I came across this post from Ranjan asking “why can’t we handle Personal Finance properly”? The reasons he mentioned sounded very superficial to me; they are just shallow in my opinion (with all due respect to Ranjan).
As per my understanding, “Personal Finance” implies detailed analysis of financial flow of an individual at various point in time. Please carefully note that Personal Finance is not synonymous to having knowledge about stocks quotes, mutual funds, insurance or pension policies.
The single biggest reason why we can not handle personal finance properly, is because from childhood we are never taught to think about money in that fashion, making us believe that it is a materialistic entity that is just a means to satisfies our immediate material needs.
How many people remember their first lesson in personal finance or handling money given to them during childhood? I remember, the first time I was given money (it was 10 paisa), which I could independently spend, I rushed to the near-by kirana store to buy that juicy candy bar. When was the last time your parents tutored you on personal finance and importance of setting financial goals? (I am not talking about parent pestering for buying property etc). Also whatever limited parental advise that most youngsters receive regarding personal finance is based on their personal experience at burning their hands with specific financial tools.
In India, at the least, I’ve never heard about creating personal financial goals from my parents and I have not met anyone whose parents told them about it. In effect, people start accumulating their debts and then the financial situation blows out of proportion. I guess, they themselves never heard about it from their parents and did not find it important enough to be delivered to their off springs.
The biggest confusion among most people regarding financial planning stems from the fact that:
- They fail to understand their financial dreams
- They fail to prioritize and reach their dream financial goals
- They fail to learn and make the strategies either individually or using some professional advisor to achieve their goals.
- They lack the persistence to transform their dream goals into reality by executing and re-aligning their strategies.
And this confusion is carried over from them to their next generations and generations. Unless people realize that managing personal finance involve setting goals, creating strategies to achieve those goals and sticking to it, Personal Finance will remain an arcane and unmanageable subject.