Jagoinvestor
February 16, 2010
“Papa Kehte Hain” problem in Personal Finance
So I was talking to this reader and came to know that her husband’s investments are done by his father. I was curious to know the reason of this and to my surprise, the biggest reason that came up was that he (the husband) has no interest in Investments and personal finance and hence he has outsourced this decision-making part to his Father!
So this guy’s father does all his mutual funds, LIC policies, PPF and other tax saving instruments, apart from that he does his non-tax saving part too. He has bought some Child ULIP’s to “secure” his grand children’s future.
Let us see this serious disease which is killing our country slowly .
Problems Which can arise due to “Papa Kehte Hain” kind of situation
- Unsuitable Psychology : As we discussed earlier, today’s world needs better way of handling investing decisions and a better psychology, A person has to be more updated these days than what our Fathers were in their days. So today’s father generally do not handle money in right way as it should be because of lack of knowledge and a different attitude.
- No Idea of Investments and documents : You may also not be aware of where your parents are investing your money ! They might not tell you about it or they may forget to tell you where the documents are kept, when is the maturity of some products and issue like these which look small but can become very major when some bad things happens.
- No Self-dependency and hence lack of knowledge: It might look rude but believe me, your parents will go some day and all of it is going to come at you some day and not knowing a lot of things that time will be a horrible situation. You don’t know how to invest, where to invest, you not knowing the rules of investing, you don’t know where you took insurance from, when is it maturing, etc,etc. It’s like starting all over again. It can be painful, you are always dependent on your parents then. Its a bad thing.
An Important question you have to ask
In today’s world most of the fathers and Uncles have no idea how to take investing decisions. It’s a new and different world now compared to their days. They have not much idea of how things should happen in today’s world.
Our fathers, grandfathers and Uncles have come from a very different time when there were no choices other than LIC polices and FD’s. The education was cheap, every one’s desires were limited and people were happy with their limited environment.
Things have changed today and now we are in a different world which has added pressure, high expectations from life, Education needs lacs today, the costliest one is for the kids these days, forget adults :). People are eating out more, people are spending more, want more (not need more) and to achieve all that we need to grow our more smartly.
Buying simple FD’s and Endowment policies will Kill you some days without letting you know.
“Most Parents today do not understand how to take investing decisions in today’s world and environment. Trusting them with this skill can be very costly in today’s world. There is no harm in evaluating if they should take it in their hand or not. Be bold!!
Why are you letting your Father take the decisions? What’s the reason for it? Is it respect and just because he is the oldest one you know in your family and he has seen more life than you? Do you think it makes him more better investor and decision taker than you or some one else? It’s not right!!
May be he is totally not suitable, Respect and “experience” is fine, but you can’t just let them take decisions just on these two criteria. It’s dangerous.
Counter Scenario
On the other hand, we have Father or elderly relatives who are really good, they are experts in field of direct stock investing. Understanding financial planning and have good experience of investing with today’s environment, it’s always advisable to take their help or at least the guidance in many cases.
At the end you have to decide if your parents are the right one’s to take decisions for your money or not? It’s a personal evaluation to be done.
Has this Happened to you? Do you know of any one who is facing similar issues? Please share your views and personal experiences.
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[…] advice may not work in current times. Jagoinvestor has listed following points in his article Papa Kehte Hain” problem in Personal Finance Quoting from […]
Manish, its far worse than parents just taking their children’s hard earned money and pumping into FDs and NSCs. I know a lady at my office who used to give all her savings to her mother who used to invest it in Gold. Exclusively. Even if rates were at 13k for 10g.
Anything else was considered too new fangled and risky by her very highly traditional and orthodox family, and this lady complied inspite of her education and exposure to modern times.
Rohan
Rohan
Yea . Financial education is not very much corelated with a personal academic education 🙂 . Most of the children feel shy to say “No” to parents on financial matters.
Manish
hi
The title is quite opt. The times have changed so we have to change with the times. In most of the families, it is the ego of the parents which is finally ending with the suffering for the children. Parents feel that the children are incapable of handling money or they may get spoilt if the money is in their name. Also in some families it has become a question of pride saying – My children are so obedient that they are handling over their income to us. The so called elderly, experienced people do not want to learn the new things and change and their beliefs are passed on to their children also. If we look around many Government employees, we can easily make out this. They are afraid to tell the children about the investments. Many people do not maintain a dairy also.
