Consumer confidence on financial preparedness for the future has dropped in the last two years with the onset of the coronavirus pandemic, even as the financial awareness and need for insurance has increased, according to a report.
Consumer confidence has been low after the two waves of the pandemic, with people realising that their current financial plans are inadequate, according to the 'Life Freedom Index 2021' report released on Monday by HDFC Life.
According to the report, the index dropped by 4.8 points as against 2019, indicating the impact of Covid-19, and the most significant drop is observed in financial sufficiency and adequacy index.
Instituted in 2011, the 2021 LFI was conducted along with NielsenIQ across 14 cities, involving 1,987 respondents.
The study finds that the impact of the pandemic is more severe across the metro cities in comparison to tier I and II cities. Wherein nuclear families have been most impacted, with an LFI drop of 10.5 points, joint families have been stable, possibly due to a better support system in the time of crisis, as per the report released by the life insurer.
Almost 90 per cent consumers have faced salary cuts or business losses to some extent, due to which the respondents are still concerned about COVID-19.
"The top three concerns for the future - economic slowdown, job insecurity and fear of debt due to lack of income - are driving low confidence in terms of financial preparedness," as per the study.
However, the pandemic has led to more awareness on the financial front, as well as the need for protection.
Maintaining one's standard of living under unexpected adverse events has been an important factor driving the need for financial security While, familiarity with term insurance has increased by 11 points. For both endowment and unit linked plans, it has gone up by10 points..
The pandemic has highlighted the importance of life insurance. As many as 41 per cent respondents have availed a life insurance policy post the first wave that enabled them to plan better for the second wave.
On the segment level trends, the report finds that feeling of insufficiency is more prominent amongst proud parents and smart women.
Wisdom investors and young aspirants have seen the least impact. This is likely due to reasons such as maturity in investments and no dependents or lesser financial responsibilities, respectively.
"Life Freedom Index is our barometer for measuring the levels of financial awareness, the planning and the adequacy of the plan. Over the last few years we have seen changing trends," Vishal Subharwal, Head of Marketing, Digital Business & E-commerce, HDFC Life said.
What makes the report different this time is the pandemic and its impact on consumer confidence, he said, adding the 4.8 point drop in the index indicates that the health pandemic has turned into a financial concern with various challenges surfacing.
"Better financial planning with life insurance has emerged as the need of the moment. We hope individuals with responsibilities will see value in securing themselves financially thereby protecting their families from unforeseen events." LFI measures financial freedom on the basis of four parameters: proud parents, wisdom investors, young aspirants and smart women. It is subdivided into financial awareness index, financial planning index, financial sufficiency and adequacy index, and financial liberty index.
