Sri Lankans need to inculcate a savings habit

Historically, Sri Lanka has led with a long-term-oriented culture prioritizing savings. The Gross Domestic Savings witnessed a cyclic improvement peaking at 27.2% in 2012. However, in the past decade, Household Savings has taken a downward trend hitting 20.1% in 2021 (World Bank, 2022).

Befittingly, the Nominal Median Household Expenditure has seen a sharp increase of 52% in 2019, compared to 2012 (Department of Census and Statistics, 2019). Access to better product choices, consumer debt instruments such as credit cards, and changes in lifestyles have largely contributed to people spending more and saving less.

To make matters worse, the nation has faced continuous adversity; acts of terrorism, battling with a global pandemic, and the repercussions of a crashing economy. 

Amid these circumstances, how have our households planned on savings and securing a safe retirement? How have our households adapted to the chaos around them? That is what we wanted to know.

We commissioned the Union Assurance Study on Savings and Retirement to answer these questions and uncover the savings and retirement planning habits underpinning Sri Lankans currently. The results were insightful.

Here’s what we found:

Sri Lankans consider savings important. Most respondents felt saving for the future was an important factor in determining the quality of life. While this was a positive indicator, the deeper analysis was concerning. Although many felt the act of saving was important, only 27% have inculcated an adequate savings habit. This implies that 73% of the respondents are not protected sufficiently against financial pitfalls in life.

According to financial experts, a rule of thumb to build a secure financial portfolio is by saving between 10% - 15% of the gross salary (CNBC, 2019). However, only 20% of the respondents fell into the category, while 24% percent did not save at all. This means 1 in 4 persons have no savings, exposing many to extreme vulnerabilities without any safety net to fall back on in times of financial distress.

Another factor that has severely impacted the savings habits in the nation was the hardships faced due to the COVID-19 pandemic. The pandemic has had an impact on the household income of over 40% surveyed. Consistent with this finding was that 49% of households had to trim savings during this time.

Interestingly, the pandemic has also raised awareness of the importance of financial preparedness with 48% planning to save for the future. However, when considering financial tools available for savings, only 54% trusted Life Insurance as an option. They also exhibited the same perception towards Life Insurance as a viable tool to save specifically for retirement.

Moreover, 31% of respondents were unaware of any form of retirement plan offered by Life Insurance companies. Alarmingly, 11% of respondents felt retirement planning solutions offered by Life Insurance companies are unreliable. These points toward deeper symptoms of low consumer trust and awareness of Life Insurance as means to acquire financial security.

What do these findings mean for us? On a macro level, it is clear that the savings habits and retirement planning of Sri Lankans are inadequate. A strong savings habit is a cornerstone of financial literacy, yet the study reveals that the actions taken are far from sufficient to secure a financially prepared future for many. The need for an overarching policy to nudge Sri Lankans towards acquiring better financial literacy is now more apparent than ever.

On an industry level, the results are shocking. Life Insurers need to reimagine the future of the industry by exerting more effort to raise awareness amongst the public on the benefits of the plans available to mitigate risks of unforeseen events. The advancement of technology has brought opportunities for the industry to innovate and offer tailor-made solutions to customers. Along with such progressions, Life Insurers bear the responsibility to play a significant role in shaping the industry to become a safety net for all Sri Lankans to live financially protected lives.

To read the findings of the full whitepaper –https://bit.ly/UAstudyonsavingsandretitment