Jayant Pai | jayant@ppfas.com
A couple of weeks ago, I was addressing a group of students in their early 20s regarding the basics of financial planning. It covered topics such as investing, insuring and debt management among others. Although these students had minimal hands-on experience regarding these topics, I was startled to observe that their individual family backgrounds and history had already ingrained in them certain set ideas…
Here are a couple of examples:
1. While discussing investments, I showed them a graph which depicted how a sum of Rs. 1000 would have grown over the past thirty years. Obviously, investment in stocks (as represented by the BSE Sensex) handsomely outpaced options such Public Provident Fund and Bank Savings Accounts. However, a few students were adamant that they would avoid stocks completely. It appears that their families lost heavily during the 1992 market correction (notoriously known as the Harshad Mehta crash) and ever since, their parents had drilled into them the idea that stocks were anathema. While they did not dispute the data displayed in the graph they felt that stocks were not for them.
2. While most concurred that taking on debt was not a prudent move there was one student who felt that it was the only way to progress. It seems that his grandfather had come to India from Pakistan in a penniless state in the late 1940s but was able to amass a large fortune over the next forty years because he leveraged himself with large loans for his truck transport business. He felt that if his grandfather had only relied on his own capital he would not have been able to purchase even a single truck, let alone a fleet. Besides, taking on debt instilled a sense of discipline in one’s activities since lenders were keenly watching us.
Both these examples could be used as case-studies for practising financial planners. While we want our clients to achieve their financial goals by instilling the right ideas in them and helping them choose appropriate vehicles, often we may not be on the same page as them simply because their past experiences (which includes that of their near and dear ones) will militate against a particular choice. Once we encounter that, no matter how good the option is, their own mental blocks will come in the way.
The challenge is to find a golden mean between what is good for them and what is compatible with their long-held beliefs. Of course, it may be a bit easier to mould the minds of youngsters because as we grow older we tend to become more inflexible. Sometimes advisors could even try to exploit the natural rebelliousness of the youth to guide them towards right investment and insurance choices by tactfully pointing out how their parents’ choices were sub-optimal.
A few more such cases from readers would be welcome….