At my home I have opened individual email ids for each of the persons, the investments details will go into their email ids, this email id is used only for matters pertaining to Tax, Account statements, dairy of investments which is updated regularly once a new investment is made, pass words are kept in a hard note book which is open to the family members, the details of the contact persons pertaining to all the investments, all the insurance details ( we have only term and health insurance ) etc. The hard copies which we get regularly will be reviewed and gets filed into each individual files immediately. Children are also trained to follow the same method so that they also know where the documents and records are kept. This system took some time to practice but now it has become routine activity. Any body suggesting better system is welcome so that we can improve upon our own system
Thats great Anand ! .. I am quite surprised that some one is really following something like this in this manner . Lots of things to learn from you . you are a role model for many readers , believe me !
[…] Most times, the “Best plan” comes from one of your relatives or some one known. STOP IT PLEASE! A simple NO might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you’ll regret for life It’s just common sense that there are better advisors and consultants than your relatives or a close ones, unless they themselves are known and respected in the field (of finance). Read : “Papa Kehte Hain” problem in Personal Finance […]
Do you know that this “papa/ma kehti hai problem” is not limited to finance only. Its almost every where, since teenage I have seen kids being totally dependent on their father or mother, their parents decide what they should study, what they will become, what hobbies they should pursue! Still am observing it all around and its quite funny. A very senior friend of mine, she is a classic example of papa’s daughter. She can’t even decide on hotel or taxi without consulting her father. Can you imagine that, and her age is 34. Sometimes I feel its not the kid’s mistake, may be because he or she has been raised up in such a manner that they don’t feel confident enough.
SS
yeah correct . I wish these parents see “3 Idiots” and “tare Zameen par” 🙂 .
Manish
Nice post Manish. Great going with posts.
I have seen a lot of people around me doing the same thing.
Specially when people start earning or when people start thinking/assuming that they don’t have “TIME” and required “SKILL” for personal finance.
If some one does not have time for personal finance, time will not have finance for him/her 🙂
Waiting for your another post……
Regards,
Sachin
PS: I am reading your old posts when ever I get free time and I must say that all of them give good knowledge. Thank you for the good work.
Sachin
yes , assuming that you done have time and knowledge is a bug myth , it does not take much time and knowledge to manage things well .
manish
Adding one more point to my previous response..Inflation was also very less as compare to today.That time FD was best.
Hi Manish,
I have seen more case which u mention in counter scenario.
More over I don’t think our parents our doing wrong by parking there money in FD’s.
That time interest rate was 13-14% and money was getting double in 5 yrs n there was
no TDS also.
I think if we get same interest today there is no harm in parking money.
As There is no risk as well as no need to take care of ur product.Total
tensionless thing.
Reagrds
Yogesh
Yogesh
We are not saying that parents did wrong at their time, We are saying that the same thing may not work today !! . Yes if we get 13-14% today in FD , then I would suggest FD only 🙂
Manish
hi manish
will please write an article on ulip based pension plan ,comparing the charges and the returns so far
i will do that soon .. however just for a quick note . They are nothing but ULIP like plans only , they are called ULPP . Dont take them either . there are better ways .
Manish
There is a nice post on how returns are affected by charges/fees in ULIPs , ULPPs
http://blog.investraction.com/2010/02/beat-icici-ulips-by-upto-77-do-it.html
-debashish
Debashish
yeah , i saw that post from Deepak , nice one
Manish
Hi Manish
You are right that people outsourced their financial planning to others but the inverse is equally or perhaps more true that there are so many self made financial planners who at any sight jumps over you to take care of your finaces. earlier it was the freindly LIC agent and now they are tie clad smart laptop carrying english speaking gentlemen who can spot you (Mind it, you dont spot them, they spot you) at your bank, broker at TV over your phone and all the places.
Now a days it is a fashion at banks that if you hold over 50000 in your account the relationship manager will convince you that they can prepare the best possible plan for you (Read. “you are the bakra whom I can sell our new ULIP”). Recently I shifted my account to SBI from ICICI thinking I will get some respite. Bingo I was spotted there and the RM described me of the importance of Financial planning and he also showed me the example to convince me (a sample plan for some other client) and offered me to do my FP free. 🙂
I went through the nice looking sample plan. It described how the person needs Rs 2.0cr for retirement and presently he is short by X amount and it can be achieved if he invests 2600 Rs per month for next 30 Years. Good Everythin sounds fine till here. Here comes the next slide THE SUGGESTED INVESTMENTS for 2600 over next 30 years.
1000 – Fidelity Equity Fund – OK
600 – Magnum FMCG Fund – What ? Yes FMCG not anything else.
1000 – Hold your breath – Tata Liquid Fund Yes SIP in liquid fund for 30 years.
When I asked why a sectoral fund ? answer – over 30 years there will be many themes which come and go but FMCG will stay OOOHH LA LA.
