Middle Class’ philosophy of sharing financial matter with kids

This is an off-topic article authored by Shashi Prakash Agarwal.

The middle class refers to a huge section of society that can neither be labelled as über-rich nor poor.

India is a country with huge economic differences and making clear practical boundaries is not that much of an easy task as majority of the population do not pay a direct tax owing to several reasons from accountability to genuineness of income tax returns filed.

If we take a strictly economic criterion of defining a middle class person as anybody who belongs to a household which has a monthly income of between Rs 20,000 and Rs 100,000 a month , the middle class starts to look very substantial.

Today, it is in excess of 160 million. And, by 2015, its numbers are expected to go up to 267 million.

In a country with population of 1000 million (1 billion), 160 million is a huge figure (roughly 16%).

You shouldn’t forget that several people under-quote their income (which brings down the number of middle class people on paper!).

Let us get back to the topic: The Middle Class Philosophy of Money

Being born to a businessman, the best luxury I had was exposure to business and money.

There are certain stereotype concepts which I think over-ride most of the middle class families in this Indian sub-continent.

All of us work hard day and night (we study for hours, prepare for exams, work at office and what not!). Still, around our childhood, parents don’t really lighten up the concept of money management. Most of the Indian families keep financial matter away from kids concerning the fact that financial matter could deviate them from studies. However, I feel that the right kind of exposure to financial issues may help bring a better and more profound personality in their kids.

Come on! Why do you work for 10 hours a day? What’s the purpose of education?

Forget moral science classes, we are dealing a practical situation where only the end result counts!

The prime purpose of education is to make a person efficient enough in communicating with people and work so as to live a balanced life. I agree that money cannot buy everything (you can never buy emotions!) . However this thought is more suitable in a country like USA where even the poorest of all have access to basic necessities of life. In India, the condition is really bad for poor people.

Students must know that they study for tonnes of hours so that they become good enough to be employed or capable enough to work. The prime purpose of life is to sustain it. And when it’s about sustaining and maintaining life, one prime solution is flow of money that lets you live yourself.

And skills aren’t about the institute you are studying in (but your own capability and efficiency).

A typical middle class family owns a house (which is majority of their investment), a couple of vehicles and a source of regular income as mentioned above. Since the beginning of the 21st century, banks have demonstrated a keen interest in helping people through loans (in secured and unsecured form). The interest rate on secured loans is low but that on unsecured low is literally high. Not everyone is able to secure a loan with collateral. And banks have been kind enough (on their part) to promote the use of credit cards among the middle class people.

Why Should You Not Use Credit Card @ Economic Crisis?

Its a matter of fact that the kind of interest credit card charges is incredibly high! (which is almost 4% per month equivalent to 48% per year = 4* annual interest on a home loan).

A common mistake that most people do is, keeping credit cards for emergency situations / backup.

Its always a wise idea to make a special “recovery” deposit that you would touch only if you loose every kind of source of income. This money should be able to sustain you for at least 2 -3 months until you find another job / business to work at.

When you are in a debt trap, all you want to do is, get money to fund your existing life. You would never want to degrade your way of living.
But, using a credit card in an economically degraded situation, when you aren’t 100% sure of recovering in a couple of months,  is not a wise idea. It could spoil your finances to a great extent (considering the hefty interest and charges involved using a credit card).

All you need to do is, stay prepared for a recession like that by planning a collection of deposits that could help you with your situation.

It is difficult to stop yourself from shopping when you have a credit card with you! If you think you won’t be repaying in (more than a month of the interest free time period), you should drop the idea of shopping. You can definitely a shop a lot once you have enough money in your bank account.

Also, you should focus on increasing the number of sources of income that fund your household (if you did this, you would be thanking us for ever!).  Properties are a great investment but if your entire fortune goes to a property that doesn’t generate revenue, you should definitely diversify your investment to another asset that generates some kind of money (that you could save. It could be renting a property or interest gained from fixed deposit, recurring deposit, etc).

If you think you can risk some money, do consider investments in the stock market. You will need to actively research about the same. Never buy stocks at high but on dips (as the Oracle of Omaha / Warren Buffet says).  And trading stocks could be a good side-business for most of the people due to its mobile nature. You could also apply for procuring shares that come up through an IPO- it is one of the cheapest price that you could get a good stock at.

And do not forget to utilize your section 80C limit completely. The Section 80 C covers home loan interest, stamp duty & registration charges, national saving certificates, life insurance premiums, pension funds, 5 yr tax saving deposits.

You can save 1.5 lakh of income from taxes using the section 80-C and can use this fund under your ‘recovery’ deposits! Say, you save 1.5 lakh for 5 years = 7.5 lakhs + added interests / returns. This money will be enough for you to depend on, for at least 5 months!

Most of the parents want their kids to either become an engineer, doctor or CA. But the world needs a lot more than just trained professionals but artists that give a new definition to life (through different platforms).  We shouldn’t forget that, there is money in almost each and every field. Its just our perspective that has to be changed. Some time back, I had read about an interesting start-up that turned out to be a 100 million dollar project, based on modern machinery that made cleaning water tanks fast, easier and more efficient. All it takes is an idea and the commitment to stick to your plan no matter the no of odds that sustain against you.

A big problem in the Indian society is with taking risks! People are never encouraged to be entrepreneurs. They are taught from their childhood that, you have to go for a job that pays high and time should be precisely like 9 to 5.  They also tell you about huge importance for family time as well (which is definitely necessary).  I agree that spending time with family is must (or else you’ll turn out to be an emotionally challenged person!). But sticking to a curriculum that some university / college has put up, won’t give you an edge above others. A very learned family friend, who  operates a huge IT business in Indonesia told me that, all he learned at college was out-dated and whatever work he did in life (no matter big or small), actually gave him more energy, knowledge and zeal to excel.

So please give your kids the freedom to choose. Its their future and they must excel! And for them to excel, it is necessary that parents spend considerable time with them. At places, I have observed that there is a communication gap between parents and kids, which could prove to be extremely cautious for the society. Children must feel free to discuss their dreams and goals with parents.  And it is the duty of parents to bring out the best in them!

No job is big or small. A friend of mine, who went to UK for MBA told me that he had to work at McDonald’s, to pay for his college fees. And he also told me that, it was at McDonald’s, that he learned to do his work on his own and importance of cleanliness. Upon graduating, this guy got placed in a big MNC based out of France and now drives an Audi A6 (he has promised me a free ride. Yippee!).  All of us have to struggle (even if you are born with a golden spoon, you need to prove that you worth it !).  It is persistence that draws winners from the average people.

So the conclusion is: if you want to reach the zenith, then just  a 9 to 5 job may not be enough (most of the fortune 500 CEOs work like 18 hours a day).All you need to do is to explore your interest and be the best in whichever field you wish to grow.

To your success,

Shashi Agarwal

Ideas are no-one’s monopoly.