15 financial problems at a glance!

[K.Karthik Raja]

15 financial problems at a glance!

When it comes to psychology and financial behaviour, India does not
have too much of research papers. Hence we are forced to turn to the
US or UK for such research work.

US studies have summarised financial problems and have found the
following to be the most common of financial problems:

~ Not planning: The single biggest problem for most people is that
they just do not plan their finances. It just keeps coming and going.
Even if they are not happy about the results of what they have done so
far, they do not change the way things are done.

~ Overspending: Many people with not very high incomes have very high
ambitions. This is likely to get them to grief. Most of this problem
is because the salesmen in most shops do not tell you the price of a
product, they only tell you the EMI -- so anything from a plasma TV to
a luxury home on the outskirts of the city are made to look cheap!
After all at Rs 2,899 a month does a plasma TV not look cheap?

~ Not talking finance at home: Children are kept away from the finance
topics at the dining table. Finance is perhaps the second most taboo
topic at home! So many children grow up without knowing how much of
sacrifice their parents have gone through to educate them.

~ Parents spending on education and marriage: There are just too many
kids out there who believe that they need to worry about savings,
investment and life insurance only at the age of 32 plus. This means
your father, father�in-law or a bank loan has funded your education
and marriage. Kids should take on financial responsibility at a much
younger age than what is happening currently.

~ Marriage between financially incompatible people: Most marriages
under stress are actually under financial stress. Either the husband
or the wife is from a rich background and the other partner cannot
understand or cope with the spending pattern. It is necessary to match
people financially before marriage.

~ Delaying saving for retirement: "I am only 27 years old why should I
think of retirement" seems to be a very valid refrain for many 32 year
olds! Every year that you delay in investing the greater the amount
that you will have to save later in your life. Till the age of 32 it
might be feasible for you to catch up, but after some time the amount
that you need to save for retirement just flies away.

~ Very little life insurance: With all the risks of life styles,
travel, etc. illness and premature death are common. We all have
classmates who had heart attack at the age of 32 but still pretend
that we do not need life or medical insurance. We buy car insurance
because it is forced upon us, but we ignore life insurance! Imagine
insuring a Rs 10 lakhs car, but not insuring (or under insuring) the
person who is using the car -- and paying for it, that is, you!

~ Not prepared for medical emergencies: Normally big emergencies --
financially speaking -- are medical emergencies. Being unprepared for
them -- by not having an emergency fund is quite common. Emergency
fund has now come to mean the credit card -- which is good news for
the bank, not for the borrower.

~ Lack of asset allocation: Risk is not a new concept. However, it is
a difficult concept to understand. For example when the Sensex was 3k
there was much less risk in the equity markets than there is today.
However at 3k index people were afraid of the market. Now everybody
and his aunt wants to be in the equity market -- and there are enough
advisors who keep saying, "Equity returns are superior to debt
returns." This is true with a rider -- in the long run. It is
convenient for the relationship manager to forget the rider. So there
could be a much larger allocation to equity at higher prices -- to
make for the time missed out earlier.

~ Falling prey to financial pitches: The quality of pitches has
improved! Aggressive young kids are recruited by brokerage houses,
banks, mutual funds, life insurance companies, etc. and all these kids
are selling mutual funds, life insurance, portfolio management
schemes, structured products, et al. Selling to their kith and kin
helps these kids keep their jobs, and there is happiness all around!
These kids, themselves prey to financial pitches, have now made it an
art when they are selling to their own natural 'circle of friends' and
relatives.

~ Buying financial products from 'obligated persons': This is perhaps
one of the worst things you can do in your financial life. A friend,
relative, neighbor, colleague who has been doing something else
suddenly becomes a financial guru because they have become an agent!
They, in great enthusiasm, sell you a financial product and promptly
in 2 years time give up this 'business' because it is too difficult.
You are saddled with a dud product for life! What a pity. Charity
begins at home, not financial planning.

~ Financial illiteracy: Most people do not wish to know or learn about
financial products. They simply ask, "Where do I have to sign" -- so
buying a mutual fund is easier than buying life insurance! Selecting
products based on the ease and simplicity of buying is a shocking but
true real life experience in the financial behaviour of the rational
human being!

~ Ignoring small numbers for too long: What difference will it make if
I save Rs 1,000 a month? Well over a long period it could make you a
millionaire! So start early and invest wisely. It will make you rich.
That is the power of compounding.

~ Urgent vs important: Most expenses, which look urgent, are perhaps
not so important -- the shirt or shoe at a sale. That luxury item
which was being offered at 30 per cent discount is such an example.
These small leakages are all reducing the amount of money you will
have for the bigger things like education or retirement.

~ Focusing too much on money: Money is no longer a commodity to buy
things. It is a scorecard of one's life. That will cause stress, and
yoga might help. However if you will seek a branded yoga teacher -- so
that your friends think you have arrived, yoga it self could cause
financial stress