The real problem is that most people are not investing at all, or investing very little. They start very late in life, sometimes not starting at all, and when they do, they invest very little. Considered a large part of teaching young people the importance of saving financial literacy, However, a few years back, I found a conversation that gave me a new perspective on the psychology of saving among people who have just started earning. On a television show, during a personal finance Q&A, a young man asked a question. He had just started earning and wanted advice on what to do with his money. His biggest wish in the world was to buy a motorcycle worth Rs 1.5 lakh. He was dreaming about it for many years that he will do something when he starts earning. This is not an unusual dream.
He wanted to know the fastest way to save enough money to buy a bike. In response, they received simple and sensible advice, with detailed calculations of how much they should save, what the returns would be, and when they would be able to buy a motorcycle. As a conservative investment advisor, I should have agreed with this view. A moratorium on wish fulfillment is considered a cornerstone of good financial behavior. However, I found myself thinking that if he starts saving now, he’ll probably be 30 years old by the time he buys it, and he’ll have a lot to enjoy riding that bike. Old will be the way a young person will. , In fact, he probably wouldn’t even want to. So, perhaps, he should break the rules of good financial behaviour, and buy that bike now on EMI with the borrowed money.
Does this mean that he should not save at all? After all, there is no point in saving while paying off debt. Still, I would say that such a person should also save a little, even if it is only Rs 1,000 a month. Even if he is saving money in a simple instrument like a recurring deposit in his bank.
This is because, at its core, saving isn’t really about the arithmetic of returns and interest rates, and so on. It really is a way of thinking, a habit. A person who saves even a small amount of Rs 1,000 a month is a fundamentally different kind of person than the person who spends it all.
What I’m saying may not pass the test of true financial advice, but it’s probably better to spend on what you want, as long as you know it’s an indulgence, and at the same time, get into the habit of saving. Start. Once you see the magic of compounding your savings, and once you realize that money multiplies by itself, this personal experience will be far more effective than any financial literacy class in which you participate. Inevitably, savings increase, people save more, and it becomes a virtuous cycle.
(The writer is CEO, Value Research.)