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How COVID-19 has impacted personal finance space?

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A report by KPMG cited that as the impact of the pandemic intensified through the second year, economic hardships and uncertainties led consumer spending behaviour to take a sharp turn towards piling essentials, ordering in every day to day needs, opting for contactless spending and avoiding public transport, public places, restaurants and outlets.

How COVID-19 has impacted personal finance space?
The first and the second wave of COVID 19 over 2020-21 and the unprecedented societal and economic disruptions that it caused with businesses shutting down operations, long-drawn lockdowns, the migrant exodus that followed along with job losses, pay cuts and the severe uncertainty as to what the future actually beholds.
John Lennon’s famous lines, “Life is what happens to you when you are busy making other plans”, have never been truer!
Not just the economic impact, which is now on the path of recovery, albeit slowly, it, however, changed forever the way we live our day-to-day lives. Be it working from home, attending schools and colleges from home, refraining from traveling long distances unless completely necessary, spending cash judiciously, keeping our necessities minimalist and more, as we call these the ‘new normal’.
In fact, a report by KPMG cited that as the impact of the pandemic intensified through the second year, economic hardships and uncertainties led consumer spending behaviour to take sharp turn towards piling essentials, ordering in every day to day needs, opting for contactless spending and avoiding public transport, public places, restaurants and outlets.
The good news is that, the tides of gloom and despair are gradually changing their courses. With multiple vaccines coming in, coupled with the decline in the number of active COVID 19 cases, businesses are restarting their operations, organisations and individuals are devising new strategies to wade through any such future scenarios, consumers’ spending patterns are also witnessing a positive shift. Families have begun spending on discretionary items once again and sectors that were the worst hit during the first wave of COVID 19, such as tourism, retail, manufacturing and automotive, travel and hospitality are currently showing rather telling signs of recovery.
However, one thing which is particularly certain is that, consumer spending became predominantly digital and this trend is here to remain, long after the pandemic subsides. Over the course of these two years, online shopping, digital wallet based payments, digital lending, ‘Buying Now Paying Later’ schemes, meticulously planned savings and investments on digital platforms, are some of the areas that saw huge growth. Truly, the pandemic has fast forwarded India’s pace of digital transformation, and it is not limited to financial matters alone.
Personal finance saw some positive changes in the course of time, heralded by the not at all positive economic repercussions of the pandemic. The fear of possible future medical expenses, market fluctuations and employment uncertainties have now moved people towards focussing more on setting long term financial goals for self and family, and focusing less on luxury and travel. Emergency savings witnessed a sharp spike recently.
Furthermore, the pandemic created an environment that many erstwhile generations had never witnessed collectively, except to some extent maybe, during the 2008’s financial recession or during times of war that spread throughout history. Financial discipline, properly planning and managing personal finances to safeguard one’s future has never before been such crucial. Life, health and medical insurances, seeking alternate sources of income, maintaining an emergency fund, living a simpler, debt-free life, needs taking precedence over wants and aspirations, are some of the big moves away from consumerism immoderations that we often got to witness in the pre-pandemic era. Developing sound spending habits not only ensures financial wellbeing but also contributes to mental and emotional comfort.
Also, the rise in the number of lifestyle diseases and long-term health impacts of COVID, even in recovered patients, has made people treat health as a basic necessity where cost can’t be negotiated. Therefore, having a good health cover attained prime importance.
While the pre-pandemic times saw a sharp upsurge in consumerism, thanks to the rise in disposable incomes, growing aspirations, easily available personal credit and other amenities, it also made a lot of people victims to the debt trap. Now, the economic crisis has led people to be more astute and prudent in money matters and handling their personal finances, for possible rainy days in the near future.
More and more people now are also diversifying their investments in multiple assets and across asset classes, be it property, real estate, equity, debt, gold, share markets, etc, instead of concentrating all in one or two avenues. This not only reduces risks by protecting you against market volatility, but also can maximise your returns in the longer run.
There no right or wrong time as to, when to invest. How much time you spend in the market matters more than when you enter the market. So, following a systematic plan and building the corpus that compounds gradually is one of the best option to choose. Some of these options can be Mutual Funds or ULIPs. They have the advantage of lower cost and tax-free returns for a long term investment period.
Therefore, the importance of financial literacy amidst these trying times cannot be ignored. In fact, many experts do agree to the fact that financial and physical wellness are inter-linked. Overall stress, now aggravated by the pandemic more, is one of the leading causes of productivity losses, lower job performances and overall dwindling motivation levels.
Many who lost their jobs during the pandemic or saw their incomes plummet as a result of the economic juggernaut that followed, are currently struggling to pay off their mortgages, rents or play back their loans. The best thing to do currently is to take help from lenders and pay back all such liabilities. Missing payments and keeping creditors in the dark are perhaps the worst choices that one can make.
Therefore, as we see, the pandemic has made people financially disciplined and more prudent about how they spend their money and where, how much they save and invest and how wisely they look at financial security. The pandemic will be recede someday, but the learnings we received and imbibed will be here to stay. We will be more prepared now, to deal with any possible future adversities.
One of Green Day’s famous song puts it perfectly, “Time grabs you by the wrist and directs you where to go, so make the best of this test and don’t ask why. It’s not a question but a lesson learned in time.”
The author, Dr Samir Kapur is MBA and PHD in Finance and teaches consumer behaviour and finance for non-finance professionals at leading colleges of the country. The views expressed are personal
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