Not sure about how many readers will agree with this…but this is my view.
There are many problems in India, and surely many, many financial problems…….however I think these are the 3 major problems:
a. People underestimating retirement requirements: Many 45 year old people whom I meet underestimate their pension requirement. Not just underestimate, but are very far away from the correct figure. They mostly extrapolate from their parent’s requirement, even when they know that they lead a very, very different kind of lifestyle.
When you tell them they need Rs. 5 crores, their first reaction is denial – ‘my father had only 7 lakhs when he retired in 1989’ or he had ‘only Rs. 22 lakhs when he retired in 1998’.
If your expenses at the time of retirement is Rs. 400,000 per annum you will need at least Rs. 1.6 crores when you retire. However while every body claims that their expenses are Rs. 400,000 per annum, they forget purchases like a washing machine, air conditioner, laptop, car, etc. etc. You need to provide for at least one white good purchase every year. Assuming that is Rs. 50,000 – you need another Rs. 20 lakhs.
Similarly if your house is 20 years old – you will need a new house in another 10 years time – at least provide for the cost of construction. 2000 sq ft. house? at Rs. 3000 a s f. – that is another 60,00,000 Rs.!!
b. The Y gen – which is under 30 is terribly over-estimating its own ability to grow its income at a clipping pace INDEFINITELY. They see their past 2-3 years income growth and are projecting it for the next 10-15 years. Sadly a 8% growth will not happen PERMANENTLY. Some of them are so cocky about getting a job that they are willing to sit at home WITHOUT a job. Why they are even willing to quit a job if they are NOT SURE about what they want to do. This is not about chasing their passion – it is just being a little confused!
c. Awful financial literacy: The lack of financial knowledge is so stunning – people who have bought pension plans think they have bought a credit card :).
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