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India's financial profile in 2025 presents a nuanced picture of household financial health. Recent data indicates a modest recovery in household net financial savings, rising to 5.3% of GDP in FY24 from a 47-year low of 5.0% in FY23. This improvement is attributed to increased investments in insurance, equities, & mutual funds, alongside a reduction in currency holdings following the withdrawal of Rs 2,000 denomination banknotes. However, despite this uptick, household savings remain below pre-pandemic levels, revealing persistent vulnerabilities in the financial security of Indian families.
Simultaneously, domestic debt has risen to 41.0% of GDP in FY24 from 37.9% in FY23, and is rising further to 43.5% in the first half of FY25. A large part of this increase comes from non-housing personal loans, which have expanded at a rate higher than that of agricultural, business, and housing loans. Particularly noteworthy has been the growth in consumer durable and gold loans, which indicates that credit is being increasingly utilised to fund both necessary and discretionary consumption needs. This points to a growing reliance on credit in the absence of buffers in liquid savings.
The Reserve Bank of India has reacted with steps to check the momentum in unsecured lending, including higher risk weights and stricter credit norms. These interventions have managed to slow down the pace of such borrowings, but the overall trend of household debt is still high, raising concerns over long-term repayment capabilities and financial stress, especially in middle and lower income groups.
What adds to the precariousness of this situation is the insufficiency of emergency funds in most Indian households. A number of surveys conducted in the last two years have indicated that a large portion of the population, particularly among urban middle-income groups, does not have even three months' worth of expenses as a contingency reserve.
In the rural areas, the picture is typically bleaker, with financial coping mechanisms often involving distress borrowing from non-traditional lenders or the sale of productive assets. Not having sufficient buffers means that even minor financial setbacks - health emergencies, job loss, or inflationary pressures - can drive families into debt cycles that have high interest rates and long periods of financial instability.
These gaps require a concerted effort across policy, financial institutions, and public sensitisation. Financial literacy programmes need to move from elementary banking awareness to incorporating functional modules on cash flow management, saving for specific goals, and the value of creating emergency buffers. Employers can also step in by making financial wellness programmes part of their benefits package, encouraging salaried employees to adopt disciplined savings behavior.
Equally important is understanding the difference between savings and investments. Learning about real returns - that is, returns after adjusting for inflation - can help people move their money from low-interest fixed deposits to investments that grow their wealth over time, like mutual funds or stocks.
Knowing how to make a budget, and learning to save before spending, are key habits that help build a strong foundation for investing.
It’s also important to understand things like positive cash flow (when your income is more than your expenses), using insurance to protect against risks instead of as an investment, how much credit is okay to use, and the difference between good debt (like education loans) and bad debt (like high-interest loans for unnecessary things). These are all part of becoming financially smart.
The Association of Mutual Funds in India (AMFI) has set aside a special budget just for improving financial awareness. If this effort could reach all PAN card holders, it could bring a huge change in how people handle their money.
Understanding how people usually save and invest, and learning the difference between what an investment actually earns versus what an investor ends up getting (often because of bad timing or panic-selling), can help people make better choices. When people understand the power of long-term investing and compounding, they can truly grow their savings.
As India works on growing its economy, making its households financially fit needs to be a top priority. The twin challenges of low investible surplus in the right asset classes and rising household debt are pressing issues that demand urgent attention.
India can step closer towards having a genuinely robust and inclusive financial system - one that is growth-focused, as well as shockproof for the common-man.
(The author is Founder, Managing Director, and Sebi-registered Chief Financial Planner at Dilzer Consultants Pvt Ltd)