Traditional financial wisdom handed over to us over generations is getting radically transformed today, thanks to how banking and finance have changed in recent times. The famous advice given by Polonius to his son Laertes "neither a borrower nor a lender be …" as written by William Shakespeare in his work "Hamlet" would be ridiculed today as a foolish statement made by an ignorant person.
Financial wisdom practiced by our parents has given way to financial planning. Personal loans, even housing loans, were practically unknown in the banking system to the previous generation. For emergencies, one had to pledge gold or borrow from usurious moneylenders. This naturally encouraged sensible persons to save whatever was possible, even though their income was low.
Our parents strongly believed in the advice of Warren Buffet "don't save what is left after spending; spend what is left after saving". No wonder India had one of the highest savings rates in the world, despite having one of the lowest per capita incomes among all countries.
Today the concepts have changed. You are bombarded day in and day out by banks and finance houses with offers of loans at cheap interest rates, consumer durables with little or nil down payments and holidays with deferred payments. Also, 24 hour TV channels highlight the virtues of the material world and how to live it up to the standards of the "so-called developed world". Naturally, the aspirational generation is thrilled at the options available, and "savings" gives way to "living it up".
The world's most prosperous country, America, had negative savings rates before the global financial crisis of 2007/8. This means they were spending more than what they were earning. Borrowers used to get above 100% loans to buy houses. Such a system had to collapse, and it happened!
The big question is - are we heading in that direction? Our forefathers used to practice and talk of the virtues of simple living and living within one's means. Borrowing for personal purposes was looked down upon. Children were taught the virtues of these and the importance of savings from early days. Do we forget these words of wisdom?
India reached its first trillion-dollar GDP in 2008. The second trillion-dollar GDP was reached around 2014, and the third trillion dollar is expected to reach any time soon. Despite its increasing wealth, the savings habits of people is on the decrease. Is it time to listen again to the words of wisdom of our forefathers? Should we not look at 'simple living, starting savings from early days and not living up to the jones as our motto?'
Covid has taught us many lessons of life, health standards, environmental protection etc. For many, it has been a time of introspection on their financial standards and profligacy. In these days of pushing the 'reset' button in many matters of life and living, let's also remember the words of wisdom on financial discipline practised by our parents and handed over to us with great care and love.
The author, TS Anantharaman, is author at Taxmann. The views expressed are personal