Life Freedom Index is made up of four indices. Each of the four sub-indices have different weightage in the composite index. The scores are based on responses from 1,987 people in six metros (Ahmedabad, Bengaluru, Chennai, Delhi, Kolkata, Mumbai), four Tier-I cities (Kochi, Indore, Ludhiana, Bhubaneshwar) and four Tier-II cities (Rohtak, Jalgaon, Ballari, Rae Bareli). Here’s what the sub-indices measure.
Life Freedom Index
This year has been calamitous for a lot of people. The Life Freedom Index declined by 4.8 points in 2021 compared to 2019, largely due to the impact of covid-19.
The fall was not as steep in Tier-I (down 2.7 points) and Tier-II cities (down 2.6 pts) cities as in the metros.
Nuclear families are the most impacted with the Life Freedom Index dropping by 10.5 pts. In comparison, joint families (down 3.3 pts) were more stable possibly due to a better support system in the time of crisis.
Financial Sufficiency & Adequacy Index
The most significant drop is in the Financial Sufficiency and Adequacy Index, which declined 8.7 points. Consumer confidence has been low following the second wave and almost 90% of respondents have faced salary cuts or business losses to some extent. The top three concerns for the future— economic slowdown, job insecurity and fear of debt due to lack of income—have given rise to the feeling among individuals that they lack financial preparedness. Many feel their current financial plans might not be adequate. Since the sub-index has 50% weightage in the Life Freedom Index, it dragged down the overall score.
Also read:
What not to do to achieve financial freedom
Financial Planning Index
The disruption by covid threw the financial planning of people into disarray. The Financial Planning Index, which has 20% weightage in the Life Freedom Index is down 4.2 points. While metros saw a drop of 4.9 points, Tier-I cities saw a sharper 6.1 point decline. Tier II cities fared better with a marginal 0.1 point dip. Joint families (down 2.2 points) were not so badly impacted, but parents saving for kids and women were the worst affected segments, with a decrease of 5.9 points and 4.1 points respectively.
Financial Awareness Index
The silver lining of the financial impact of covid is that consumers became more aware of financial products and the need for adequate safeguards against uncertainty. There is a marked increase of 10 pts in familiarity with endowment life policies, 11 pts for term plans and 10 pts for Ulips compared to 2019. Tier-I cities show the highest jump with an increase of 7 pts. The decline in financial planning, sufficiency and adequacy has led to increased awareness among nuclear families. They are now giving priority to medical insurance as a safeguard against medical emergencies, compared to 2019.
Financial Liberty Index
This index is based on perceptions of the respondents and therefore shows wide variations. When it comes to feeling ‘financially free and secure’, there is a sharp increase of 7.2 points in Tier-II cities while metros have seen a decline of 7.3 points. There are also big variations within the nuclear family segment. Nuclear families of couples see a drop of 11.7 points, nuclear family with kids see only 4.6 point decline while nuclear family with parents see a drop of 4.9.
