A Study On Saving & Investment Behaviour of Middle Class Income Households

A Study On Saving & Investment Behaviour of Middle Class Income Households” Dr. Mukul A. Burghate Head and Associate professor Dr.Panjabrao Deshmukh Inst. of Management, Technology and Research Abstract Aggregate savings in any economy, is dependent on a number of inter- dependent variables. For economic planning, the planners should have an idea regarding the volume of saving of different groups of people and the method by which saving can be improved. To frame appeals for saving there is the need to know about the saving motives. An understanding of the saving preferences will also help in designing saving instruments which effectively stimulate saving. As was observed by Mody (1983), “given the present weight of the household sector in total saving, to step up the saving in the economy would require a stepping up of the saving rate in the household sector. Thus, there is the need to carefully understand the determinants of both the household saving rate and the saving pattern”. Keyword: Economy, Saving, Household Sector, Saving Pattern Introduction India has registered a very impressive growth of its middle class- a class which was virtually nonexistent in 1947 when India became a politically sovereign nation. At the start of 1999, the size of the middle class was unofficially estimated at 300 million people. The middle class comprise three sub-classes: the upper middle, middle and aspirers. The upper middle class comprises and estimated 40 million people. They have annual incomes of Rs.10, 00,000 each in term of Purchasing Power Parity (PPP). The middle class comprises an estimated 52 million households, each with PPP income between Rs. 90,000 to Rs. 10, 00,000 per year each. The middle classes ON THE WHOLE (i.e. upper middle+ middle- middle + aspirers) is expected to grow by 5 to 10 percent annually. The main purpose behind the identification of Nagpur subdivision for the study is to examine how the saving pattern of the middle income households are determined & changed over a period of time. Nagpur being an upcoming city as identified by various research organizations made the study all the more challenging & interesting. It will make an interesting and enlightening study on the income and saving relationship and the saving portfolio of the people and the demographic profile of the savers in past five years i.e. from 2003-04 to 2007-08. Review of literature Role of saving as a determinant of economic growth has been emphasized by the classical economists like Adam Smith, Ricardo and Mill. Keynes (1936) places the saving function or its counterpart consumption function at the very heart of the macroeconomic system. In the growth models also we find lucid expression of the importance of saving where it forms a key parameter and a pivotal determinant of the rate of growth. Research Methodology The study made use of both primary data and secondary data. The study is exploratory in nature. Secondary data were collected from the publications of Reserve Bank of India, Central Statistical Organisation, National Sample Survey Office, Central and State Governments, Planning Commission, State Planning Board and other published materials of official agencies. Objectives of Study The present study was undertaken with the following objectives: 1) To identify the motives for saving of the middle income households. 2) To identify the components of savings of the middle income households. Hypothesis This is the proposition as statements about the observable phenomena in this research study which might be judged as true or false. As a declarative statement about the two or more variables, the hypotheses stated below are of the tentative and notional nature. Alternative hypothesis: As income increases the average propensity to save of the households increases. Scope of the Study The primary focus of this study is to identify the determinants of saving. However, if the study is limited to determinants of saving alone, it will be too narrow in its scope. The income and expenditure pattern, and sources of income of the middle income households have a bearing on the saving and investment pattern. In the same way, disposal of saving by the middle income households, which in turn depends on occupation, level of income and level of education needs a detailed analysis along with the determinants of saving. Also, the problems faced by the middle income households are different from that of the urban households. Hence the scope of the present study is widened to cover expenditure and investment pattern also. Limitations of the Study 1) While preparing the details relating to income, expenditure, saving, etc. one of the debatable issues is the choice between current prices and constant prices. Conversion into constant prices will make the things more realistic and reliable. But one of the major constraints to make such conversions is the non-availability of an appropriate deflator. Because of these limitations in the present study, the measurements are made in current prices alone. 2) No records at the state level are available about the saving of the household sector at the state level. Therefore comparison of the state level saving & investments could not be made with the sample results. Findings 1) 84 percent households have male as the head of the households whereas only 16 percent households have female as the head of the households. The level of education of the head of the household both male & female exerts influence on the saving behavior of the households. 2) the business class & professionals are earning more than the salaried class amongst the middle income group. The number of professionals is also increasing as the income class progresses. It also indicates that the education level is higher in the higher income class which enables them to earn more. 3) households that reported higher level of income also correspondingly reported that greater numbers of these respondents were living in a joint family. 4) the number of family members are significantly more in the income group of 5 lacs to 10 lacs. It also supports that higher income group is having joint families. 5) The middle income class is reported to have majority of households who have more than one earning member in the family. 62 percent of the households have more than one earning member of the family. It was also found out that the 80 percent households in the upper income bracket of 5 lacs- 10 lacs have more than one earning member whereas it was only 42 percent in the lower income group of 90,000- 2 lacs. It shows a positive correlation between the number of earning members & the family income. 6) the salary or the income from profession reduces drastically in the age group of above 55 years of age. There is a greater reliance on the other sources of income like interest, dividend & other sources of income. This shows that this age group is reliant on other sources on income to supplement their income. They are using their money work for them in these years. 7) Another important inference that can be drawn is that the quality of life which can be measured by the level of education, access to medical facilities & general upkeep improves as the households earn more. Conclusion The consumption of the household’s changes with is to age group also. It was found that the consumption is the least in the age group of under 35 years of the respondents. The level of consumption rises in the middle ages which has been explained by many researches. It is suggested that over the family life-cycle, the young and the old appear to consume too little, and middle aged consume too much while consumption appears to be excessively sensitive to income. Socially relevant conclusions that could be drawn from the research profiles showed that more than half of the families in the sample were nuclear families & have more than one earning member in the family. Another important conclusion from the research is that the quality of life which can be measured by the level of education, access to medical facilities & general upkeep improves as the households earn more. The business class & professionals are earning more than the salaried class amongst the middle income group in Nagpur even though there is obviously high proportion of the salaried class in Nagpur with more than 50% of the respondents being either private or government employees. In economics, saving has been the object of intense theoretical and empirical consideration. There are various studies & reasons as to why people save. The reasons to save being as simple as precaution motive, to saving for retirement & to saving for avarice. An implied research objective was to know the saving income ratio of the middle class households in Nagpur & it was found that the propensity to save was 16% or the average propensity to save was 0.16. The saving rates across the income group increased progressively with income group between Rs. 5 lacs to 10 lacs per annum saving rate being 20 percent, 17 percent for incomegroup earning between Rs. 2 lacs to 5 lacs per annum & 12 percent for respondents with per annum income of Rs. 90000 to 2 lacs per annum. This proves the hypothesis that the saving rate increased as the income of the household increases. References:  Furnham, A., & Argyle, M. (1998). The psychology of money. New York: Routledge.  Gene Amromin (2005) -Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis, Federal Reserve Board, Washington, D.C.  Horioka, C. Y., & Watanabe, W. (1997). Why do people save? A micro-analysis of motives for household saving in Japan. Economic Journal, 107(442), 537–552.  IMRB , Urban Scape 2009  Jappelli and Pistaferri, 2002, Tax Incentives for Household Saving and Borrowing, Working paper no. 83 ,CSEF.