When I questioned about Liquid fund for long term portfolio. His answer was “Sir this is what our team has discovered works best and it gives stability to portfolio and sir this plan was prepared by our branch manager and has won the Gold Medal in our Delhi convention this year so you dont worry we will manage everything for you. Yo just please fill the questionare.” What could I say ., “EXCUSE ME ! I have some urgent work but we can discuss in our next meeting.” When can we call you, sir! Bhago , Lord save me. Manish is there any place to hide for the people who dont know finances in detail.
Pramod
Very nice comment . I can feel the humour + your great understanding of the matter . I am glad we have commentators like you who understand that there are “trappers” all around us and we need to question things and not take them blindly on face 🙂 . There is no reason why a person should invest for 30 yrs in “Liquid fund” , yucckks !! .
And what FMCG , if you want to buy FMCG only , and that too for long term , you better buy some long term FMCG shares and keep it for long term . These RM will not go away and we also can not run away , we need to answer them back.
Good points overall … great !! .
Manish
Hey Manish,
Nice article. I have one question about SIP returns. I am investing in a few funds via SIP for quite sometime now. Incidentally, the other day I happened to come across this page on ICICIdirect which compares SIP & NON-SIP returns. It totally blew my mind. Please refer to the link below and let me know if there is any other way of looking at these figures or are the returns that bad. I was looking at HDFC top 200. Personally, my returns have been on the positive side but I am unable to figure how to arrive at actual SIP returns.
http://content.icicidirect.com/mutualfund/sip_fund_compare.asp?amc=302&objective=3&Submit=+Compare+
I already replied on this one i guess .
Manish
hello Manish ,
my husband , me -housewife ( n our 6- year old son) r living in US from past 10 years .Husband was first on H1 and now on L1 visa worked here on different projects ..whatever he earned in first 2-3 years of initial stay in US around 17 lacs, in 2002 our savings , he gave it all to his father , never dared to ask him what he has done to that amount .And his dear father bought a Tata sumo for himself and my brother in law also bought some farms in small town in my brother in laws’s name .. came to know about that late ..He has his own aparment in one of mumabi suburbs
but still not willing to transfer it in my husbands name .. now we have only 65 lacs+ 8 lacs worth jewellry in hand+ no home . Can u advice should we buy home with the money or take a 10 year home loan , my husband is 37 year old today , will have 11lac rs salary/annum in India with tx aftering returning ..can u please give us some useful tips..
Vrinda
Ok , you need to ask some bold questions !!
– Are you now going to rely more on parents for financial advice “assuming” they know better ?
– Are you willing to work for more years in US so that you can make some good money in short time and then use that in india .
Overall
1. I can see that you can make some real estate investment and take it on Loan (make sure you are in your limits) and then put it on rent till you are back in india , you will have a house too and some monthly income too .
2. You can put your money 65 lacs + 8 lacs again in some Debt fund initially and then transfer some money monthly to an equity fund every month (SWP) , do this for 40-50% money , rest part you can use for downpayment of house .
3. Do your financial planning .
Manish
Thanks Manish , for ur quick and thougtful advice ..
1. No way , never !
2. we will be returning to India next year in May 2011 .as coping with hindi /marathi will become difficult for our son if we keep postponing our decision .
SO we still have one yr in hand ..my husband has earned more than 40 social security credits ,during his 10 yrs work time here . so if till his retirement age if American economy stays stable/exists ,we will get some benefit ..
After her marriage , My sis -in- law is now living in the (father -in -law’s ) vacant apartment , where I lived for a 6 months before coming to US .. + my in-laws think that my husband is earning in lacs every month so he can manage on his own after coming to India.
We have decided not to go on India -vacation this year , as we will have to spend almost 1.30 lacs on air tickets again my husband will get 20 -25 days leave as its very tough to get a long leave as being onsite..The time we will get (25 days)will not be sufficient to decide our future home / verify property papers and lot of other hassels , do a big investment where we r going to give out a bii amount ..so for sure we will buy a 3-4 year old resale flat in Pune or Mumbai next year ..
Vrinda
Looks a good plan . overall you should be comfortable with what ever you decide . Its a good idea to leave the vacation idea for India , better settle with a local vacation this time .
Manish
Manish,
I have been following your blog for a few months. It is rare to see such well thought of articles and neutral in opinion in today’s world.
I am one of those so called HNI’s and it is amazing what the “wealth advisors” try to sell to you. I read extensively and find that you have an extraordinary amount of common sense (very uncommon in today’s world) !!
Keep up the good work.
Mohan
Nice to hear from you . As you are HNI , you can be a common target for most of the agents and even CFP (financial planner) , because you are the cream 😉 . So make sure that there persistence of selling unsuitable products to you does not get heavy on your patience to say no . Nice to know you are liking it here . Keep coming 🙂
Manish
Dear Manish,
I must congratulate you for bringing out the real reasons for bad investment decisions.
