Many economies that caved in to the COVID-19 pandemic are slowly limping back to normalcy.
Many economies that caved in to the COVID-19 pandemic are slowly limping back to normalcy. However, things still seem far from being like they were in pre-COVID times.
A lot has changed for many since the COVID-19 pandemic, especially in terms of finances. While many lost their jobs, others witnessed disruption in their cash flows and capacities to service their debt.
According to Adhil Shetty, CEO, BankBazaar, financial priorities have become more conservative in the post-COVID world as discretionary spending fell and saving, investment and debt repayments took precedence for most people.
Let’s understand in detail how finances have changed since the pandemic began:
Loss of jobs and income
Job cuts and salary adjustments were witnessed by many during the pandemic. According to the Centre for Monitoring Indian Economy (CMIE), almost six million white-collar workers lost their jobs between May and August amid the COVID-19 pandemic. These include engineers, physicians, teachers, accountants, and analysts, among others.
During May-August 2019, CMIE said, white-collar employment peaked at 18.8 million. It remained almost stable at 18.7 million in the September-December 2019 period but later fell to 18.1 million during January-April 2020 which showcases the effects of the lockdown.
Fall in discretionary spends
As people lost their jobs and saw cuts in their salary, they started focusing only on actual needs, cutting back the discretional expenses. This is evident from the way people approached credits.
As per Shetty of BankBazaar, a huge percentage of personal loans go towards discretionary spending, from travelling to home renovation to buying high-end gadgets.
"Due to the pandemic, most of the discretionary spends have paused. Consequently, people started taking personal loans only to meet emergency requirements. Moreover, the lockdown and the ensuing economic uncertainty brought down salaries and increased the fear of job loss. This led to people opting for smaller loans that could help them tide over the current emergency without needing them to stretch too much,” Shetty opines.
The rise in digital transactions and an increase in electricity bills/data usage
Digital transactions and the use of credit cards recorded an all-time high during the lockdown as social distancing became the new normal and people avoided cash payments.
Another trend that was observed, as S Ravi, Former Chairman of Bombay Stock Exchange says, was that petrol bills were reduced but electricity
costs went up as people stayed indoors.
"OTT platforms and TV channels were sources of entertainment. Data cost increased due to use of Zoom, WebEx, blue jeans, FaceTime video etc," he explains.
Savings took precedence over spending
The economic disruptions caused by the COVID-induced lockdown led to widespread income and job losses for a large section of people. However, those who had adequate emergency funds were better equipped to repay their EMIs and credit card bills despite income disruptions than those who did not.
Hence, as experts say, a large section of people have realized that it's always better to maintain an emergency fund to tide over such situations. One must also factor in EMIs and other loan repayment commitments while calculating the optimum size of the emergency fund.
Investment needs changed
According to Abhinav Angirish, Founder and Managing Director, Investonline, those with surplus money during pandemic preferred to put it in a bank since nobody was sure of the market’s direction after intense volatility in March 2020.
Home buying aspirations, as Shetty of BankBazaar says, also took a beating with the pandemic as conserving savings took precedence over buying a house.
"While luxury homes were no longer high on the list, first-time buyers especially found it a good time to invest as the record low-interest rates, PMAY benefits, slashed registration costs in some places meant a higher quantum of loan," Shetty adds.
Many realized the significance of insurance in their portfolio. Adequately insured individuals were required to spend reasonably less on hospitalization etc. during the pandemic.
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