Jul 22, 2008

Money Woes

i am a semi-regular reader of their blog. for all those academics & investment bankers who ridiculed levitt & dubner's highly engagings freakonomics, the book found its own fan following amongst people like me who are interested in matters beyond salma hayek's latest heartbreak or amy winehouse' hubby's recent jail sentence. even as i freaked out on the book, i realised that much of the deductions reeked of over simplification but that mattered not an iota. the reason is simple. i'd not even have cast a cursory glance if it was the stuff of ricardo's 'essay on profits'. Books like 'Freakonomics' or 'The Undercover Economist' serve the purpose of educating readers who'd otherwise have never given a thought to the corruption prevalent in the chicago public school system, the interesting conundrum of adult drug dealers still living at home with their parents & much more that the book covers. in short, the close relationship between human behavior and incentive & how much of today's crime can be controlled by studying this close connection.

reading this today set me
thinking whether what dubner is proposing here is really the correct answer to all our economic woes. i like what he says, only am less than convinced of its efficacy. extending his logic, i can also argue that schools should also teach legal affairs, that civics or political science should be more than the poor cousin who's always lumped together with 'history' in school curriculum.

i think the problem abt poor financial literacy is not so much a matter of poor education than it is of poor methodology. even when students are taught abt the basics of compound interest, they are never encouraged to apply it in their lives. also, the essential dryness of the subject & its requirement of basic mathematical ability drives women away. since it is women who are largely responsible for managing the household budget, we all know its ramifications.

of all the female relatives & friends i possess, there is not one with whom i have discussed the recent stock market crash or the chances of bridging my home loan & investing in a new property. mind you, most of them are perched pretty high on the corporate ladder & definitely have a lot more moolah at their disposal than i currently do. many have most of their money languishing in checking accounts earning no interest at all. i think one of the reasons for my interest stems frm the fact that i was brought up by a man who'd explained abt assam's double freight policy, inflation, how the war in pakistan would hurt sugar prices much before i'd even started buying my own stocks. even today, i possess but lil more than a rudimentary knowledge of such matters but i strive to understand stuff beyond the chaucer or dickens i so enjoy. also the idea of there being 'topics' that are beyond the ken of women has always seemed grossly insulting to me.

though i got all three of lusardi's questions right, i am no wiz at great investing. i think the basics of money should appeal to anyone who wants to live a good life. if i ask myself why i cannot afford a house in bandra i will be forced to find ways & means of investing my money wisely so that it earns better. it's just a matter of being aware that investing in an MF pays bettter than letting the money sit in a savings account at 4%. with an MF u dont even have to strain ur eyes checking the prices of TCS & IPCL everytime they flash across the ticker on CNBC! so, more than knowledge, its just being smart.

lastly, financial literacy has no impact unless it is coupled with a fundamental shift in the way society things & functions. forget financial education, a majority of indians have never even been to school. yet, debt is a bigger prolem in the u.s than back home. even among the 20-something youngsters who comprise the BPO crowd in india, debt & credit card defaults are still alien concepts. indians primarily are a 'savings' oriented people. our burts of consumerism are balanced by a social system where one is forced to save for his/her own house or pay for their parents' treatment or sister's marriage. there is simply no choice. this puts the brakes on instant gratification. stricter penalties for corporations for misleading customers or overextending themsleves & more stringent bankruptcy laws might solve some of the problems america is witnessing today.

the recent american elections are also an eye opener abt the way people perceive the urgency of the economic crisis looming large. despite all our concerns abt money, we still choose our elected representatives based on the emotions they generate & not on sound economic principals. most american economists argue that ron paul should have been the presidential nominee. conversely, i am not sure that having candidates who are well versed in economic fundamentals is the answer to our financial woes. even manmohan singh, sound economist that he is said to be, didn't really make headlines for pushing the disinvestment process or cushioning the inflation that is now said to be accelerating higher than it has in 13 years.

1 comment:

Anonymous said...

This is so right.