Money multiplier

One of the comparatively lighter and slightly humorous aspects of otherwise very serious disruption, demonetisation, was the cash saved by ladies of the households coming into the system. I can’t say whether it’s unique to India or is a worldwide phenomenon, but I have always seen my grandmother, then my mother and now my wife, making small savings out of the monthly household expenses and keeping such savings tucked away somewhere. Of course, there is no ulterior motive behind such painstaking saving other than helping the household in the face of some unforeseen contingency!

We Indians have always been savers. I clearly remember having a piggy bank in which all the gifted money and the saved pocket money would be deposited. I also remember the satisfaction when this piggy bank was broken open and those small savings acquired reasonable proportion to buy a book or a toy!

With the development of economy and overall general affluence, the simple piggy bank, household savings by home makers and money kept in banks are considered unsophisticated and investment advisors talk about various classes of investments. We’re advised that money lying in bank, less the TDS on interest earned, actually is giving you negative returns considering the rate of inflation (of course by this standard the monies in piggy banks and tucked away in nooks and corners by the ladies of the house are dead investments) and that we must diversify our investments/savings amongst different classes of investments viz. stock market (either directly in shares or in Mutual Funds) , real estate and gold. Systematic Investment Plan (SIP) is a good option to save small amounts every month, gradually building your MF portfolio.

While I don’t disagree and consider the advice of having a diversified portfolio very prudent indeed, what I consider important is the habit to save ! I do not favour simple savings by children in their piggy banks, monies tucked in nooks and corners by housewives and monies kept in savings and fixed deposit accounts with banks being termed unsophisticated. A saving is saving, how much small or unsophisticated it may be! When small sums accumulate to become a relatively larger sum, it is always welcomed irrespective of the mean through which it has been accumulated. Of course, money should be made to earn more money, but let the economics of negative returns, non diversified portfolio and unsophisticated means be the domain of financial experts and investment advisors. For the common man, let the expenses be lower than the income and habit of forced monthly saving be the one amongst several lessons that parents teach to their youngsters to prepare them to face the challenges of the world!

This though struck me today when I saw a FB post by a retired senior banker, an erstwhile colleague, lamenting the serious erosion of his stock market investments consequent to the bloodbath on Dalal street! I have also seen serious liquidity crisis faced by the investors in real estate and gold. There seems to be nothing savvy about investments or experts either because market is wicked at its very best and market dynamics unfathomable! When the markets play truant and economy is in doldrums, no class of investments will appear classy! We should not keep all eggs in one basket, and as long as we have some eggs saved for a rainy day, it’s good enough! Rest all is matter of choice and luck!