Indians and Financial Literacy

by Manshu on June 13, 2012

in Opinion

I was surprised when I came across this article in the Financial Express that cited a Visa report which found Indians to be one of the least financially literate in the world.

I couldn’t find the report and it is really impossible to say who is the least financially literate in the world, but it did remind me of an interesting incident that occurred more than a year ago.

An advertiser who was based in the US approached me for advertising on the site, and I kept referring to OneMint as a personal finance blog; at some point he stopped me and said that I’ve gone through the content and this is an investment blog, not a personal finance blog.

You hardly write about thrift and tips for saving money which is as important as investing topics, and other personal finance blogs cover such tips in a lot of detail.

My response was that Indians don’t need tips to save money as that’s something most of us are good at anyway, and if I wrote about saving money that would just bore people away, and I really don’t know what I will write to begin with.

My response obviously didn’t satisfy him because he never did advertise on the site but since that time I’ve modified my opinion a bit.

Now I think that the Indians who want to save money are good at it and don’t need the help of blogs to do it, but there are a lot of Indians who are neither interested nor good at saving, and a lot of them belong to the younger generation who don’t have the burden of family on them, and just want to have a good time.

I’m sure all of you know many folks whose salary gets over on the first itself because of the many EMIs and credit card bills that they have to pay, or someone who bought a phone that’s worth more than a month’s salary, and surely this is not a good financial habit.

Even the ones who are good at saving money may not be all that great at investing it as evidenced by the huge number of high cost ULIPs sold in the country.

I think we give ourselves more credit than we deserve and there is still a long way to go as far as financial literacy is concerned.

What do you think?

{ 60 comments… read them below or add one }

deepak June 13, 2012 at 5:33 am

We used to be good savers manshu because choices were far less earlier than what it is today. Many of my friends here in uk are just great spenders 🙂 and the worst thing is, personal finance is the last thing they want to hear,because its boring and frankly who the hell cares.

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Manshu June 13, 2012 at 5:35 am

I think that is true because there are a lot of ways to spend now from iPhones to Kindles to holidays abroad (and I’m not saying they’re bad, they are great for those who can afford them) and it is hard to resist that personal loan to take a foreign trip when all your buddies are doing it.

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DJ June 13, 2012 at 6:22 am

There is the problem of over-spending among the young folk. That is not too much of a problem if they are unmarried, etc because there is time for course correction, as long as they realize that by their late-20s.

Beyond the young folk, even among the savings-conscious, many of us Indians have this problem of “penny wise, pound foolish”. We know how to be stingy and save 10 rupees from the auto-wallah, but we do not know how to plan savings on a monthly basis for the next 10 years, or to plan for retirement, or how to invest in general. There were some savvy people who knew about investing in land and real-estate. But, understanding of stock market returns, or how to invest in debt funds is not very good. This is primarily because the middle age group and older unfortunately are not familiar with the new products out there these days. Finance has changed drastically and it is not surprising that education has not yet caught up. Ulip is a pretty big example, where even otherwise smart, educated people did not know how to plan for insurance and investment. I have had a middle-aged IIM graduate complain that he was tricked into buying a Ulip. These are challenges we have to work through.

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Manshu June 13, 2012 at 8:50 pm

This reminds me of a slightly unrelated thing that a friend told me last Sunday. He told me that some people in his circle of friends in Pune had decided that they will not haggle with sabji wallahs and pay them what they ask for because they don’t haggle with people in Pizza Hut or McDonalds then why try to save a buck off this poor guy who doesn’t have very much to begin with.

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Hemant Beniwal June 13, 2012 at 6:47 am
Manshu June 13, 2012 at 7:05 am

Thanks Hemant! What about a few thoughts on this topic from the founder of The Financial Literates? 🙂

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Jitendra P.S.Solanki June 13, 2012 at 9:25 am

Hi Manshu,

What you have written is true. One of the reason i can refer to is the high fixed rate scenario which was prevelant in India. Due to this nobody though about investing. Thats the reason why Small Savings Scheme were a huge success. But that’s changing.With scenario getting complex at least new generation and some of the older ones have to forcefully think on investing.The numbers may be small today but its growing.Information flow has played a big role in changing this thought process. I guess financial planning would not have succeded even to this extent if the inclination towards managing money has not been built up.

