When you are young you are forced to do some things which you may or may not like. Like mugging up Kabir, mathematical tables, prayers, and of course all the English authors too.
You are too young to understand the import – but you mug it nevertheless. As you age you realize the meaning, and you are happy that you ‘mugged’ them and that you still remember it. Of course some of the things that you learnt are so nice that every year a fresh meaning appears. So you pass from 5 to 50 – and at various stages you have various meaning for the same poem.
If you were a conscientious student you of course learnt it well. If you were not so conscientious you did not learn it well, but you did some bit of learning. Similarly if you are generally a conscientious person you benefit by financial learning. If you are not, attending a Subra lecture is just a feel good. It does not result in investing, goal setting, etc.
That brings us to a very important thing – is financial literacy really useful for a non conscientious person? He knows that one should start early. It is just that he/she is not doing it. Like all of us know that getting up at 5 am and going for a walk at 5.30am is very good for our health. The question to ask is how many of us are doing it. Or are capable of doing it. KNOWING IS NOT SUFFICIENT.
Thus increasing awareness is fine, but what if a person is unable to or unwilling to act as per the teaching? I mean from his own point of view the training did not help. From the country’s point of view the time and effort made to ‘teach’ such people is a complete waste of time and resources.
So, should saving / investing be made compulsory? When your mother FORCED you to learn by rote tables from 1 to 20 you had no idea that these tables would be useful in class 7 when you are learning factorization. Similarly when you are being FORCED TO SAVE at your age of 23 you have NO CLUE about the benefits of starting early, compounding, not to interfere with compounding, etc.
So what looks like a dictatorial act, is beneficial for you at the age of 40 when you wake up to the reality that you have not done ANY KIND OF VOLUNTARY SAVINGS/INVESTMENTS. Thus I do think that in a country with no social security, Provident fund should be made compulsory and it should be locked in till the age of 55 or the demise of a person. Exception like critical illness should be allowed but people should not be allowed to withdraw for expenses or even buying a house.
Statman – an American has suggested this for the US. I am doing a cut paste of that recommendation. I do not see why it should not be implemented in India. Now.
- Combined mandatory contributions by employers and employees at a minimum of 12% of salary (equal to Australia’s target).
- To be administered by NPS.
- Default investment options would be other indices.
- Fees of no more than 30 basis points (0.30%).
- No borrowing from retirement savings accounts before retirement age (I like this one).
- Enhanced financial literacy through education at high schools and elsewhere (this one is important as well).
Currently many companies in the organized sector are not registered for Provident fund – I have no clue how and why. If it is really compulsory, how are they avoiding Provident fund?
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