Man­ag­ing your money re­spon­si­bly ‘should have its own brag­ging rights’

Weekend Argus (Saturday Edition) - - LIFE - AN­GELIQUE ARDÉ

Let’s face it: it’s eas­ier to spend than it is to save, which is why ev­ery­one and their cousin is spend­ing – and craft­ing an im­age of them­selves and their as­pi­ra­tional life­styles on so­cial me­dia. There’s nothing like the grat­i­fi­ca­tion that comes with get­ting what you’ve been cov­et­ing, and mak­ing sure that all of your friends and fol­low­ers know it. You don’t even need to have the money. You just need credit.

The only thing worse than con­spic­u­ous spend­ing is when it’s done on tick.

There’s a di­rect cor­re­la­tion be­tween ac­cess to credit and a de­cline in sav­ings. Annamaria Lusardi, the founder and aca­demic direc­tor of the Global Fi­nan­cial Lit­er­acy Ex­cel­lence Cen­tre and an ad­viser to the US Trea­sury, says there has been a de­cline in the rate of sav­ing in Ja­pan and Italy, the coun­tries that his­tor­i­cally have had the high­est rate of sav­ing. In fact, the world over, sav­ings rates are down. Lusardi says that while this is hard to ex­plain, ac­cess to credit has in­creased as sav­ings rates have come down.

Greater ac­cess to credit, es­pe­cially among young peo­ple, and a pay­ment sys­tem that al­lows for ease of pay­ment – whether it’s at the swipe of a card or an easy on­line pur­chase – are fac­tors af­fect­ing our propen­sity to save.

“Com­pound­ing this, the sav­ings mar­ket is com­plex and con­fus­ing to most peo­ple who want to save,” Cora Fer­nan­dez, the chief ex­ec­u­tive of San­lam In­vest­ments: In­sti­tu­tional Busi­ness, says.

Ac­cess to good qual­ity, cost-ef­fec­tive fi­nan­cial ad­vice can be a bar­rier to sav­ing and in­vest­ing, al­though choos­ing an ap­pro­pri­ate prod­uct in which to save or in­vest is not rocket science, Fer­nan­dez says.

Your most im­por­tant con­sid­er­a­tions are: your in­ten­tions to save, or your goal; the time you have to save (your “time hori­zon”); and the level of risk that you can af­ford to take. Fi­nally, un­der­stand the prod­uct that you de­cide on and what you’re be­ing charged. It doesn’t need to be more com­pli­cated than that, she says.

Fail­ing to save is a big­ger risk than us­ing the wrong sav­ings ve­hi­cle, she says. This is be­cause of the cost of the lost op­por­tu­nity.

Con­sumers also don’t ap­pre­ci­ate the piv­otal role that sav­ings play in pro­mot­ing eco­nomic growth and de­vel­op­ment.

Get­ting into a habit of sav­ing is what it’s all about, Fer­nan­dez says.

“Peo­ple be­come wealthy be­cause when they come into money, they are thrifty and in­vest their money wisely, not in some ‘get­rich-quick’ op­por­tu­nity,” she says. “For most peo­ple their re­la­tion­ship with money, and in turn their be­hav­iour when it comes to money, is set at a very early age. It’s very hard to un­learn these be­hav­iours.

“My re­la­tion­ship with money and sav­ing was im­printed by my grand­mother. She al­ways ad­vo­cated for liv­ing below your means. In pri­mary school, I had a Post Of­fice bank book and ev­ery week she gave me some change to save, and I would ea­gerly an­tic­i­pate the in­crease in my bank bal­ance after ev­ery con­tri­bu­tion. Con­se­quently, mak­ing with­drawals was not an op­tion. I didn’t even know what I was sav­ing for, but I liked the idea of the money grow­ing. The thought of some­one pay­ing me to keep my money, in the form of in­ter­est, was a fas­ci­nat­ing con­cept at a young age.”

