Money and the ‘Generation Gap’ – Prof Parimal Merchant, Principal Advisor-Asian Institute of Family Managed Business (AIFMB)
A young man, not very interested in the ‘boring, traditional’ family business, decided to strike out on his own and take up a job in a trendy tech company. Now his reasoning was that he would earn only around 25 thousand here, but at least he would be part of a trendy corporate culture, and hang out with the ‘cool’ crowd. So he started work, and with the first salary he got, decided to take his entire family out to dinner. His father had painstakingly built up the family business, and had been dreaming of passing it on to his son, dreams which were now dashed. Nevertheless, he put on a smile and went along, seeing how proud his son was to be taking out his family for a treat, with money that he and he alone had earned.
They arrived at the restaurant, and the son ordered for everyone, seeing they were unfamiliar with the fancy items on the menu, and indeed with the swanky environs of the restaurant itself. The meal done, it was time for the bill. The son casually called for it, and without even looking at the final amount, slipped his credit card into the bill folder and called for the waiter to take it away. The father, curious, asked how much the bill came to. The son nonchalantly said I don’t know, and why would you even want to know? This is my treat.
The father’s curiosity would not be satisfied, however, and he finally got a peek when the waiter came back with the card slip. “8000 rupees?!” the father couldn’t help but exclaim, for one meal for four people? For him, it was unthinkable to spend so much money on what was a frivolity. The son’s perspective, however was different. This, he believed, was the way to live, to enjoy life and not spend it slaving away, saving pennies like he had seen his father do. For him, it was just one more swipe, a debt that he would pay at some unforeseen time in the future.
This is not just a difference in perspective between generations, but also a reflection on two different eras. Today is a time when marketing campaigns, ‘lifestyle’ advertisements and the high living shown on movies and TV’s constantly encourage you to spend now, pay later, and living any other way is looked down upon. In our fathers’ generation, spending money meant taking your wallet out of your pocket, opening it to see how much money you had, and then counting out notes one by one and handing them over to pay for whatever you purchased. This very physical act in itself served to remind you to be prudent, since you could feel your money slipping out of your hands. Now, that physical act of counting out your money is gone, replaced with the swipe of a card that will be handed back to you once it passes through a machine. You don’t know how much money there is to spend, you don’t see it going away, and in fact, you are allowed to spend it even if the required amount is not there in your bank account.
Swiping a credit card isn’t the same as counting out cash
In the time when you had to literally count your money, one shiny paisa and one grubby note at a time, the value of money was subconsciously inculcated in you. Now, most people are unaware of how much money they have. It is all in different bank accounts, and the most you are made aware of your holdings are numbers on a screen. Even this is not the actual value of your wealth, since what you owe, to various credit card companies, the EMI’s that go to different banks, is not shown in your savings statements.
Everyone wants to have the ‘rich lifestyle.’ But who actually lives like that? Someone who is called ‘rich’ today, worked his whole to accumulate, say, one crore. Now he has invested that money and it generates 2 lakhs every month. He can afford to spend that 2 lakhs – after all, his one crore will remain intact. But he did not become rich by thinking like that. No, he will spend only 1 lakh a month, and invest the remaining lakh as well! So now that 2 lakhs of monthly income becomes 3 three lakhs, then 4… But people around him only know he earns 2 lakhs a month, and they also want to keep up, without having the asset base to do so. Naturally, they borrow money to be able to spend a 2 lakhs a month. So, even someone who earns a lakh a month will never be rich, because he ends up spending 2.
What you owe is often more than what you own
The banks tell you when your credit limit goes up, and you feel as if you have moved up in the world. You haven’t. What it means is that you are being encouraged to spend even more money that you do not own, sinking even deeper into the debt trap that you will probably not be able to come out of for your whole life. And this is the kind of spending that does not even build up any assets, assets which actually return the money you invest in them and actually start earning money for you.
The older generations knew this. They worked hard, lived frugally, saved up their whole lives just to be able to buy some assets at the end. Assets in those times usually meant property. Now, we buy property first, and then spend our whole lives paying for it. What is the difference, you may ask. After all, in both cases, we end up with the property in our name, don’t we? The difference is while the older generation were buying assets, we only end up committing liability. And having a liability hanging over us our whole lives is not a pleasant way to live. Any natural calamity, a break in our income, or a family emergency that comes along and diverts our funds, can throw our whole life out of gear. And then the liability will become a burden, and we may end up losing our asset without decreasing our debt.
Don’t Work for Money, Make Money Work for You
Our elders were too prudent to fall into this trap of accumulating liabilities instead of assets. They spent much lesser than they earned, for them every rupee mattered. Money was Lakshmi, a goddess, and it was respected accordingly. If family businesses in India have become the primary driving force of the economy, generating the employment and money that makes the country move, it is only because of the wisdom of our forefathers. They did not spend everything they earned on pleasure or leisure. They invested in shops, factories, and properties. They worked hard, and then they put their money to work. It is because of their approach to money that today’s generation has grown up in affluence, and can afford to be casual about wealth. Too casual, in fact. If they had learned lessons from their elders, they would not have bought into the ‘lifestyle’ marketing of the foreign brands. Rather than emulating their seniors, today they berate their elders for being ‘dull’ and not knowing how to ‘live’.
Is ‘living’ buying a 50k iPhone just because everyone else around you, or at least the ones you wish to emulate, is flaunting one? Most if not all things you do on the latest model of the iPhone can be done equally well on a 10k rupee phone. What makes us spend 5 times as much just for the cache that a ‘brand’ gives us? For Apple, of course, the fact that you buy into their marketing and brand image is making them laugh all the way to the bank. They become the most valuable company in the world and build up assets of billions of dollars. Just think, if instead of putting that 50k in something that would become obsolete in six months, you had invested it, it could have been the start of a business by itself. Business that, instead of being worthless in six months, could have become more and more valuable with time. It is not so far-fetched – our previous generations have built empires starting with much smaller amounts.
There is a story about a grasshopper and an ant, which, while intended for small children, applies equally to the adults of today. The grasshopper never saved up his food, indeed he laughed at the ant who slogged at storing food away for some unforeseen eventuality. That eventuality was, of course, winter. When winter came, the grasshopper starved while the ant had plenty of food to eat. So, as we aspire to be as flamboyant and carefree as the grasshopper, we should remember that it was only the tiny, humble hard-working ant who lived to see the next summer.