MANAGING AND INVESTING MONEY

Anya

When Aman and I were growing up, our parents would keep talking about us needing to understand ‘the value of money’. I didn’t quite get it until I started college and had to manage my own money. When I was living at home, I took a bunch of things for granted. I didn’t have to order groceries or pay the electricity and telephone bills.

Things changed when I came to America. Unlike Aman, who lives in a hostel, I live with three other girls in an apartment near our university. It’s fun, but it’s a lot more responsibility than I had originally bargained for.

‘It’s a real pain having to figure out bills and meals,’ I told Aman when we were both home during our first term break.

He shook his head. ‘Hostels are worse,’ he insisted. ‘The food’s terrible and the hot water runs out at seven in the morning.’

‘Thankfully, I don’t have to deal with the hot water running out,’ I said. ‘Except for that time it was Richa’s turn to pay the electricity bill and she forgot, which meant our electricity supply was cut off altogether.’

‘That Richa woman is bad news,’ Aman said, wrinkling his nose. He’d met my flatmates once and had taken an instant and unreasonable dislike to Richa.

‘She’s not all that terrible,’ I said. ‘She’s from a really rich family and she’s used to other people doing everything for her. It was tough in the beginning because Geetika and Latha are from small towns and their parents aren’t very well off. They know how to do everything around the house. Even I found it difficult to keep up with them.’

‘How do you guys manage when you want to go out for a meal or something?’ Aman asked. ‘Doesn’t Richie Richa insist on eating only at five-star restaurants?’

‘Not really,’ I said. ‘She did suggest a rather expensive place once, but after Latha told her that she and Geetika couldn’t afford to go there, she’s gone with us to places we choose. I think she does go to really fancy restaurants with some of the other rich kids occasionally.’

‘We always go to the cheaper places as well,’ Aman responded. ‘And you know, I like it that way. I think we grew up in a bit of a bubble in Mumbai. When Mom and Dad kept saying we were pampered here, I didn’t believe them. It’s only after I left home that I realized how privileged we are compared to most of my classmates.’

‘How do you manage it all?’

Aman shrugged. ‘You know, some of my friends are a lot richer,’ he said. ‘I used to feel like I needed to match up to their standards. But that’s a rather short-sighted way of looking at things. Real friends will like you for who you are, not for the brands you wear or the places you go to. So now I just tell them if I’m not comfortable splurging on something expensive with them.’

‘But what about people who are less privileged?’ I was curious now. Aman suddenly sounded so mature and balanced. It seemed like he was better at figuring some of these things out than I was.

‘With friends or classmates who aren’t as well off as you, you should make sure that you don’t make them uncomfortable by flaunting what you have. Friendship is about liking, trusting and respecting each other, and money should not be brought into the equation.’

Mom came into the room and caught the tail end of what Aman was saying.

‘Wow, this sounds like a rather heavy conversation,’ she said, raising her eyebrows. ‘Should I go away and come back after a bit?’

Aman laughed. ‘Don’t be silly, Mom! Anya and I were talking about how lucky we are to have such comfortable lives. Some of our friends aren’t as lucky. We’re only now realizing how hard you and Dad have worked to provide for us.’

Mom sat down next to us. ‘We were lucky too,’ she said. ‘Your grandparents gave us a good education.’

‘But, Mom,’ Aman said, ‘I know other people who are just as well educated as you and Dad, and they even have good jobs. But they seem to be a lot worse off. How come?’

‘Maybe they didn’t invest well,’ Mom pondered. ‘Do you remember how Dad explained the concept of saving to you when you were kids?’

‘Yes,’ we chorused. Those sessions on money had made us feel really grown-up.

‘So just saving money isn’t enough,’ Mom went on. ‘You also need to make sure that the money you save is invested, so that it grows. I’m sure you guys have learnt about inflation?’

‘Of course, Mom,’ I sighed. ‘We’re in college now, not primary school!’