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Manshu June 13, 2012 at 8:59 pm

I wonder how different this landscape will look in the next few years, right now there is a real gap that exists where a lot of people who could and want to benefit from planning can’t really spare the 10 to 15k that good planners charge.

And I understand that the planners can’t go below that because of the effort this takes. I’m pretty sure this gap will be filled in the next few years, not sure how….

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harinee June 13, 2012 at 10:44 am

Financial Literacy is different from being good savers. Indians are great savers , I think being thrifty and money savvy is a cultural thing. When I wanted to pick a car in US I rememeber a friend told me just pick what majority of Indians have, it will be the best choice as they would done all the R&D.This was further proved when MNC’s entering India had to drastically slash prices or come out with alternatives when they found Indians will not buy anything for any cost just because its made in US.Maruti is a classic example that it still holds foreign competition at bay purely on pricing.
Literacy is knowing all your options, this is lacking.One reason we are not risk takers.No matter what justification given investing in Shares,MFs,ULIPs etc all have a certain risk.Every Indian does not have access to the Internet which to me is the only way to get financial literate whereas every locality has a bank and post office which make it natural choices.

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Manshu June 13, 2012 at 9:01 pm

The internet part is interesting, I mean I had never thought of it but it looks like you’re saying that you can’t get financially literate if your circumstance doesn’t allow you to have basic internet access and the more I think about it the truer it sounds.

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Indian Thoughts June 13, 2012 at 10:53 am

I know a person (shall i say my family member) who lives the lifestyle you just mentioned. He earns close to 16K monthly but spend as if he earns 30-40 K. End result, he is always asking money from family members. Totally untrustworthy when it comes to money. Incidents like some senior member giving his ATM card to withdraw X amount and he will always withdraw X+Y amount and keep thet Y amount for him.
He will not even bother to ask if he can keep that Y amount, he thinks he is entitled for it. Other then me, no body in family confronts him for this behavior, excusing him because he is youngest in family.
I have so many time tried to explain him about savings, compunding etc but all down the drain.
And he is not alone. I see so many such people around me that I wonder how come I am such a frugal person when we all are raised with same values. 🙁

IMO, Indians used to frugal at one time because of uncertainity and lack of availability of stuff in general. Now when a mere graduate is certain he will get a job plus so much stuff is available to consume, Indians are behaving just like any other group. I am not an expert not a pessimist, but I have strong feeling that in 10-15 years from now, Indians will also have huge credit card debt, I see this in younger generation alot. I am not saying all are like this but out of 5 I know, 4 are like I just ranted about.

So indians were scared which made them conservative with money but circumstances have changed for sure, IMO.

You will always write something that I feel about.

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Anon June 13, 2012 at 4:00 pm

Very well said sir. Along with credit card debt, home and education loans also imo.

I am a reasonably young person (around 26 years old) and see lots of peer pressure in making decisions which might be detrimental to our long term financial health. One reason also is the disintegration of the family structure. Most of the new jobs are getting created in cities like Bangalore, Pune, Hyd etc. A young person moving on his own has to spend a lot more on rent, food etc which would not have been the case if he stayed with his family. None of my small group of friends i have invest in stocks, ppf etc.

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Manshu June 13, 2012 at 9:07 pm

Very interesting Anon, so how do you manage to keep your head above all this and keep a control on how you spend?

Always interesting to know how people avoid falling prey to temptations.

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Indian Thoughts June 14, 2012 at 10:34 am

If you are not falling for peer pressure most of the time, you will be OK in the end. And you seem to be sensible enough for that.

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Manshu June 13, 2012 at 9:06 pm

I think this is a problem or at least a certain sense of entitlement that younger or youngest siblings have that shows in everything they do. Like even expect a lot of help on assignments etc.

The way the Indian government is working, it will soon push India back to scarcity though, so the good times may not last very long!

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Manikaran Singal June 13, 2012 at 11:03 am

Yes, indians need financial literacy badly. You can very well judge this from the example that if one earnes Rs 50k p.m salary, he calls this as a hard earned money and try to use and save it judiciously , in what ever instrument …but the intention is to save. But when the same person gets quarterly or annual bonus of Rs 50k , then he treats this 50 k as a easy money and spends without thinking on un necessary things. Till the time we don’t understand the importance of financials in our lives , treat money properly and give adequate respect to it…we’ll be called as “Financially illiterate”

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Manshu June 13, 2012 at 9:29 pm

This is obviously an important point that you bring up and a lot of planners do emphasize about the behavior aspect of money, in your experience when dealing with people, how much time do you have to spend on the behavior aspect as opposed to knowledge about products etc.

