The Reserve Bank of India (RBI) has come out with a report that suggests a three-tier plan for effective management of personal finances. The RBI advises Indian families to ditch gold while planning retirement funds and also advises financing of homes with mortgages. In its recently released report, the RBI has compared saving trends in Indian households with global counterparts. As per the findings of the report, Indian investors only allocate 5% of the entire portfolio for building financial assets while close to 84% is invested across physical assets including real estate. The remaining 11% is invested in gold.
According to the report, households would benefit if they shifted just a quarter of existing gold portfolios to financial assets. The gain in wealth in terms of current values would be enough to put these households up by at least 1% in terms of wealth distribution. RBI also states that the elderly population is expected to increase by 75% over 15 years. Only a tiny chunk of this community has saved ample money through private pension plans. A major section of the population in households across all age groups has not taken measures for ensuring ample retirement funds.
In spite of the high real estate holdings, mortgage penetration is quite low early on in case of households and this goes up with the passage of time. Since Indian households tend to borrow more at a later stage, they are more likely to touch the retirement stage with positive balances in case of debt which should be a major risk since income will not be earned anymore in the later years. According to the report, in advanced global economies, households have higher financial assets in comparison to their Indian counterparts. They are more likely to get a mortgage for financing home purchases and allocate a major portion of their wealth for retirement savings across their lifetimes.