The last 74 years’ independence set me thinking about the changes & progress our country has made. You like it or not, you notice or pass – the changes are for good. Awareness especially in Financial Planning has ever been so important as it is now. We need to spread Financial Planning Awareness, Financial Discipline & Financial Security to the future generation.
The fake walls of “security” have fallen or getting weak as we advent to modern thinking & nuclear families. Now we don’t hunt for living or save for rainy days!
Now we earn. And we invest.
Biggest Change that Supports Financial Planning Awareness
The biggest change that has happened over last 100 years has changed the definition of security. Being secured or having security is a basic need.
We lived together because of the fear of wild animals, powerful armies & natural disasters.
But, now we don’t live together. We have outnumbered wild animals, have strong police or army against human killers & have satellite to warn about coming natural disasters.
We got separated from roots because of the industrial & services revolution.
As society evolved into the industrial age, people who worked in factories needed to leave their villages and homes in search of work to where the production units were located.
This migration started eating into the joint family support system as nuclear families mushroomed.
Earlier, financial planning and support after a person’s working life was basically a social contract with future generations.
It was expected that after a person’s productive life span came to an end, the children who would inherit his property etc, would also have the primary responsibility of taking care and looking after the financial and other needs.
However, now after ‘financial security’ became the responsibility of the self-sustaining nuclear family unit. In the meanwhile, our economy has been rapidly evolving into a services economy with further fragmentation of families.
While we continue to disintegrate, Financial Learning is found lacking.
If you take a poll of your acquaintances and friends and ask them about their knowledge and learning in the area of financial instruments and financial planning awareness, I am sure you would be quite disappointed with the findings.
Even highly educated professionals have very little exposure to the need for and the tools available for life cycle planning of financial needs.
The Indian education system has created a highly skilled workforce which is providing quality services to the world, it has been significantly lacking with basic understanding and learning of what is called – financial literacy.
We are a country of a very high savings rate. The savings habit is typically inculcated in an individual’s mind from an early age. However, it is a pity that still bulk of these savings get deployed in assets which have low productivity – like Savings Bank, Real Estate & Gold.
In fact, data shows that even from an early life cycle stage, bulk of an individual’s financial assets keep lying in bank’s fixed deposits etc, due to lack of financial planning awareness. which have a poor track record of long term returns vis-à-vis alternative asset classes.
Doing Nothing
Millions of Indians have large amounts stashed away in savings bank accounts. This amounts to doing nothing and will lead to slow decay of purchasing power thanks to inflation.
Putting at least some money in higher-interest bearing post office accounts makes sense. What if you invest in stocks? There is no guarantee that the stock market will go up immediately after you pull out money from your savings account and buy stocks. But if you remain invested at least some amount in funds and for the long term, it will leave you with more money than doing nothing.
Financial Planning awareness – Starting Late
The earlier you start the process of scientific investing, the better off you are. Postponing the start of your investing journey gets you substantially lower returns in the end. Frantic large amounts of investing later when you realise that you have not saved up enough for retirement usually cannot match the small and steady investment started fairly early in your career.
Short Term Focus
The breathless and breezy newspaper headlines and TV commentary grab us. Brokers call each day with what to buy and sell. Avoid them. They are probably meant for professionals or those with substantial time each day to trade in stocks. If you are not one of them, put money in the market that you won’t need for at least 5-10 years or even longer and avoid getting carried away by the useless everyday noise. By trading in and out of the market, you will be saddled with costs and uncontrollable losses that will leave you depressed. Plus you will miss out on gains that long-term investors enjoy with much less effort.
Avoid Ankle Traps
Financial education at primary age helps identify things that sound dangerous, fussy & over promises. Still, we find people get duped to some extra interest schemes, insurance policies with heavy charges, MLM schemes, Bitcoin mania, etc. Developing a thought process to identify future mistakes is a must. It can be done through proper training.
Feeling Cake Walk
Most who find initial success consider financial planning & investing a simple thing. Many investors I interact with, have a notion that it is too simple and they can manage on there own. They do not realize, that your first chemistry experiment in the school lab does not make you a scientist. Or if you help your mom cut vegetables, and she loves the way you size it, does not make a Chef!
Paytm, ET money investing or DIY, without understanding is the same as having ammo with no war strategy. You fight to lose.
Thus, an early introduction to the potential of various financial asset classes can have rich rewards for the individual.
