stated that high inflation is the main reason for the fall in savings. It is important to encourage savings to increase investment.

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Indian households hold about 60% of savings in India, but this percentage is slowly declining. India’s domestic savings are falling, which exposes its borrowers to foreign markets. This can lead to a weakening of the country’s external position and an increase in external debt.

India’s savings rate was at a 15-year low. In FY20, gross domestic savings were 30.9 percent of GDP. This is down from 34.6 percent in FY12.

The Household savings ratio fell from 23% of the GDP in 2012 to 16% in 2019.

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