How smart are Indians with money management?
Do Indians even know what is the language of money?
If yes, why are they so obsessed with money that they chase it at wrong places?
Why do so many Indians make wrong financial decisions with investment.
The money mistakes of Indians are not limited to wrong property investments.
I am Ravi Sinha and let me make it very clear that no one can teach you money management; forget about financial influencers in the market.
Money management as a subject is called Personal Finance and there is a reason behind it; it is very personal.
Obsession with money is a global phenomenon; it’s intrinsically wired to the human mind. But the fundamental problem in this part of the world and reasons why Indians fail to scale up to the benchmark of financial independence is that as a society we are not taught the language of money. Indians don’t easily understand the basics of finance, investing, compounding and inflation-adjusted returns.
In a country known for wealth inequality, the quest for wealth among Indians is understandable. Money has been rated among the primary reason of happiness, or rather lack of it, by a vast majority of Indians. The irony nevertheless is that the vast majority of Indians don’t understand the language of money. The language of money refers to the ability to understand money & wealth, various asset classes, personal finance, ROI, and money management. The inability of Indians to understand social & financial structures of the money system more often not not lead them to take poor financial decisions in life.
It is ironical that the most obsessed subject is least taught & understood in our education system. Many of us just wonder how come someone with the same income, or even less, gets financially free with more assets earlier in life. It is hence imperative to understand the basics of money language at an early stage of life.
Some of the most common money myths among Indians are:
Myth of Saving & Investing: With a predominant demography that grew up without money, the very subject of money is interlinked to the deep-rooted anxiety and insecurity of Indians. This is why a vast majority of us more often than fail to differentiate between saving & investing. For us, saving money is eqaul to investments, and safety & cushion of money is at the top of the mind. The fact of the matter is that saving gives the returns at a base rate that is lower than the inflation rate. This erodes the purchase power of money. A bank Fixed Deposit (FD) of INR 1 lakh might look fancy at INR1.7 lakh next year, but the appreciated amount can not purchase today what you could have purchased with that amount last year.
Myth of ROI: Indians calculate Return on Investment (ROI) with Absolute Gains and not Compounded Annual Growth Rate (CAGR) returns. For example, I come across many happy home buyers who proudly claim that their house price has doubled in the last ten years. The reality, on the other hand, is that the Rule 72 of Accounting reflects a CAGR Return of just 7.2%. which is as good as the bank fixed deposits.
Myth of Insurance as Investment: Insurance and investments are two very different products and should never be clubbed togather. But the middle class Indians continue to buy insurance as an investment product and end up getting return way lower than even bank deposit returns. Insurance is not investment by any stretch of imagination and one should limit it to just Term Insurance for families in the wake of any eventuality. Investment products are meant for growing your money and must beat the inflation by at least 500 basis points with compounding effect.
Myth of Inflation: Inflation is a double-edged sword as it erodes the purchasing power of your money and at the same time doesn’t always get in sync with your wage growth. Most of the Indians take this as a number given by the RBI at face value, without understanding that the consolidated inflation number is not what is necessarily affecting your expenses. For an average urban Indian middle class, the real inflation hurts with three consumption items of food, healthcare & education and thse are all in double digit year on year.
Myth of Property as Social Security: Flaunting wealth is culturally discouraged in the Indian society. But we take an exception when it comes to a house. It is hence no surprise that we stretch our financial limits to buy a house and flaunt it. Why is property as much a subject of discussion among the Indians as religion & politics? Do we publicly discuss bank statements and other investments in our portfolio? Is a house really a status symbol worth sacrificing other form of social security? Property as a symbol of having-arrived is a lousy financial decision.
Myth of lifestyle as affluence: Affluence is not lifestyle but today’s youngsters buy high-end I phone & branded clothes on EMIs. Buy Now Pay Later is the biggest money trap; and lifestyle is never a true reflection of affluence. Matching lifestyle with peer pressure is biggest financial illiteracy, as someone living in bigger mansion or spending crores in marriages might be spending not even 1% of their net worth, while you try to match that with all your net worth plus debt.
Myth of Salary Growth: A vast majority of urban Indians don’t understand the crude reality of wage growth being lower than the inflation, since their outlook of money is limited to absolute numbers. When inflation adjusted, the wage growth in most of the sectors in India in the last five years have been in negative. It is hence no surprise that despite earning way higher than their previous generations, most of the Gen Z are actually earning lesser when it is adjusted against inflation.
It is time to delve deeper into the psychograph of Indians to understand their Language of Money; Money Management Skills; Investment Outlook; Obsession for Property; and Understanding of ROI. Financial literacy in this part of the world can then only be structured. In a society where more than one credible studies have shown that 98% Indians are living pay cheque to pay cheque even after earning decently, it is time to differentiate between myth & reality of money management.
Ravi Sinha
X : RaviTrack2Media
Ravi Sinha is a journalist with over two decades of cross-discipline media exposure. He is the CEO of real estate thinktank group Track2Realty. He has been writing extensively on the real estate sector for more than a decade now. Evaluation of real estate brand performance is his core domain expertise and he has immense insight into consumers’ psychograph. He has conceptualised Track2Realty BrandXReport as India’s 1st & only objective & non-paid brand rating journal that is industry-accepted benchmark of brand equity & ranking of the Indian real estate companies.
Track2Realty is an independent media group managed by a consortium of journalists. Starting as the first e-newspaper in the Indian real estate sector in 2011, the group has today evolved as a think-tank on the sector with specialized research reports and rating & ranking. We are editorially independent and free from commercial bias and/or influenced by investors or shareholders. Our editorial team has no clash of interest in practicing high quality journalism that is free, frank & fearless.
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