With the Bangladesh economy shifting from a ‘basket’ to ‘unanticipated achievements’ over the years, a large chunk of the population has entered the socioeconomic category of the middle class and affluent consumers (MAC). .
The group of people, with a monthly income starting at $ 401, already representing over 7% of the population, is growing at a double-digit rate every year to help Bangladesh overtake its peers to catch up in terms of getting a lot. more people with increasing disposable income, according to a 2015 report from the Boston Consulting Group (BCG).
The research firm predicts that by 2025, nearly 3.5 million Bangladeshis will become MACs – more than doubling in a decade.
With a significant increase in income, CAMs, especially those in urban areas, have already undergone a massive change in their lifestyle.
Their consumption priorities today – affinity for buying brands, personal cars, frequent dining out, vacations abroad, etc. – exceeded the imagination of their past generations, said Dr Zahid Hussain, former chief economist of the World Bank.
At the same time, their life goals have taken a paradigm shift which typically involves affording expensive durable consumer goods, luxury apartments, raising children abroad, traveling the world and even. plan for early retirement or start their own business.
While much higher incomes in their past generations may justify such an increase in consumption as well as the aspirations of middle-income people, most of them do not seem keenly aware of the growing cost of their aspirations.
The biggest problem, observe experts such as Dr Zahid Hussain, is the gap between the aspirations of CAMs and the current actions to meet their aspirations.
They say it is essential to define one’s aspirations in terms of time and number (the actual future costs) to back-calculate the required current investable surplus and the required rate of growth of that surplus. Only this can enable people to materialize their aspirations in a timely manner.
Such objective preparation will help maintain the right financial disciplines to continue to generate the right surplus; and, at the same time, motivate to choose the right financial tools that will deliver the required rate of growth.
Bangladeshis generally save after consumption. Usually, they tend to go for fully secure solutions like DPS, FDR, National Savings Certificates (NSCs), and each of the tools generates lower returns these days.
Because of these two facts, the fundamentals of financial planning can be compromised – neither the right amount of surplus is generated nor what is generated gives the risk-adjusted return required to respond to new developments in a timely manner. types of aspirations.
On top of that, inflation has a critical impact given the current savings rate in the market.
The net result of these is – people’s financial assets may actually be declining, if the savings rate is lower than inflation, and they slowly drift away from their life goals.
Middle-income people are worried about it today, especially since they have started to face declining yields of popular vehicles in which they historically prefer to invest their excess income – bank deposits or NSCs, said Dr M Masrur Reaz, chairman of a private sector think tank, Policy Exchange of Bangladesh.
After an unprecedented drop in interest on bank deposits in 2020-2021, the central bank only increased this for term deposits to par with the official inflation rate only a few months ago.
The government has also restricted the purchase of NSC (Sanchaypatra) – Tk 50 lakh by an individual and a similar supplement in common name, which is not enough for many people to meet their aspirations, which is not not enough for the well-to-do, Dr says Reaz.
The trend of low yielding banks and domestic savings certificates is expected to prevail and it should, he added while speaking of the need for a low interest rate environment as a catalyst for doing business. .
Coupled with this decline in savings returns, middle-income people will also face restrictions in tax space. As the government reforms tax rules to improve tax-to-GDP ratios, middle-income people will need financial products that offer maximum tax breaks or tax breaks, something other economies are very concerned about.
Bangladeshi MACs have now received their wake-up call to rethink the way they park money for a much better financial life one, two or three decades later, said economist Ahsan H Mansur, executive director of the Policy Research Institute.
Just beating inflation doesn’t help savers improve their lives and everywhere the idea of ââsaving in banks for financial well-being and increasing family wealth is almost dead, Dr Mansur said.
âThe financial behaviors of our people as well as the choices of financial products must evolve according to their new types of aspirations. If people are serious about meeting their life goals on time, they need to look for products that far beat inflation. while granting them a maximum tax reduction.
In short, it’s time for middle-income people to rethink their financial behaviors and tools, experts said.