This financial crisis could be a blessing in disguise

The disruption caused by the pandemic has turned things upside down but every ‘Covid’ has a silver lining

As Covid-19 spreads across the country, there's no stopping the flow of bad news on the financial front. The pandemic has ravaged the financial landscape. GDP growth has inverted, corporate earnings are down, the job market is moribund and inflation is poised to shoot up. However, there is a silver lining amidst this gloom. Though the past four months have been very difficult for investors, the Covid-induced financial crisis has also led to certain positive developments.

For instance, news reports about the astronomical hospital bills of Covid-19 patients has made individuals, especially millennials, realise the need for protection against medical expenses. Medical insurance is no longer seen as an unnecessary expense but is now being considered an absolute essential. A survey conducted by a health insurance company shows that before the outbreak, only 37 percent of millennials were interested in buying a medical insurance plan. However, post-Covid, 60 percent were keen to buy a comprehensive cover. Covid has even nudged individuals to look at their health plans more closely. Earlier, only 50 percent of buyers showed any interest but now 58 percent want to fully internalise the features and coverage of the plans they purchase.

Similarly, the Covid-19 scare has made us realise the fragility of life and is pushing us to learn more about life insurance and to then buy sufficient cover. A survey by a life insurance company shows heightened anxieties relating to unemployment and untimely death of the family breadwinner. For many individuals, the focus has shifted from returns to whether an insurance policy can cushion the impact of mortality. This is a welcome attitudinal change that will help individuals make the right choices when it comes to buying insurance. The survey shows that pure protection term insurance, which has often been dismissed as a waste of money because the buyer gets nothing if he survives, has emerged as a preferred life insurance category during Covid-19.

Apart from stressing on caution and safety, individuals are also learning to live within their means. Even before Covid hit India, household spending and borrowing were on the decline. RBI data on household savings released last month shows that consumers are cutting back on expenditure and relying less on borrowings. The borrowings by households were down even as net financial savings of Indian households rose almost 14 percent to Rs 15.62 lakh crore in 2019-20.

It is obvious that households tend to save more during a slowdown and income uncertainty. The pandemic has changed the attitudes towards spending and saving. The survey by the life insurance company shows that the reasons for saving have changed. Young people used to ask for the best loans for cars and holidays. They are now seeking advice on where to park emergency funds. People are now saving for medical treatment and for other emergencies like job loss or closure of business. Vacations, vehicles and luxury expenses are way down in the list of priorities.

It is also interesting to note that equity investors have become more mature as is evident from the net inflows into equity mutual funds after the outbreak of Covid.

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Read complete article here:

https://www.forbesindia.com/blog/coronavirus/this-financial-crisis-could-be-a-blessing-in-disguise/