Why do we not manage our personal finances well?
We all know, that we should:
a) start young
b) save / invest regularly
c) use the power of compounding… etc.
BUT we do not do it…surely not in our 20s, and maybe 30s…
WHY, like your answers please!
do not want to give options and ‘direct’ your thoughts…just asking an open ended question…thanks
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I am in my twenties and regular reader of your blog. I find people at my age group want to learn their domains well as they have probably 5-6 years exp. So most people simply keep their money at salary acc and others spend on white goods. Some people buy a home loan to settle. Others give it to their parents to manage.(I am talking about guys who live on their own money).
Most important thing is their spending attitude(experiment with their new money). Very few people invest in share markets unless they have a strong advice from people like you(respect intended).
They feel their wishes to be fulfilled first then savings!
Lack of awareness is the main cause here. I do not think anyone who start earling after graduating knows that he ahs to save money. For him (her too) it is a huge pride moment that he has started to earn big amoutn and don’t have to ask papa anymore. his first thoughts will be to spend the money and flaunt in front of friends. He is NOT aware that he has to prepare for retirement from first day in job.
One simple reason is that a youngster is not taught to save money– why not include it in his Bachelor’s curriculum ? He/ She is not going to listen to his/ her parents seriously. I have felt the similar way for doctors– in our curricula , there is not a word about how to start a Practice–an ethical clinical practice.
Peer Pressure, too,prevents an youngster to go the money saving way– he/she may be bracketed as Kanjoos !
Dear Subra,
I can personally recollect why we dont do that.Iam now in my early sixties.At that early age of twenties and thirties we think we will be eternal earners and at the prime of youth lured by all the white goods and luxuries which we indulge only to lament at later date about the lost opportunities.
Regards,
G.Subramanian
My view is
“in 20′s and 30′s most of the time is spent as social outing with friends….. and generally spending is seen as a social activity and earning/personal finance not so social at that age.” Much of the time gets spent in making yourself more social and less personal. Probably a social network in this domain may help
#justsaying
I used to save money from early twenties but, I chose the wrong instrument (Bank FD’s). There was not much awareness of stocks or mutual funds. Being in mumbai, stocks yes, but chose wrong path of following tips from friends during Harshad Mehta days. Hence, kept away from equity investing.
Insurance – Purchased a policy recommended by dad’s friend, which is a money back policy, had not heard of term insurance then.
Speaking only for me, currently in 30′s and waking up to my financial realities only in last few years. Initial few years(5-6 years) after getting a job, were spent in seeing my family settle. Father’s loans (both for our education and otherwise), sister’s marriage, brother education etc etc…
By the time i finished all these, having no EMI’s to pay, seemed like a big blank in life. I felt, having extra money after taking care of expenses, with nothing to do was a very uncomfortable thing. I had sort of become a habitual EMI payer. Then I acted promptly, to fill that blank by going for a housing loan EMI
Which in retrospect, i could have avoided given the cash flow problems and hellish life the loan bought with itself. 4 of 15 years tenure are gone now. I now value, having cash for investment’s but then a good part of it is already blocked in EMI’s.
I think i would have acted differently (in the last 4-5 years) if my perspective were different. None in family or circle had a good financial perspective. We were always a hand to mouth family. i.e., until i accidentally stumbled into the value investing world and Charlie Munger. He made immense sense from the very first time i heard him and i accepted him as my rich dad
The path i choose is different since then. Your blog and many other’s have played their part too.
Just want to point out, that the starting assumption of your blog is not correct “We all know, that we should:”
correction from my point of view would be
*We all DON’T know that we should…….
Regards
I started saving from my 1st salary; being an obedient child, “INVESTED” in LIC [ apparently nothing beats the safety and returns of God's gift to Indian investors aka LIC - that their policies give returns as low as 2% annually is nothing but BS/hot air out of rear/mathematical mumbo-jumbo].
Thankfully, parents thought PPF was safe – so started it early.
MFs, stocks – they are unsafe, it is just gambling, throwing away my money – this is what I was told when I started my first SIP; then the deluge of “I told you so” since 2008 – these were the main hurdles faced by me.
I guess this is true for many people in their early 30s.
Delayed start of their career may be one of the reason for not start saving in early days.
At Prime youth, people want to achieve all their desires than investing…
early commitment to huge housing car loans..
According to me, the biggest factor for not investing in stock markets at early age is the image created in society that stock market is more or less equal to gambling. Peaple stay away from it for entire life due to this image. it is very difficult to break this image.
