Here is an article about China…..I was getting some sadistic pleasure in doing a small change in the article….and would love it if people DISAGREED with me. I see kids in our office (qualified accountants) putting their money in LIC, Nsc, ppf, kvp, ……without thinking ABOUT real return AT ALL. Sad but true.
So read on…adding India is the only thing that I have done….the rest is a cut n paste from a website..which I have referred to in the previous POST.
Bank deposits and life insurance as a savings mechanism in China(India)
Bank deposits rates are regulated. You can’t get much different from 1 percent in a bank deposit. Life insurance contracts (a huge savings mechanism) are just rebadged bank deposits – attractive because the regulated rate is slightly higher.
This is a lousy savings mechanism because inflation has been between 6 and 8 percent (but is now lower than that and is falling fast). At almost all times (except during the height of the GFC) the inflation rate has been higher – often substantially higher – than the regulated bank deposit (or life insurance contract) rate.
In other words real returns for bank accounts are consistently negative – sometimes sharply negative.
You might ask why people save with sharply negative returns. But then you are not facing starvation in your old age because of the “four grandparent policy”. Moreover because of the underlying economic growth (moving peasants into a manufacturing economy) there are increasing quantities of these savings every year. This is the critical point – the negative return to copious and increasing Chinese bank deposits drives a surprising amount of the global economy and makes sense of many things inside and outside China (India).
—-end of story——-
Every country depends on the sloth of the middle class – and the complete unwillingness to worry about INFLATION. World economies in the 1800s and early part of 1900 HAD ZERO inflation. However in the past 80 odd years INFLATION has been rampant. Most of us in India have seen inflation as well as hyperinflation – which meant gold and real estate looked ‘good’ as investment assets. Actually both of them are SAVINGS assets.
Equity is the growth asset in your portfolio – however it is so volatile that people get ‘scared’ and run away. Sounds familiar?
This morning 3 kids around 25 years or under were discussing why they should be investing ONLY in LIC, Nsc, and bank fixed deposits to get 80C ……which got me to write about this. They were talking of 80C (at least they were being forced to save/invest!) and clearly the middle class ..thought ‘I should not lose money’ was uttered 3-4 times)….so i think it was NSc…lol
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