Impact of Inflation on Household Savings and Investment Patterns

Author

Dr. Ratnavalli and Bitra Nikitha

Abstract

 A number of macroeconomic factors will affect the income and thus the savings and investment choices of a household. Inflation is clearly the main one. If there is an increase in the general level of prices i.e. inflation occurs, real disposable income of consumers fall and they will have to spend more of their income in consumption, leaving them less for saving and investing. Moreover, the inflation also entices families to move out of deposits and conventional financial instruments into hard assets such as real estate, equity or gold.

The present paper examines the effect of inflation on saving and investment behaviour of households in general with a focus on Indian economy. In line with this, literature implies that inflation seems to have a negative impact on household saving, which is considered a result of its destructive value on accumulated savings of households and the uncertainty inflation creates about future prices and the income of households. However, the impact of inflation on savings is not certainly adverse, since households may as well be encouraged to invest larger portions of their savings into some kind of financial assets and investments as a hedge against future inflation. Evidence from India recently available indicates that the patterns of household saving has shifted, both within the categories of financial assets and towards and away from the category of physical assets as well.

For the methodology, the researcher advises using a quantitative research strategy and gathering primary data through a survey questionnaire Secondary data: Secondary data will be collected from RBI publications, Govt. records, research articles etc. With the help of the study we will be able to know how the inflation affect a household’s saving capacity, their choice of investment products, perception towards risks, their awareness about various financial products and much more

Keywords

Inflation, household savings, investment habits, buying power, financial assets, physical assets, how people handle their money, India.

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References

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