Saturday, January 24, 2009

A Closer Look at Some Factors Influencing Our Financial Position

The previous post examined how Income was a result of choices made and how a person shaped up in life. It is amazing to see how our family background and our upbringing impact our attitudes and approach in later life and how this eventually links up with capacity to earn.

Let me share some of my observations here. These are not judgments or a discussion on what is right? Or what is wrong? This is an attempt to highlight some of the influencing factors.

Let me discuss one case (names, places and time not considered relevant for our discussion) in our neighbourhood that I had a ring side view for over two decades and made me ponder on what shapes financial position in later life.

This is an instance of two families with similar financial and educational background, working in very similar jobs with single earning members and staying in typical one bedroom (1BHK) apartments. A typical middle class family that one sees all over.

Children of both families attend the same school with reasonable above average intelligence. Nothing out of the ordinary here and logically the future should largely be parallel.

What happens is something like this….The child from one family goes to qualify as a brilliant doctor with top rankings and the younger child goes to be a brilliant industrial designer. Opportunities abound and monetary position is on a distinctly higher level.

In the second family, one child completes graduation and gets a job in a bank. whilst the younger becomes an engineer and gets a job in a medium sized engineering firm. Incomes are on a slightly lower level.

Let me clarify here – I am not getting into a discussion on luck, destiny or any such matter. This close observation of over two decades helped me trace many differences between these two families and I believe they have played a major role in shaping up attitudes of these children, their approach to problems, their enthusiasm, passion for anything in life, their tenacity …..infact their intellectual and emotional quotient was different.

Some of the factors have been - emphasis on education, family discipline, bonding, reading habits, outlook and attitude of parents, responses to difficult times, social networking, manners and social etiquette….etc.

I was amazed at why all these play a role in shaping our financial position, amongst others, in later life. I almost dismissed this as a one-of co-relation but then as I got deeper in the financial markets, I got an opportunity to interact with innumerable people and found that my earlier observations were not random. This kept coming back quite regularly till I was convinced that my observation were indeed not a flight of fancy.

This does not suggest in any way that we are powerless to better our lot. In fact, hard work, smart work, enthusiasm and passion are a must that need be inculcated in every child and it is our birth right to aspire for betterment in our lives and we have seen numerous instances when this has happened. Some of us will probably vouch that this has been their personal experience.

I urge readers of this post not to start an analysis of their own lives and imagine shortcomings where none existed in the first place. There is nothing right or wrong about this just as there is no agreement on How much money is enough?

In my next post, I will look at Expenses – the second aspect of the financial literacy puzzle.


Vinod_Sharma said...

Mavin, that is a wonderful factors playing a role in shaping our financial position. Sudden;y it has struck me that this is something which is largely ignored...and it actually can have a real, major impact. I think the ability to think in an entrepreneurial manner, the ability to take risks and set higher financial objectives are influenced to a great extent by this, particularly in India.

manju said...

I agree, the attitude of an individual towards work, his level of ambition, etc. would be influenced to a great degree by his family background. This would perhaps be particularly true in our Indian society, where parents have a greater influence over their children than the West.

Solilo said...

Mavin, I would have to simply agree with you because these are my thoughts too.

"Some of the factors have been - emphasis on education, family discipline, bonding, reading habits, outlook and attitude of parents, responses to difficult times, social networking, manners and social etiquette….etc."

Yes! in my opinion these are deciding factors.

Mavin said...

That's right Vinod.

A child in a family having a business would grow in an environment of new products, ideas, risks, bad debts, teji and mandi. He would be more inclined to take risks.

In a family with members working may not have that appetite for risk.

Mavin said...

Manju - Solilo

It is incredible and fascinating to study behavioural finance.

There are so many factors that influence a person's mental make-up. The best part is this make-up again is not constant and keeps changing.

Krishnan said...

Article is evolving nicely Mavin. Waiting for the next post on Expenses eagerly.

the twenty second line said...

you banged nail on its head.

L. Venkata Subramaniam said...

Well the post was going perfectly alright until you gave the factors - emphasis on education, family discipline, ....

After that there is nothing left for the reader to think. I would have liked you to have left this open for readers to list and then in your next post you should have given your position on it.

It would have made a fascinating and exciting discussion.

L. Venkata Subramaniam said...

Are you suggesting human financial position can be predicted?

Well banks routinely do it to see our "net worth" and "business value". It will be useful to compare the metrics you have listed with the ones they use.

Mavin said...

Krish - Anrosh



Your first comment - definitely food for thought. I never looked at it from that perspective. Guiding a discussion towards what I felt were important factors.

I am not suggesting that Human financial situation can be predicted as it is the outcome of so many variables. It can change over time.

Banks use quantitative criteria whilst evaluating. They miss out on subjective aspects of evaluating a personality.

My attempt is to approach financial planning from a different perspective. I find financial literacy levels are dismally low and planning gets a lower priority.

Further, it is important to demystify much of the mumbo-jumbo surrounding many financial opportunities.