No Instant Gratification … Simple !
We are not responsible/accountable for anything during our early years of job life.It is only when you get married buy a flat and have kids in 30′s you start thinking about it..
No finacial education in school/college…our system is so bad even majority BCOM people face the problem.
How can we do something which we are not taught to do. Money is not talked about in family. We grow up with different views of money – mostly as it is evil.
Focus of parents is on getting child educated and settled. When child starts earning then focus is on mostly spending,you have your own money and are not answerable to anyone.
Then life takes over, marriage, home, kids (not necessarily in that order). Different advices – LIC, Mutual Funds, stocks, Insurance, Income tax
Where do we get time to sit and learn about money.
We do not allow people to drive a vehicle without taking a license test but allow them to enter complex financial world without much financial education
Abbhi se kya saving karna,abhi to bahot time hai!!
may be not really knowing how much corpus we need in future n not really thinking the power of compounding(in terms of amount we need to save now n later)
No Sir, not even 0.001% knows and understands the simple things you said. Only because of power of internet and constant reading of blogs like this we came to know/ understood recently these concepts.
Main reason people are not able to MANAGE is
1) Its difficult to control your emotions w r t your own finance.
and so its affecting the individual’s decision making ability, Self discipline, strategic goals
The reason is simple.
1.Don’t know importance of saving
2.Will laugh if i said about investing for retirement.
3.No knowledge on various assets
4.Don’t know the power of compounding
I have no financial knowledge at that time. Only thing I know is to save for my sister’s marriage and for buying house. I kept all the money in FD and in LIC. Luckily one of my team leader, took some time to advise me about basics of finances and thus started buying gold for my Sister and that helped me alot.
Only out of my own interest on trying different things and talking to different people on financial investments, I came across blog like yours and started thinking and acting… but obviously this route took time and hence can start invest only during my 27 age.
I know many of my friends have neck full of EMIs but still they are trying to earn more money rather than saving it… I know that race will not end, but they are not ready to even listen to me …
I guess I was one of the lucky ones– I’ve seen how a house can be run on dividend income… in the initial years I remember not wanting to start PPF because I didn’t want to “commit”… now I keep extending 5 year blocks…
And yes, value investing learnt the hard way– gujarat telephone cables, purity flexpack– where are those companies now? So for some years stayed MF-oriented.
Even now find it vv difficult to sell duds. Yep, stupid of me, know that.
1. There is no education regarding saving/investment given to those who are coming out of school/college. Due to this, initial decade of life after school/college is spent in learning through errors like investing in LIC, ULIPS etc.
2. Often there are commitments in earlier part of life which also results in not saving enough.
3. Ability to not say ‘NO’ when it is needed. In my earliest years, I used to give to friends and relatives despite I know they are NPAs. After that learnt to say NO.
4. For lazy persons like me, availability of services in the internet. Before that, you have to go to bank for everything. Now life is easier because of the web based services provided by banks and other financial institutions.
From personal experince and view, the issue boils down to education.
There are two aspects to this issue and many pointed out one aspect only. It is quality financial education in school/college, which is absent. True. Our education system is not equipping our students with the facts of life, there is a clear disconnect. But, I feel thta this is a minor part of the story.
Major part is what a student is being imparted outside the school, more importantly, in the home. The lesson of proper spending and long term goals should start from home. But, as the parents thmselves are not in the know of things, this info is not reaching children at an early age, when it makes a lot of impact. This i feel is the main reason.
Other significant changes which lead to this are as follows.
Actively seeking information, from which ever source, is also not encouraged. We follow the advise of our father/mother, without even checking it. Initially, when i am a child, my father knows what’s best for me. However, as the time passes, the knowledge of parent(s) in some issues become slowly outdated/constrained. This can be seen in many of the comments. Many invested in LIC as per their parent’s advice. As a parent, i feel it my duty to know my limitation and tell my son(or whom i am giving an advice) that my knowledge may be limited, go to a more appropriate person for a better advise.
Then comes the rapid growth in the financial status, of society and individuals. If one gets rich gradually, he adjeusts himself at every level and grows with it. But if the growth is fast, adjustment becomes an issue. (Third wave of alvin toffler). This is the problem with many of our parents. Many still live in the cosy security of FD’s and LIc’s wiithout actually knowing the impact of their activities. For their generation, a bank cannot go bust. But it is not reality anymore.
One way of insuring ourselves and our subsequent generations is to become financially literate and pass on the information to the needy.
i think we people lack role models at home front…..we grow up observing our parents going about money….plus earlier there were less avenues to spend money than now…eg branded stuff…plus we are not prepared to handle money.