‘Time flies,’ Mom said, ruffling my hair affectionately. ‘It seems like yesterday that you two were going to kindergarten.’

‘So, what about inflation?’ Aman asked, clearly wanting to get Mom back on track before she started reminiscing about our childhood.

‘Inflation is the rate at which prices go up,’ Mom said. ‘Even since you were kids, which was only a few years ago, things have become a lot more expensive.’

‘Like chocolate,’ I said, grinning at Aman. ‘We were cribbing about it just yesterday!’

Mom laughed. ‘Yes, like chocolate and petrol and groceries and pretty much everything else. If you leave your money in a savings account, the rate of interest is lower than the rate of inflation. So, although it looks like your money is growing, after a few years, it’s actually worth less than it was when you deposited it.’

That sounded a bit complicated. Both Aman and I thought about this for a few seconds.

Inflation is defined as the general increase in prices of goods and services over time. This can happen because the demand for a particular object or service is higher than the supply, or when the supply of money in the economy goes up. When inflation occurs, the same amount of money buys less than it did earlier.

‘Okay, say I deposit Rs 100,’ Aman said. ‘After around two years it’ll become Rs 110. Today, I can buy five chocolates with it, but after two years I’ll be able to buy only four because the price of chocolate goes up even more. Is that what you mean?’

‘That’s exactly what I mean,’ Mom said. ‘So you need to invest your money in something that gives you a higher return.’

‘Like fixed deposits?’ I asked. ‘Or do you mean the stock market?’

‘Fixed deposits give you a higher rate of interest than savings accounts do,’ Mom said. ‘And they’re a really safe investment. But often, the stock market will give you an even higher return.’

‘Isn’t investing in the stock market really risky?’ Aman asked in alarm. ‘I saw an article in the paper just the other day about someone who lost crores because he made a bad investment!’

‘When you invest in the stock market, you’re buying shares of the company you invest in,’ Mom said, smiling at Aman’s expression. ‘That means if the company does well, you get a share of the profits. The more you invest, the larger your share is. Your dad’s really good at analyzing how well or badly a company is doing, and how it’s likely to do in the future. Most of the investments he’s made have done really well.’

‘What about you, Mom?’ I asked. ‘I once heard you tell Dadi that you prefer mutual funds.’

Mom nodded. ‘Yes,’ she said, ‘I’m not as good at analyzing the markets as your Dad is. I take his advice when I want to invest in the stock market. But the investments I make on my own are in mutual funds. A mutual fund pools together investments made by a lot of small investors like me. This pool of money is then invested in the stock market by a professional fund manager, who understands investments much better than I do. I get returns that are almost as high as what I would get from trading in the stock market, without having to analyze companies and track their performance.’

The stock market allows you to buy and sell stocks (also known as shares) in companies. A stock or a share is a part of a company that can be bought and sold—it represents a share of the company. When you buy a stock, you become a part-owner of the company and get a share of the company’s profit. Companies sell shares when they need money to invest in their business. The people who buy the shares become shareholders in the company and can trade (buy or sell) stocks on the stock exchange. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are the two big exchanges through which Indian investors can buy and sell shares. The prices of shares go up and down depending on how well the company is doing. Investors try to buy shares of companies at a low price and sell them when the price rises. For this, they need to analyze the performance of the company and predict whether it is likely to do well.

‘Sounds smart,’ I said.

‘Did you guys have to start saving for our college education when we were really little?’ Aman asked. ‘Dad was telling me that you took out insurance policies for us.’

‘Insurance policies are to protect us if something bad happens,’ I said. ‘How would taking a policy help for our education?’

‘Both of you are right,’ Mom said. ‘If something happens to me or Dad, the two of you will have enough money to complete your education and live comfortably till you start working. We started paying an insurance premium every year from when you were really little. Some of the policies we took are linked to investments as well. The way these work, we get some money back, even though nothing has happened to us, and that’s what we’re using to fund a lot of your education.’