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Indian Thoughts June 14, 2012 at 10:37 am

The approach I use to turnaround this mindset is concentrate on cash flow rather then salary.
If DH suggests me that we should splurge our bonus then I tell him that he has to promise me to bring in extra cash flow for the months with extra bills ( for example insurance premiums etc), and if we can’t do that then this extra in cash flow should be saved to cover extra out flow of those months.

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ankm83 June 14, 2012 at 10:49 am

I have some people around me, who do anything to save and invest in real estate (characteristic of Indians). Since, they started early, they have couple of properties, boast around. But I feel they do not maintain a decent lifestyle symmetric to their wealth. This is another behaviroual cum monetary aspect of Indians.

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Sanjay June 17, 2012 at 4:56 pm

Just tell those people that they are not rich until they book the profit. Once they see stagnation of real estate prices they would stop boasting about.
I understand that those people have bought properties 5-10 years back and hence are in a lot of profit but real estate is in serious bubble category.

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ankm83 June 13, 2012 at 12:51 pm

In essence, Money saved is money earned.

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Manshu June 13, 2012 at 9:30 pm

yeah, that’s true but it is after all just one way of earning money 🙂

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Indian Thoughts June 14, 2012 at 10:31 am

actually money saved is better then money earned because to earn 100 rs in your pocket, you actually have to work for 120 Rs. But to save 100 Rs, its just 100 Rs.

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ankm83 June 14, 2012 at 10:40 am

Nice thought. Saving early not only helps you accumulate more (in absolute terms), but these savings are invested earlier (rather than later) and you realise the power of compounding. So save now rather than later.

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Ramesh June 13, 2012 at 1:14 pm

I donot think becoming financial literate will motivate anyone to save money, become spendthrift and stop splurging money or stop living on huge credit.

if governments can function on deficit financing, huge loans from abroad, mortgaging their citizens future, why should their people be left behind. They can also splurge, shop on credit, mortgage equity in their houses, take personal loans for tours abroad, live and enjoy life king size. Who knows there may not be a tomorrow!

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ankm83 June 13, 2012 at 4:20 pm

Ya, or otherway to look at this: Earn enough on your investments, so that you can enjoy tomorrow.

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Manshu June 13, 2012 at 9:30 pm

The government of India or any other country may not be the best role model for anyone 🙂

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bemoneyaware June 14, 2012 at 5:25 pm

But what if there is a tomorrow…then? If Mayan’s forecast of world ending in 2012 does not hold to be true then… As my school teacher used to say
“Hope for the best prepare for the worst”.

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Abhishek Sinha June 13, 2012 at 3:03 pm

Hi Manshu ,
I think its a big under statement when you say OneMint is a Personal Finance blog . Its even bigger than being an investment blog . Its quite a comprehensive Finance and State of Economy blog and a bit more .
And as far as Indians being thrifty it was quite so between 2004 -2009 when rate of household savings increased to 30% of our GDP . But with inflation being what it is the rate of household savings has decreased to about 10% of GDP Now .
As far as buying ULIPs is concerned most people buy it very foolishly . But then all the credit goes to the Financial Planners for using trust rather than the strenghts of an Investment Product for Hard Selling . And in return they get a hefty commission . I was handling NRI services in HDFC bank and we had unimaginable pressure of selling these ULIPs to our clients . Sometimes I used to feel like we are trying force the client to buy ULIPs with all knowledege and tricks at my disposal. But then used to tell myself that these Plans are good in Long Term . And as Keyenes famously said “In Long Term all of us are Dead “.

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Manshu June 13, 2012 at 9:47 pm

Thanks a lot for your kind words and your honest admission. It takes a lot to say things like that out in the open especially when using your real name.

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ankm83 June 14, 2012 at 9:15 pm

I agree with Abhishek, Onemint is much more than an investment blog. The wide breadth of topics & depth of discussion done here can put leading financial publications to shame. Most importantly, independent opinion is given here. Great job, Manshu.

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Manshu June 15, 2012 at 4:58 am

Thank you very much! Really appreciate your kind words!

