Sadly there is not enough research on the financial behavior of Indians. On the other hand there is a lot of research in the US about American earning, spending and investing pattern.

It is NOT possible to just do a cut n paste of the American behavior patterns, and THEREFORE one cannot just accept the ratios as it is. For example the Americans have what is called ‘Social Security’ which is available for them post retirement. This may not give them a great lifestyle, but it surely pays much more than the minimum amount required to get by. So if an American does not save much for retirement, he will still get by.

The average American has something called a ‘Reverse Mortgage’ – by which he/ she can give his house as a security and hope to get a monthly amount (the reverse of a regular mortgage is called a reverse mortgage) with which to live.

Similarly the average American has a much, much higher standard of living compared to the Indian middle class. Everybody has a car, a house, etc. and it can be assumed that this standards they will have to maintain even into their retirement.

I just brought about these differences to tell you that American literature (or research) should be used very carefully. So when somebody tells you:

“If you save 10% of your salary, that is good enough for retirement” – remember this is an American statement. In India you may require a higher (or lower!) amount depending on:

Where you plan to live

How many people you plan to provide for (dependent sibling, parent, etc.)

Do you have an indexed pension (only Central/State government employees)

What life style do you plan to have?

Will your children be able to chip in IN CASE you have a cash flow problem

…so please take the American research with a sense of Indiannesss….

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  1. The reason American Financial Planners advise saving 10% of income is they assume people to work till 65 (which is when Social Security begins for current retirees).

    This means long years of savings /investing (say 40+ years) and relatively less years in retirement (less than 20 years considering current life expectancy numbers).

    In India very few people will be ready to work in their sixties. People start retiring in India in mid-late fifties.

    Your statement, “if an American does not save much for retirement, he will still get by” is inaccurate. Social security alone is not enough for average Americans to get by. If that had been the case, there was no need for people to save outside their social security contributions. Also, there are huge deficits in the social security scheme- American feel as if they are sitting on time bomb which will blow in coming decades.

    By comparison, older Indians at similar education level are far better off than Americans. One – the costs of living are very high in America. e.g. look at property taxes in US, look at medical insurance costs in US.

    All the quality of life offered by developed countries comes with costs (e.g. schools, infrastructure). Therefore, their living costs are higher and saving rates are lower. Therefore, people in these countries need to work longer years.

    Secondly- India has a great family support system. Someone who has children can live without worrying too much. Family members can help each other. In USA since living costs are higher, the kids can’t help parents even if they want.

  2. These days everybody used to cheap money. Government used all its might in the past decade by fooling people and now people are very happy with high inflation regime. The same people ridiculed Zimbabwe when they print 1 million currency note.

    When we pitch for high interest, we are being looked like a villian who comes to crash their party. Excuse me. your party is already done with. Now it is pay back time. Today we will rewind some of the basic economics

    1. Capial should not be created by central banks. Capital moves from savers. People save from their earnings by way of bank deposits and it moves from banks to business.
    2. The cost of capital should be always 2% more than the prevailing inflation.
    3. In India as per govt figures inflation is 7.5%. Consumer inflation says it is 10.5.
    4. We all know, real inflation is more than govt figures.And world over countries use consumer inflation and not like India where we use WPI.
    5. Taking all into accounts, I liberally give the benefit of doubt to govt, and assume real infation is somewhere near 10%.
    6. Based on this fact, interest rate should be atleast 12% for somebody who wants to save. if it is not so, can I say RBI is doing a fraud on the system and government is cheating the common man who comes and deposit his hard earned money in Bank?

    We are atleast 4% down from the real interest rates. Can any economist reply to me. It is an open challenge.

  3. Every time i read a American story i remember the “Inside Job” Movie/Documentary and how those who brought in so much trouble are still in the thick of things in turnaround(thats wht they call it) story 😛

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