Small City, Big Savings: Tier II Cities Win at Money

It’s a common assumption that people in big cities like Delhi or Mumbai, with their high salaries, would be better off financially. But what if we tell you this may not be the case?

We analysed the data of over 2,631 customers of 1 Finance to study their Networth-to-Income (NTI) ratios. Let’s have a look at the findings.

Demographics and Methodology

These customers are segmented across 8 Tier-I cities and then other customers are clubbed as Tier-II and below.

Tier-I cities include major cities like Bengaluru, Delhi, Mumbai, Pune, Hyderabad, Kolkata, Ahmedabad and Chennai, as well as an aggregate of Tier II and smaller cities. We studied two key ratios: the NTI ratio and the Total Expense-to-Income ratio (Exp %).

The NTI ratio tells you how much net assets you own (Networth, i.e., Assets minus liabilities) as a factor of how much money you make (income). A higher NTI means you're keeping more money than you spend and building wealth.

The Total Expense-to-Income ratio tells you what percentage of your income goes towards your spending. A lower %age means you're spending less compared to what you earn, which can help you save more.

Research shows something surprising. It turns out that people in Tier-II cities are actually doing a better job of saving money. They have a higher NTI ratio. This means they are saving more and spending less. Let us have a look at this exhibit.

Exhibit 1: NTI, Average Income and Expense Ratio for different Cities among different age groups

City	Total Count	Age 35 & Below			Age 36 - 45			Age 46 - 55
		Avg			Avg			Avg
		NTI	Income	Exp %	NTI	Income	Exp %	NTI	Income	Exp %
Bengaluru	641	2.4	33	47%	4.7	46	51%	8.3	54	53%
Delhi NCR	519	2.4	25	46%	4.7	42	50%	5.0	64	55%
Mumbai	408	1.7	24	46%	7.5	40	55%	10.4	48	65%
Pune	253	2.1	28	46%	3.7	33	48%	5.5	96	49%
Hyderabad	121	1.6	28	48%	4.4	41	47%	6.0	44	48%
Kolkata	39	2.7	25	43%	4.9	16	44%	9.7	55	42%
Ahmedabad	26	3.6	17	45%	5.9	54	55%
Chennai	14	1.1	21	43%	2.3	45	44%	33.3	62	58%
Tier II & Below	610	2.3	20	44%	14.1	27	49%	11.9	34	58%

NTI : Network-to-IncomeExp % : Total Expense-to-IncomeTotal Expense : Household Expenses + Taxes

*Data where sample size less than 10, values are greyed out

Data Analysis

It is more reliable to look at the data of ages 35 & above as below the age of 35, individuals are more likely to be engaged in handling their studies, marriage, etc.

Exhibit 1 clearly shows that the NTI ratio for those aged 35 and above is consistently higher in Tier II and smaller cities across all age groups, despite lower incomes than those living in Tier I cities. This indicates that individuals living in Tier-II and below cities are more financially disciplined and are building wealth more effectively than those living in Tier-I cities.

In the age group of 35 and below, only Ahmedabad (a Tier-I city) stands out as an exception.

The trend continues in the age group of 36-45. The NTI ratio in Tier II cities & below remains the highest at 14.1. This suggests that individuals in this age group in Tier II cities are also doing a better job of saving and building wealth.

In the age group of 46-55, the data shows a similar pattern. The NTI ratio in Tier II cities is 11.9, whereas in Delhi-NCR it was just ~5.0. This shows individuals in smaller cities are doing better when they are about to reach the retirement age.

In terms of the Total Expense-to-Income ratio, Tier II cities consistently show more or less the same percentage across all age groups. The trend suggests that as income and age increases (until retirement), the Total Expense-to-Income ratio also increases.

Why This Trend?

Life in smaller cities is different from life in big cities, especially when it comes to money. In big cities, everything is expensive - from houses to food to transportation. But in smaller cities, things usually cost less. This means that even though people in smaller cities might earn less money, they also spend less. This could be one reason why they’re able to save more.

The culture and lifestyle in Tier II cities can also contribute to this trend. Tier II cities offer a blend of moderate urbanity and a serene lifestyle. The pace of life in these cities is often slower. This can influence spending habits, with individuals in Tier II cities potentially prioritising savings and investments over high-cost urban culture of cities with big malls, quick commerce and food delivery apps.

Another reason could be a different attitude towards money. People in smaller cities are more conservative with their money. Or maybe they have a stronger tradition of saving.

Conclusion

The data indicates better financial health and effective money management habits of those living in Tier-II and below cities. These findings challenge the common assumption that higher salaries in major cities like Delhi or Mumbai do not necessarily translate into better financial health, as a factor of their income.