And believe me, even though I was knowing that my parent could be wrong, I was emotionally torn apart due to :
1. They are my parents .. how can they be wrong when all they ant is good for us children.
2. They have more experience. So whatever decisions they are taking must be good.
3. Financial matters were never taught to us till I was on my own after my post-graduation.
4. Whenever I tried to convince them of alternative financial decisions, they just REFUSE to get convinced. They unknowingly reprimand children for “Being toooooo smart” (Ye kal kaa baccha … tu kyaa samjhegaa ??)
5. The best investments are still .. LIC, Land investments & PPF.
6. Negative attitude for present generation … like things were much much better in our days, those were golden days. Now inflation has risen so much .. you are in difficult times … (But hey, they just STOP there. They don’t go on to provide solutions as to what can be done to overcome these problems. They just think that whatever they are doing, is ONLY right. But they need to learn that “WHAT IS RIGHT is more important than WHO IS RIGHT”. And by the time they realize this truth, it may have been pretty too late.)
This does not mean I have bad parents. They are one of the best ones. But then the financial attitude was as mentioned above.
Message : Today’s young generation should not depend upon parents / close relatives for proper financial advice. Instead they should do their own homework and decide what is really good after considering all advices.
–Jitendra, Pune
Well said.
Jitendra
Nice points from our side 🙂 . We have to understand that parents will not be able to change themselves . so we have to make sure we educate them and change things 🙂
Manish
Manish
Accepted
Equity is not for them..
Also they were (are) steeped in what I call ” The Indian Socialist Consensus ” like
” Government Job is the best “, ” Rich are bad, poor are good ” mentality
But for people in their 30s equity is one of the best ways to grow wealth
Dr Mohammed
Yes , they will have lot of difiiculty in accepting these things 🙂 .
Manish
Dear Manish
You are right
We Indians have a culture of obeying our elders instinctively
Nothing wrong in that..
But the problem is that most of elders regard the stock market as a gamblers den in spite of the large number remarkable companies listed there..
The only investments my father talks about is FD & Real Estate.. The first one gives negative return compared to inflation and the second one is sort of permanently rigged in favour of the seller with high transaction costs.
Dr Mohammed
Yes , one of thing is that now it will be very difficult for them to understand these things as they are now old and as per their risk appetite they should not choose equity too much 🙂 .
Its more of products for us . what do you think ?
Manish
Manish,
I wanna take a demat account. Which provider would you suggest? Wanna trade.
Mukul
what do you want to trade ? Options ? Futures ? Shares ? Intraday ? how many times a month (rough figure) . I do it at icicidirect , though its costly , i do very less trading so it works for me . ICICIDirect , sharekhan , reliance money , these are good ones .
Manish
Manish,
Quite simply, shares. nothing else so far. May be twice a month or even once.
Manish,
Please check your section:stopping ulips b4 3 yrs section. got a question waiting for u.
I will get back on that one soon 😉
Manish
In that case anything will be ok . just make sure yearly charges are less , as your main expense is that cost .
Manish
Hi Manish,
1 Question: I am interested in moving my investments majorly into Mutual Funds and stock market. However, I am not very comfortable with the idea that only proof that I have invested my money is Mutual Funds is the number which gets shown on my broker’s website (in my case icicidirect.com). Is there a way for me to get paper documents for the amounts I invest in any stock/MF online?
Puneet
Yes, you can get the hardcopy of proof , ask your MF company to send you that or ask agent who sold that to you . However online buying is safe , dont worry 😉
Manish
Somehow I think the attitude for Parents or Risk-averse young generation to stick to LIC, FD or BankSaving accounts comes from some of the Incidents that happened in the Stock Market such as Harshad Mehta, Kethan Parekh cases, 2000/2001 Dot Com burst, Recent recession, Satyam cases etc etc and without proper understanding of how Market works, large percentage of people have LOST money/house/standard of Leaving/Confidence in market either following hurd or choosing wrong Stocks/MF or buying high/Wrong time. It takes times and courage to change this attitude..
MG
very nice point here . yes , i would say that these kind of incidents have somewhere contributed to the fear and attitude that MF , equity is wrong . But the problem is that they see just one side of this and make 100% conclusion , untill they know the other side (can happen through education only) they will not be able to understand things well .
Any suggestions on how this can be done ?
Manish
Good one Manish…
It always good to have suggestion and ideas from them but the final decision should be ours. By doing this, in a way we are helping our parents by reducing their work load and burden.
Krish
Nice point . yes we should always involve them in discussions and also educate them . they are helpful while setting goals and exploring unthought issues in every goal setting , but the final decision has to be yours only . its like “Suno sab ki , karo mann ki” .
Manish