This article analyses the various ‘logical’ and ‘emotional’ aspects behind the need for financial planning especially in today’s times, while exploring the ‘reasons’ why people generally don’t feel the urgency to get it done by a professional.
Until a couple of decades back, politicians and key government officials were found to be enjoying the best of lifestyle along with the top businessmen running monopolistic businesses. They were popularly known as the rich and influential people or in short the ‘paisewale’! All the others were middleclass with very few opportunities for young men and women unless they got shipped to ‘foreign’.
Further, due to heavy borrowing by an almost bankrupt government, the rate of interest was as high as 16-18% on a fixed deposit/ post office scheme and housing and other loans had become almost ungettable. The only option people were left with was to live a life of survival with whatever excess funds they generated being parked in such instruments. Buying a house was the first major decision taken by people AFTER retirement! Forget about buying a car when a scooter company took 7 years to deliver post booking!
LIC agents had also made major inroads in the form of uncles and aunts who are near or distant relatives, family friends and so on. Every earning member in every family would be proud owners of an LIC policy irrespective of the amount of insurance required or the level of efficiency in the instrument! Investing in the stock market was not only difficult but also a social taboo.
Most of us in the age group of 30s and 40s would agree that we completed bulk of our education by spending less than a lakh of rupees. And it would be a shocker for most youngsters today to know that travelling out of our country was reason enough to consider someone an outcast! Therefore international vacations were also a distant dream for most people.
Due to these reasons, ‘Purpose Oriented’ financial planning was not at all important in the period before 90s. The 90s and the first decade of the new milliennium was mostly a consolidation phase where dramatic changes started impacting our country such as Globalization, Liberalization, Gulf war, Outsourcing, IT, Y2K, Dot com boom and bust, world trade centre and the subprime crisis. Though you may find a lot of negative events in the list given above, the economic reforms which had started in India in the 90s continued unabatedly. This was the period when the common man started seeing good money coming to him. Soon, we saw inflation raising its ugly head once again since production did not catch up with the demand and purchasing power.
The easy availability of housing loans with more and more banks coming into the foray helped the housing industry so much that people started buying homes in the first five years of their career! Appropriate relaxation in the tax rules also went a long way in creating the housing boom. The result, rampant increase in the real estate prices coupled with the rapid development of suburban areas. But the people don’t seem to be bothered much as they keep getting loans of a higher amount, with expectation of further appreciation of value! The last decade also saw the entry of huge shopping malls, multiplexes, smart phones, social networking and online shopping which has created multiple avenues for people to indulge with their hard earned money.
Another major structural change that has happened in the last decade is the introduction of contributory pension system as a replacement for guaranteed retirement benefits and pensions received by employees in the government and the various public sector undertakings. The new age culture of job hopping every 2 or 3 years has snatched from people, the residual benefits such as gratuity since it is available only on completion of 5 years of service. Add to that the increased threat of downsizing in an era where a new technology getting introduced has the capacity to wipe out an entire industry. The reduction in profit margins also prompts companies to shove more work on to available resources rather than increasing the work force, leading to a highly stressful work environment. Job security, which was the primary reason for individuals to become job oriented in the past, no longer a reality.
Thus we can see that the changes enumerated above, has put the responsibility of managing one’s money squarely on the individual himself. But the reality is that the person who spends 5-6 days into his job/business to make the money, doesn’t even have 5-6 hours to be invested in his own financial planning. Clubbed to this is the fact that most individuals are financially illiterate thanks to our education system which gives absolutely no importance to financial education.
The best alternative in this situation is to hire a professional to get one’s financial planning done, who will be able to fill in the gap of time and knowledge on your behalf in an unbiased manner. However care needs to be taken to ensure that the person you hire is NOT someone who will sell you a bunch of financial products with the ulterior motive of earning commissions out of it. The risk is not about him earning commissions, but you getting sold the wrong financial products!
Having said that there are various reasons why individuals still refrain from doing their financial planning or don’t feel the need for getting it done by a professional. Let’s explore some of them.. Read More…
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