‘Sometimes I feel rather bad that we’ve been so lucky while others aren’t so fortunate,’ I said. ‘I feel like I should be doing a lot more for society.’

‘So do I,’ Aman agreed. ‘When I begin working, I’ll start contributing money to charities.’

‘That’s a good idea,’ Mom said. ‘There are a lot of people in the world who need help, and there are many ways in which you can help them. You could contribute money to charitable causes, you could work for an NGO or you could help people in your immediate community.’

‘We could volunteer with an NGO even now,’ I said. ‘It’s just really difficult with classes and projects.’

‘Whenever it’s possible for you to contribute, you should try and do as much as you can,’ Mom said. ‘There’ll be certain stages in your life when you may feel that you don’t have either the time or the spare cash to contribute to society. That’s okay too.’

‘So when should we start saving money?’ I asked. ‘When we start working we may not be earning enough to save, let alone give money to charity!’

‘You should start saving the day you start earning,’ Mom replied. ‘Even if it’s a very small amount. You need a lot of discipline to build the habit of saving. Before you buy anything, it’s always a good idea to pause and think a little. Why do you need it? Do you need it immediately? Is there something that you already have that will do the job? Is there a less expensive option?’

‘Growing up is more complicated than I thought it would be,’ Aman said, pulling a face. ‘So many of my classmates are only focused on getting a good job after college and earning lots of money.’

Mom looked a little sad when she heard that. ‘There’s so much more to life than money,’ she said. ‘During your college years, you should spend your time learning as much as you can, not only from books but also from people around you. When it comes to your career, try and choose something you will enjoy doing. You need to earn enough to live a comfortable life, but don’t make choices solely based on money.’

‘I keep hearing adults complain about their jobs,’ Aman said. ‘It sounds like they stay in those careers just to earn money. I don’t want to end up like that. I want to do something I like, the way you do.’

‘It’s always best to have a job that you enjoy doing,’ Mom said. ‘Career options were limited when my generation started working, so a lot of people got stuck in jobs they didn’t really like. Things will be easier for you. There are a lot more choices available, and there’s also a lot more information available as well. You’re more likely to be successful in your career if you’re doing something you want to do and are excited about.’

‘That makes sense,’ I said. ‘Mom, is there anything else you think we should know about money and careers?’

‘Are you actually asking for my advice?’ Mom asked, her eyebrows shooting up in mock astonishment. ‘I thought teenagers knew everything!’

‘Mom . . .’ Aman and I groaned. When we left for college, both of us had been in a bratty, know-it-all phase, and Mom clearly wasn’t going to let us off the hook easily.

‘We’re figuring out that there are a lot of things we still don’t know,’ Aman said. ‘So yeah, here’s your chance—hit us with whatever you’ve got!’ He said the last bit in a funny American-gangster accent, and Mom and I cracked up.

‘I’ll save the long version of the career conversation for tomorrow,’ Mom said. ‘And I think over the years, between Dad, Dadi and me, we’ve told you a lot about money. Manage your money well but don’t let it take over your life. Spend on things that you need or on people you care about, and avoid wastefulness. Be conscious of our environment. Everything you consume uses up natural resources. My generation has been a very wasteful one, and your generation will have to learn from the mistakes we made so that you don’t damage the planet further.’

She paused, looking at our unusually serious faces. ‘Now that’s enough preaching from me,’ she laughed. ‘Come on, I’m making burritos for dinner—I need all the help I can get!’

MONEY MATTERS

Exercise 1

If Santa Claus leaves Rs 1000 in your stocking this Christmas, with the only condition being that you have to invest the money, not spend it, what are the options you have?

Exercise 2

Which one of these is a safer investment?

Investing in the stock market

OR

A fixed deposit with your bank

Exercise 3

If you don’t have the time to track stock markets and company performances, is there any way in which you can invest in the stock market?

Exercise 4

Write down the names of the two big stock exchanges in India.