Fer­nan­dez says San­lam un­der­stands that con­sumers are in­un­dated daily with mes­sages en­cour­ag­ing them to spend. “Of course, we all have to pay bills, but we need to get our spend­ing pri­or­i­ties right, so that we don’t get tempted to waste money on stuff that we don’t re­ally need.” In­vest­ing should be our top spend­ing pri­or­ity – no mat­ter how small the amount. What’s im­por­tant is that we do it. The ear­lier we start in­vest­ing, the longer we ben­e­fit from the power of com­pound in­ter­est. The other big ben­e­fit of in­vest­ing over the long term is that time smooths out volatil­ity.

Lusardi says con­sumers can be con­vinced to save in the same way that they can be con­vinced to spend.

Re­tail­ers have suc­cess­fully used celebri­ties to get con­sumers to buy their prod­ucts; San­lam’s use of celebri­ties to fos­ter the value of thrifti­ness is com­mend­able, Lusardi says. “It’s re­ally im­por­tant to present this type of role model, to counter the at­ti­tude that to live a sat­is­fy­ing life, you have to spend more, fly busi­ness class, have the lat­est fash­ions, tools or gad­gets. We learn from oth­ers around us,” she says.

She says there is also value in pro­vid­ing sta­tis­tics that highlight good be­hav­iour. “When we read the sta­tis­tics, for ex­am­ple, that a coun­try doesn’t save, un­for­tu­nately this pro­vides a mes­sage: no­body is sav­ing, so why should I? Any statis­tic you can pro­vide show­ing that the youth are sav­ing more or that par­ents are adopt­ing dif­fer­ent be­hav­iours gives the idea that the peo­ple around us are also not spend­ing a lot, that they’re us­ing low-cost air­lines, not go­ing to Star­bucks ev­ery day, but rather do­ing the op­po­site. This is very im­por­tant, be­cause we are af­fected by oth­ers.

“Sav­ing is hard. It doesn’t come nat­u­rally, and so if we see other peo­ple sav­ing, that can be a big in­cen­tive. Also, images of peo­ple be­ing rich is very ap­peal­ing. But you be­come rich by sav­ing and con­sum­ing less.”

The idea of con­sum­ing less to­day isn’t ap­peal­ing be­cause it con­jures up images of self-de­nial. But if we were to as­so­ciate it with pos­i­tive images, it could be ap­peal­ing, Lusardi sug­gests. For ex­am­ple, imag­in­ing your­self in the fu­ture as wealthy, fi­nan­cially se­cure or fi­nan­cially as­tute as a re­sult of your choice to con­sume less to­day can be a pow­er­ful mo­ti­va­tion.

“We all have dreams and am­bi­tions, and we need to think about how lower con­sump­tion to­day will al­low you to reach your dreams,” she says.

Fer­nan­dez says that rather than hav­ing a wishy-washy goal to save, fo­cus your at­ten­tion on what you want to achieve or ac­quire – in other words, your rea­son for sav­ing. Most peo­ple have as­pi­ra­tions to buy a home, or a car, or to take a hol­i­day, but they don’t have a “roadmap” to get there. “It’s about plan­ning, which goes against in­stant grat­i­fi­ca­tion.”

Con­sumers also don’t al­ways un­der­stand that earn­ing well does not make you wealthy. “It’s not about how much money you make; it’s about what you do with it,” she says.

Lusardi says fi­nan­cial lit­er­acy and fi­nan­cial ed­u­ca­tion are es­sen­tial if we are to cre­ate a cul­ture of non-con­spic­u­ous con­sump­tion. “Peo­ple need to be taught to make smart money de­ci­sions. We need to em­power in­di­vid­u­als to live a truly ful­fill­ing life: one that is ful­fill­ing over a life­time and not just to­day.”

Fer­nan­dez says San­lam’s con­spic­u­ous sav­ings ini­tia­tive is about putting the spot­light on peo­ple who are com­mit­ted to work­ing hard and prac­tis­ing con­spic­u­ous sav­ing, which should come with its own set of brag­ging rights.

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