Consumption Saving Dilemma

My niece married in a well-to-do family was frustrated. She could not deal with the family’s habit of saving every possible rupee. One thing that bothered her a lot was her inability to figure out whether the family was rich or poor. The dining table talks revolved around how much onions had become expensive.

How do you deal with these everyday stories? Setting context for these different patterns of Consumption-Saving behaviors may ease the situation.

My niece is around 30 whereas her in-laws must be around 60, the cohort fashionably christened as ‘Silvers’. Silvers represent the generation born in Independent India who lived through scarcity and lived a frugal life to provide for their life commitments. It was not unusual at the time as everyone around them had similar life style.

Saving has long been established as a virtue that no one dares to question. It is easy to find research that discusses overspending and the debt trap of middle class households worldwide. However, Indians have inherited the virtue of savings from their ancestors who believed in leaving wealth for seven generations!

Many from this cohort simply cannot make decisions about spending money despite having enough. They simply hold on to money as if it is the end. They deny themselves a more comfortable house despite the fact that they can very well afford it.

This behavior stems from the people who have self-earned money. It is difficult for them to erase the memory of tight money situation while they were growing up. They may be wealthy today, but hold back spending fearing that they would be forced to return to the tight money situation. The situation is no different even if it is inherited wealth. The fear of losing money is so high that they prefer to just hold on. Spending is psychologically painful to many.

How many of us have caught ourselves looking at the right-hand side of the menu, after making the choice to eat at a fine dining place? How many of us have chosen to turn back at the museum gates, after seeing the steep entrance fees, even after spending a fortune on the trip abroad?

The systematic denial of what might be legitimate spending, given the levels of income and wealth, is more common than we acknowledge. Savers who have denied themselves small pleasures to put money aside, hold up sacrifices and willful denial of pleasure as virtues. Most families never took vacations as the guilt involved in spending was too much to handle.

My niece understood the context but what is the way out? How do you solve a problem like this keeping intact peace and harmony? There is no better method than healthy discussion with mutual respect. Maybe she can discuss the three rules to resolve this dilemma.

First, define the Saving and Spending as percentage of the income. With increase in income over the years, both would increase without pain.

Second, allocate your wealth to current and future needs strategically. Asset allocation is not merely about deciding where to invest and for how long. It is also about how to plan the spending.

Third, cultivate the attitude that wealth is not an end but means to an end. The joys of spending on immersive experiences with loved ones, and the joys of giving away to those who need it even more, are bigger than the virtue of saving and hoarding.

Inspired by article of Uma Shashikant in http://economictimes.indiatimes.com/wealth/etwealth