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ankm83 June 13, 2012 at 4:29 pm

May be Indians are less exposed to the concept of genuine wealth management & financial planning (some distributors disguise as financial planners and miss sell, eg ULIP as you mentioned); While in the west, dedicated private wealth managers are very common. The results is personalised diagnosis of various goals and investments. In India, people get variety of information & recommendations from variety of sources and put the jigsaw puzzle pieces together. As regards saving or expenditure is concerned, Once you have clear idea of your future outlays & goals, you can always estimate (or back calculate) your required present savings (or cutting down on present expenditure if reqd), in order to achieve the goals. But, financial literacy must have improved in recent times in India

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Manshu June 13, 2012 at 9:50 pm

Yeah it has definitely improved and the free flow of information and the bad state of the market is responsible for it. It is hard to pay attention when the market is good and you’re making good money. Only when the times go bad do people actually start researching.

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ankm83 June 14, 2012 at 12:53 pm

Im sure in bad market conditions, financial illetarcy (~ keeping money in bank FD) is good, rather than loose in equity markets. Which im sure, investors in developed economies have found (although low deposit rates would have pushed them to explore other opps)

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Umesh June 14, 2012 at 4:52 pm

Hi ankm83,

You say one should not invest, in bad market conditions, to loose in equity markets. Can you tell me, if I want to invest in equities, when I should invest, which period is good for investment.

From your point of view, which was good/the best period for me to invest as per market conditions or otherwise (from 1.11.2011 to 14.6.2012)

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ankm83 June 14, 2012 at 5:15 pm

It was no prescription, my view was in a light sense, with a hindsight bias 🙂 Which period is good or bad, only time will tell.

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bemoneyaware June 14, 2012 at 5:23 pm

That is why it is suggested one should invest in equity for long term so that one can ride the downs. Often we hear “Time in the market” and not try to time the market.

The only catch is how long is long term.. For Japan it has been 25 years!

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ankm83 June 14, 2012 at 5:56 pm

Actually my reference to ignorance is bliss logic (financial illteracy) was wrt developing economies only, as the “long term -go for equity” logic has fallen flat in last 10-12 years returns, where bonds beat equity by a good margin :-). Anyways I am not one who recommends “buy for long term and forget”. Portfolio rebalancing in line with capital market expectations is very important. And remember, not all people have long term goals.

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ankm83 June 14, 2012 at 5:57 pm

Actually my reference to ignorance is bliss logic (financial illteracy) was wrt developed economies only, as the “long term -go for equity” logic has fallen flat in last 10-12 years returns, where bonds beat equity by a good margin . Anyways I am not one who recommends “buy for long term and forget”. Portfolio rebalancing in line with capital market expectations is very important. And remember, not all people have long term goals.

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ankm83 June 14, 2012 at 5:58 pm

in my first reply, by mistake wrote “developing economies”, i mean developed economies, specifically US

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Umesh June 14, 2012 at 7:00 pm

OK, you do not want to answer the question. Never mind.
According to me, the so called, bad market conditions (period) is the best time to invest. Invest only in good shares with strong fundamentals. Do not go for long period (as there is no definition of long period) as and when you get your target, cash it.

@ bemoneyware
Yes, one can not time the market, but he can time his investment.

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ankm83 June 14, 2012 at 9:05 pm

Hi Umesh, I think you took me wrong. I started my discussion on the safe investors on a rather light note that “not having invested in a declining market gives a good feeling”. This statement may have a hindsight bias, which is why I am only highlighting the behaviour of people, not prescribing an investment style. Further, my reference point is not a fresh investment to be made, its an already existing investment (i.e. someone already invested in FD feels happy seeing equity investor loose money). Now coming to fresh investment perspective, if equity market declines support reasonable valuations and fundamentals, one should invest and this is the precise logic of portfolio rebalancing. Our “ideal world fundamentally sound” companies such as Defensives (say FMCG) are the ones, who trade at highest premium during market downturn and the Cyclicals (mind you these may be fundamentally sound companies but trading at below book values e.g. Tata steel) are the ones who give the best returns from the market bottoms (when analyst forecasts for their earnings/prices have hit lows). Therefore, investing in one set of companies gives highest returns during “good market conditions”; the other give highest returns during “bad conditions”. This is the precise basis of alpha generation. I realise that this issue is judgemental and each person is entitled to have an own opinion. Which is where I end at where I started – investor behaviour is as important as investment fundamentals. 🙂

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DJ June 14, 2012 at 6:56 am

When I try to reply to a comment, I get prompted for a quick captcha type check to see that I am human, but then get redirected to a drug selling website, selling Levitra. I think there is some spam/click-jacking issue. This is on firefox. Don’t know if others have run into this.

