Rajamouli (Raj) was reading the paper intently. He did not notice his nephew Aditya who came in and plonked on the opposite side of the sofa. Raj did not look up from the paper.
Aditya seemed ill at ease and was shifting uneasily on the sofa. After a few minutes, Raj put the paper away and smiled at Aditya. Aditya did not react.
Raj came to the point and asked why Aditya was glum. Aditya did not answer immediately. He said, “How can one live on a beggar’s salary?” Raj understood that Aditya was having trouble managing expenses within his means.
Aditya wanted to buy a laptop but did not have any credit left on his card. He had been using his credit card rather freely… had gone on a holiday, bought a mobile, regularly orders food, clothes etc.
Raj knew about these. He had been asking him to temper his purchases for a long time. “Consumerism is a capitalistic invention that has led people like you to stay poor and wallow in debt.” Aditya gave a sidelong glance which indicated that he was not impressed.
Shaping the mind – “It is well established that living the good life is mainstream now. People do not see living beyond their means as decadent, self-absorbed and morally corrupt. In fact, they see frugality as old school self-oppression which obliterates self-expression, snuffs vibrancy and reeks of conservative mores.
Consumerism is needed by businesses to sell an ever-increasing number of goods. They know people may not have the money to buy. That is why credit was invented. One may not have money to pay the bill at the end of the credit cycle. One could take a personal loan for that and pay EMI”, Raj explained.
Businesses work with the advertisement agencies to sell dreams. There is a reason why individualism, self-expression, living it now etc. have become the ideals to live up to. Advertisements position the product usage as an expression of their individuality, coolness, belonging to the elite club, having arrived in life etc. They use aspiration, fear, being left behind, lifestyle upgrade, belonging etc. to influence buyers to purchase.
And it works wonderfully!
Shopping – Shopping has been elevated to occupy a prime position in our lives today. Shopping is therapy for many. It is a safety valve that helps people blow off steam when they are down.
Consumer goods have become the lubricant in life and the balm that heals! These goods also play the role of mediators in our relationships - flowers after a fight, Jewellery to profess/reinforce love, goody baskets during festivals to reaffirm friendship, etc. Shopping is an addiction that most people today live with.
Saving and investing – Many people pooh-pooh the inordinate importance attached to putting aside money for investments. They see this as a conspiracy to keep them from enjoying life and chaining them to a life of drudgery and boredom. For meeting various goals in the future, retirement and taking care of contingencies in between, investments are needed.
Most rationalise that their parents had been able to pull off with modest incomes and meagre savings. It is all in God’s hands, they have heard their parents say. They think God is their financial planner too!
The previous generation lived modest lives for most part and spent literally on the essentials. In the end, they continued their modest lifestyles and took some help from their children, where needed.
People today forget that God helps those who help themselves.
Credit explosion - The banks and other financial firms are quite happy to advance loans as that is their business. They are looking for credit growth all the time.
Aditya asked, "If people are like me and keep taking loans, are they not living off their future income today?”
“Absolutely correct. But loans are needed to enable commerce today. Loans taken to create assets like home or for education purposes are not bad as long as one has the ability to pay the monthly repayment amount. These loans create assets/enable better earnings. However, most loans are taken for funding consumption which one cannot afford today – that is where the problem lies”, said Raj.
Wealth effect of behaviour – There is a curious phenomenon that we can see, the rich understand about investments and do invest and manage their money well. They invest regularly, diversify well and cash in on available opportunities. Many of them also engage professional advisors to assist them.
Others want to live like the rich outwardly but get into loans to buy cars, whitegoods and virtually everything else. They give in to their cravings and live a life that seems great from the outside. But, their money situation tends to be precarious. Most times, they do not have anyone to advise them.
The upshot – The rich get richer and the others get poorer. This is not due to the gamed system like most people talk about but due to their exhibited behaviour.
Aditya was listening patiently. Raj concluded, “Focus on your expenses, save first and then buy what you want, take loans only in an emergency and ensure that you save and invest money consistently to ensure wealth creation. That is the only way to be financially well-funded”.
Suresh Sadagopan, MD & Principal Officer, Ladder7 Wealth Planners P. Ltd and author of If God was your Financial Planner
