Debt-free life, insurance and more: Five money habits that may change post-coronavirus

The world woke to a rude shock after coronavirus-induced lockdown disrupted lives in all possible ways, especially in terms of finances with sudden layoffs, pay cuts or leave without pay. This unforeseen event has forced people to have a different look at their personal finances. They are realising the importance of many time-tested advices, which otherwise were considered too preachy. The crisis rekindled discussions on essential versus discretionary needs, emergency funding and the need for having a debt-free life. We tell you five money trends that experts see emerging in personal finance space:

1. Avoiding Debt

The pandemic made most people realise how their EMIs have killed their financial freedom. In the post corona world people may think twice before opting for a home, car, or other such big-ticket loans. The 'buy now pay later' phenomenon or small ticket fintech loans may see a decline as people resolve to save for the future, learning to live in their means. "In the pre-corona world, it was common for people to spend more and save less. But now they sense that debt can majorly impact their financial freedom. Living debt-free gives you freedom from the stress and anxiety of debt and due payments which require payment on time like clockwork," says Jashan Arora, Director Master Capital Services.

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2. Demand for health insurance

As the cases of coronavirus have been on the rise, most people now realise that they won't be able to afford the treatment if they get infected by the virus. The changed mindset is driving them to buy life and health insurance. "There has been a rise in demand for health and life insurance policies amid COVID-19. People are now more concerned about managing their finances to meet high medical expenses in case of emergencies. The number of enquiries are up by almost four-five times and transactions are also up by almost 300 per cent since February," says Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company.

Given most people buy endowment policies in life insurance that comes with a savings component, people may now move to term plans, buying insurance mainly for protection purpose. "Awareness about making family members financially secure with a term plan in case of an unfortunate event has become a priority. People are buying life insurance for protection rather than considering it as a financial instrument for tax deduction or a savings-linked investment," Goyal adds.

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3. Risk aversion grows

COVID-19 has hit hard the risk-taking ability of investors. With a steep crash in the stock market to liquidity issues in the debt market, most investors may perceive such investments to be risky and stay away from it in the near future. "One big change in investment habits that I anticipate in the post-corona era, specifically in the 48-plus age-group is that they might get more conservative in their investment choices. They may be willing to settle for lower returns, but will add more weight to security in those investments," says Arvind Rao, financial advisor and founder, Arvind Rao and Associates.

4. Spend less and Save more

With lack of spending options amid lockdown, people have learnt to live with significantly lower expenses and are positively surprised by their saving capacity. In the post-corona world, they may save more and cut back on spending due to economic recession and fear that a second wave of the virus may erupt resulting in more lockdowns. People may prefer hoarding on to cash instead of investing it. Their list of expenses may stick to bare essentials instead of funding lifestyle needs.

"As states begin to gradually reopen as an attempt to restart their economies, early indicators show that the consumers will be cautious with their spending which could potentially lead to a long-lasting shift in their spending habits, especially with the ones that embrace frugality," says Arora of Master Capital Services.

However, Rao believes that people's memory is short-lived. "For a brief time, while they may refrain from big-ticket purchases, but the consumerism will return." In any case, the near future may have more savers than consumers.

5. Consulting a financial advisor

When it comes to financial advice, people resort to friends and relatives and more often than not burn their fingers. Managing money is a serious affair. The COVID-19 may make people realise having a financial advisor is important, who can help them manage their finances in a way that it cushions them lest an emergency strikes.

"Nothing is free in this world -- this is the key for people to know when it comes to advice regarding personal finance.  Having a well thought out strategy, specifically in terms of asset allocation, is needed in finance. This realisation is very much internal and the time it takes for people to realise varies from person to person. There is no sure-shot way to ensure that people understand the importance of a financial advisor. They learn from their bitter experiences and embrace the need for an advisor," says Rao.