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Indian Thoughts June 14, 2012 at 10:32 am

i don’t face this on IE

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Manshu June 14, 2012 at 5:02 pm

I posted this comment on Mac / Firefox and didn’t face any issues but thanks for letting me know. I’ll keep an eye out for trouble.

There is no captcha installed on the site so you should never be asked to use that.

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DJ June 14, 2012 at 9:05 pm

My bad, I had javascript turned off for your site using the NoScript addon. If I turn on javascript, it works fine.

However, I can bring up the same issue if I right click on “Reply” and choose to open in a new tab or window in IE or Firefox. Granted, that is something no one will usually do, so its not an issue to be concerned about. But, its still intriguing as to why it happens…

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DJ June 14, 2012 at 9:32 pm

On second thoughts, to people reading this comment: DON’T try opening the reply link on a new window, or tab.
Its not worth taking the risk, in case there is a spyware issue.

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Manshu June 14, 2012 at 9:41 pm

Thanks for letting me know again DJ. I need to figure out why this is happening. This shouldn’t happen. There is a problem here somewhere. I’ll keep you posted.

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Manshu June 15, 2012 at 4:49 am

okay, so the problem is resolved and you shouldn’t see any more of this nonsense now. It seems there was some malicious code in some of the unused themes which was doing this. Got rid of this now and thanks very much for noticing and letting me know. It is quite likely that this code was there for a long long time in the system.

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DJ June 15, 2012 at 7:08 am

Yes, I don’t see this obscure but interesting issue any more. Glad that its been resolved! 🙂

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Manshu June 18, 2012 at 12:50 am

Thanks for noticing and letting me know about this DJ.

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bemoneyaware June 14, 2012 at 5:26 pm

Didn’t face the issue on chrome or firefox!

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bemoneyaware June 14, 2012 at 12:09 pm

We don’t allow people to drive without taking a driving test yet allow them to enter complex financial world without much financial education

Where do we learn about money?We learn about interest (simple, compound) in maths in school but do we learn how to put in use? Who teaches us…mostly our parents who at times themselves are not sure about the topic and their situation was so different from ours – my parents only invested in FDs and still do. We have so many choices and hence not sure..Parents tell to invest in FDs, the neighboring uncle in LIC’s plan, bank relationship manager in MFs, mother in gold. The choices are so many and one at times decides not to do anything (which itself is a decision)

People graduated from premier education institution do not know that interest on Saving bank account is taxable and need to be reported. I didn’t when I started..and it has been such a BIG struggle learning about money. Often I have felt like the monkey with half baked knowledge and a sword in hand and this time instead of the king’s nose if my own personal financial condition.

I am reminded of the quote of Warren Buffett Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway Financial literacy is important and blogs like onemint helps one to learn something new everyday!

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ankm83 June 14, 2012 at 12:41 pm

Dont worry, Interest on saving bank account is tax free now (upto 10,000).

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bemoneyaware June 14, 2012 at 1:21 pm

Good one!!

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ankm83 June 14, 2012 at 12:50 pm

The financial literacy and willingness to explore is a function of your risk appetite. On the investment side, people with low risk apetite find keeping money in Bank a/c, fd safe (many Indians do this). On the expenditure side, even using credit cards for eg is somewhere linked to your risk aversion (some time back indians considered averse to taking credit). Another example is aversion to transacting online. However, these aspects are changing and ->>hopefully in 5-6 years from now, Visa report findings will present a different picture.

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Abhishek Sinha June 14, 2012 at 9:16 pm

I somehow feel this will go on to become one of the most popular posts on onemint.There is so much to ponder about if you read this post once again.

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Manshu June 15, 2012 at 4:58 am

Really? I’d love if that were to happen!

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Vipul August 21, 2012 at 11:08 pm

Dude..
this is the only life u got..!! enjoy
I hate this kinda habit to save money by cutting essential needs
How many times an indian family go for trips in other countries??
How many times an indian guy wears good shoes made by some big company!!??
what is style sense in indian families??
Do every one has privacy in big family in big home????
How many times they go out for shopping in mall and eat together??
we indians are obssesed with money.. we are greedy, corrupt,, and money minded!!!

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