Household Savings Rate Falls to a Record Low. Here's What You Need to Know

Thanks to materialistic gratification, consumerism, and easy access to credit and fast-paced technology that has led to this approach.

Moreover, the cultural shift, lifestyle changes, peer pressure, and the YOLO (You Live Only Once) mindset are some of the key reasons for low or no savings.

Some aren't thinking about retirement. In a time when inflation is rising, not having enough savings for retirement is concerning.

The latest Financial Stability Report released by the Reserve Bank of India (RBI) cited that India's domestic savings rate has plunged to 5.6% of GDP --the lowest in almost five decades. This is one of the systemic risks identified by RBI.

A decade ago, the domestic savings rate was 34.6% of GDP. The key reason for a low domestic savings rate is rising household debt.

The non-housing retail loans, which are mostly used for consumption purposes, were 54.9% of the total household debt as of March 31, 2025. The share of these loans is increasing over the years and is higher than that of many countries.

You see, in this day and age of technology, personal loans and consumer loans are easy to obtain but weigh down on your potential to save.

Likewise, excessive use of credit cards and inability to pay the total dues could land you in a debt trap.

[Read: 5 Red Flags That Show You're Falling into a Debt Trap]

While meeting your aspirations and goals with credit is understandable, keeping debt in check is essential. Ideally, all your EMIs should not be more than 40% of your monthly income. Lower the better. Keeping your debt-to-income ratio in check shall allow you to save more.

Another reason for low domestic savings rate is decrease in interest rates of bank fixed deposits (FDs) and small saving schemes. Households are less enticed to invest in traditional avenues, which were a dependable choice once upon a time.

Having said that, it is not that households are not saving and investing at all.

Amid a growing cult for equities, they today are parking their wealth in the market-linked avenues, viz. stocks, mutual funds, etc., not wanting to miss the bus.

The RBI's analysis of financial wealth of Indian households reveals that since the COVID-19 pandemic, there has been a shift to financial assets. The increase in retail and HNI mutual folios, SIP contributions, and demat accounts is the last five years is testimony to that.

Similarly, real estate has witnessed growth since the pandemic, shows the property registration data.

With Precious yellow metals -- gold and silver -- also exhibiting their sheen, many have chosen to park savings either in physical form and/or via ETFs.

However, a large section of households isn't truly considering the risk involved in these asset classes and investment avenues therein.

"Risk comes from not knowing what you're doing." - Warren Buffett.

For example, not all equity mutual funds are the same in terms of their risk-return traits.

Similarly, gold, if held in physical form, may not be liquid enough and making charge would be deducted when you sell.

In case of real estate as well, it is often an illiquid asset. The capital appreciation may be only in certain pockets. Moreover, if it is a primary home, i.e. you are living in that house with your family, evaluating the market price may be futile.

A large number of families are simply following the herd-going by what their next-door neighbour, friends, relatives, colleagues, etc., do with their investments.

A fact there is no one-size-fits-all approach to investing. It is an individualistic exercise.

A Sensible Approach

Investments need to be made recognising your risk appetite, broader investment objective, the financial goals you are addressing, and the time in hand to achieve those goals.

You see, skewing your investment portfolio can be unwise and risky. Just because one asset class, say equity, has delivered good returns, it would be imprudent to go overweight on it.

The graph above indicates that not all years have been good for equities. In some calendar years, like in 2015, 2016, 2018, and 2022, equities have disappointed investors while other asset classes, such as debt and/or gold, have fared better.

So far in the six months through CY2025, the Nifty 50 has clocked an absolute return of 7.9%. It remains to be seen whether it outdoes the return of the previous years.

In contrast, gold has clocked remarkable returns of 26.0% absolute returns so far in 2025 (as of June 30, 2025) and proved its trait of being a safe haven amid global economic uncertainty and geopolitical tensions. Silver has clocked an absolute return of 23% in the first six months of 2025, with it being used in various industries.

The takeaway or learning point from the graph above is that not all asset classes move in the same direction always. Hence, following a sensible multi-asset approach makes sense. It is akin to putting eggs in different baskets, helping you to reduce the risk.

Therefore, invest as per the asset allocation best suited for you instead of in an ad hoc manner.

Asset allocation is the cornerstone of investing. If you are not sure what your asset allocation model should be, reach out to a SEBI-registered investment adviser.

Asset allocation would stand as a strategy adduce the following eight great benefits:

1) Diversify the portfolio, which is one of the basic tenets of investing

2) Reduce dependence on a single asset class

3) Minimise the risk when a certain segment of the capital market hits turbulence

4) Provide the freedom from timing the market

5) Optimise the risk-adjusted returns of the portfolio

6) Ensure adequate liquidity to the investment portfolio

7) Help build a weather-proof portfolio

8) Aid in achieving the envisioned financial goals

Keep in mind that asset allocation is not a static concept; it is dynamic. Meaning you cannot define it and forget it after you have invested accordingly.

It needs to be reviewed over a period of time, and alterations need to be made.

Having control of your finances, by following a strict budget, shall enable you to save and invest more and add to your financial freedom.

Make a conscious effort to save and invest in the productive avenues in the interest of your financial well-being.

Happy investing!

We are on Telegram! Join thousands of like-minded investors and our editors right now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.

This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.