Saving Habits: A shield to the Country

Venkatesh rides his shining Hero Honda Splendor to his work with a great pride and satisfaction. He parks it in a shade and always keeps an eye on it while working. Bike is maintained neatly with periodic services and he wipes it with a cloth daily before coming to work. Venkatesh is 43 years old; he is the builder of the house. He earns from INR 250 to 300 as a daily wage. His friends and colleagues come walking with a bare foot or in Bicycles. He has to work hard all day for about 30 months to buy the motor bike with his little savings. According to him savings is important and improving his style of living as compared to his colleagues and friends who spend like there is no tomorrow. He says further that if a software engineer earning INR 20,000 a month and ends up spending all by the end of the month and he earning INR 9000 a month and saving INR 2000 by the end of the month is better placed financially compared to the software engineer.

Venkatesh is not alone most of the lower class, lower middle class, middle class, upper middle class  and even upper class families in India save. Lower class families may save in terms of Hundreds, lower middle class in thousands, middle class in ten thousands, upper middle class in lakhs and upper class in terms of ten lakhs and more.  But they all save; they cannot imagine a month or a year which goes without saving. The exactly opposite behaviour is exhibited by the people in the west.

Credit Cards in west are funding the consumption of its people. As a result most of the people will be on credit even before they earn. They earn to pay their credit card bills and when the consumption exceeds the earning, they fall into the cycle of paying just the minimum payment (a small percentage of their spending) with the rest being on high interest. On an average every American pays five to six credit card bills in a month. The culture of using credit cards has made most of the westerners unrestrained on spending. This very nature towards spending has made the savings irrelevant. Most of the people in west don’t make any compromise when it comes to satisfying their needs. Adding to it there is a free flow of money at lower interest rates (compared to the interest rates outside America). And inflation is under control because of the external demand for the currencies and the foreign policies of the government in the west. The credit card penetration in India is less as compared to America. Even if it is I don’t think majority of the Indians spend before we earn or unless we have the capacity to earn. 

The Indian culture is conservative compared to the culture in the west. Most of the Indian families will not have surplus money to spend. The way most of the children are brought up is by conditioning them as an when they ask for more. They are brought up such that they spend vigilantly. I saw a child of three year old walking along with his father. The child is reluctant to walk and asks himself to be carried. While the father having two chocolates with him shows the chocolates to the child and tells him that if the child walks with him till the nearest lamp post (that the child can see), he will be give him the chocolates. Child sees the post and he runs towards it. On reaching the lamp post father gives the chocolates to the child. Child tries hard to open the wrapper and after a couple of try he looks at his father. Now father in his soft voice tells the child that it is the street side and it’s not right eating here, so will go home, directs him towards home (which is visible to the child). The child agrees. Well I am sure most of us have been brought up like this.

Indian children are not given what they ask for readily from their parents/guardians. This makes the child to compromise in getting what the parents give in terms of time,quantity and several others. From the very tender age they are  made to learn to have patience, wait till they get the desired from the parents. Adolescence and adulthood brings changes in the behavior but the definition of the word “joy” will be limited to getting what he/she couldn’t get instantaneously before.

Compromises result in reduced spending. When we have a Maruti 800 we always look at upgrading. It will not be to Mercedes E-class directly. Even though we like owning one, we tend to make compromises looking at the responsibilities we have. We reduce on spending. Taking loan is quite common to meet any financial difficulties in the west and continue spending as normal as they are not ready to compromise on spending. In India its quite the other way round, since we have been brought up compromising, cutting on spending will not be much of a deviation from normal. It is easier for us to forego the present consumption for the bright future. 

The tendency to save among Indians is more. Whenever we have more than what is required we always save. This is inculcated in our culture through various good practices of our ancestors. Most of the time we had deficit in dealing with a situation than a surplus. So whenever we had surpluses we tend to save for future “May deficits” to come. Even Indian government and the central bank of the country encourages saving through its monetary and fiscal policies.

The world financial architecture is such that if one is gaining the other will be losing. The gain for one will always be from what others have lost. And if the lost is not from the savings but from the credit that they have borrowed from the bank then the whole economy will be in trouble because of the ripple effect of the default. In India since most of us will be on saving the whole economy is secured and insulated from the high magnitude of financial losses.

A shield is developed around India which is strong and difficult to penetrate. The shield helps in alienating most of the financial problems of the country. Thanks to our ancestors who have inculcated the practice of saving and for prioritizing the saving.