Same story as mangoman – lost my dad when I was 18 – only earning member at 23 – paid off education loans, home loans for parents place, home improvement loans, supported brother’s education and then funded marriage – was addicted to paying EMI’s
sad but true – ended up buying a house – so while through all this moved my family’s wealth from a 100% FD oriented savings to 50% FD and Equity MF, my personal savings mostly in MF’s SIP from 2003 have stayed very small every month – so while the habit has been there, no meaningful corpus has been built over a decade of working – the next decade hopefully will be the accumulation phase.
Lack of awareness, negligence
Lack of discipline in tracking money (expenses). Impulsive purchases and regretting on later.
Also, there were no subramoney or jagoinvestor when I started decade ago. Now they are to guide.
mani – by God, you need help.
The reasons are:
1. When a student gets a job, he transitions from 0 pay to high pay. He cannot handle the sudden prosperity.
2. The new economy presents temptations that are beyond the imagination of elders. Some of these expenses are recurring (gym
membership, cell phones, etc) and convenient (EMIs)
3. Credit loosening has been done to increase pressure on spending.
4. Anybody who purports to provide financial advice has a vested interest and the buyer intuitively feels repulsed.
5. State sponsored financial safety nets have become unavailable. (Low interest on PPF, no pension, etc).
Following are my personal Opinions
1. Lack of self decipline- Keep pushing things for next month/year
2. Pear pressure – When friends or collegues spends on gadgets, travel, accessaries cant stay away.
3. Soacial Outing – Eating out, snacks, soft drinks which wud feel as nominal expense, but turns out as 50% expense of youngsters.
@subra
While I have not taken any investment decisions from your websites, I am able to learn a lot from you people which has been helpful for me in understanding financial products.
By the time we become aware that we need to do the given mentioned above we become 30 or in late 20′s, there is no financial education in our society and that’s why. i started reading about finance when i completed 5 years of my job i am 31 and already feel that i started very late but i am coping quite well and doing good now.
Some times, people do realize that they need to save (though, the power of investing early / compounding, etc. is not fully understood). But, we think, we can postpone the decision until some future date (when i will have all my plans in place). This future date keeps slipping, before we realize we have lost lot of opportunities of saving and investing. Then, we have loads of information and knowledge at hand, but, do not still give up the procrastination, indulgence.
Lack of awareness, due to whatever reason, is one aspect.
Another thing, i remember, i felt really hard to believe was: I will also, like everyone else, grow old or need an emergency fund or may not be capable to earn any more – retire, etc. and will have to rely on my investments to sustain my lifestyle. I thought, I can always rely on my strength and ability to earn. Eventually, time goes on, procrastination is a bad habit – cannot be easily given up.
comments part is interesting and worth reading on your blog!
Hello Subra sir,
Am in my late twenties, and started reading your blogs six months back,
and the truth is I realised how i was behind in the subject of financial management only after reading ur articles.
Why the young dont invest is
1. The start of the carrer, the parents tell dem to save for der marriage especially if its a girl or to pay off ur educational loan or ur dads loan.
2. The assumed thumb rule of settling in life is having a house and a car.
3. LIC policies!!!- If you dont have one- ur losing ur premium status in the society.
Ultimately with these ideas, the younsters are running in between EMIs to pay off their loans and these EMIS take the lion’s share of the income.
In india savings are done jus to save tax under 80C.
May be our community didnt worry about pension as most of the people were in govt jobs in the previous generations, was this the real reason for this state of mind??
I am in my early 40s and I started investing in middle of my 30s. I agree I was late in this. Now I have about 50 engineering grads reporting to me. Their salary range is 20K to 1.5lac/month and age range 23 to 35. Currently many of them are not investing in equity but definitely have some endowment policy from LIC.
When I took this position I called an IFA and took a class/QA session for about 1/2 day. I started the session by saying if I had such opportunity when I was at your age I should have couple of corers in my corpus. Later the IFA explained everything from early investing, compounding, equity, debt, Term insurance, Gold investing, PF, PPF, NPS etc etc. It has been 6 months now and none of them even resisted for KYC. I dont understand whome to blame. Recently I heard one opened a PPF account.
The Stock Market scenario is not at all convincing– when an youngster sees the may-hem happening on a daily basis, he is not going to be convinced that his money is going to be safe for a long term investment.
I guess we need to give catchy advts –like iForex in this Blog–where every one seems to be making easy money !! GOK what is the exact truth !