Disciplining ourselves financially

Judging by the vehicles on our roads, the smart phones in our pockets, and large flat screen televisions adorning our walls, you could be forgiven for thinking that Bhutan is not a least developed country.

Back stage, the reality is not as gold as the iPhone found in hundreds of hemchus or branded purses.

We sometimes hear stories of people selling ancestral land to buy a Prado or of families taking loans to go on vacations to Bangkok. These may be extreme examples, but such cases reflect how consumerist we are today. We love spending.

We could probably be forgiven for our impulses. It hasn’t been long since we emerged from being a barter society. Saving, investing, and insurance, among others are still fairly new concepts.

But with the economy monetized the time has come to change our financial habits. Bhutan urgently needs a savings culture.

Financial literacy is poor in Bhutan, especially among rural communities and the low-income groups.

An obvious step is to continue raising awareness about the benefits of saving money, and it is comforting to know that a national action plan is awaiting approval.

Any plan would use television, the newspapers, and radio to get across the message of how savings can benefit, but it is important that the content is designed so that it is relevant to Bhutanese society, and provide examples we can relate to.

Financial literacy should also be inculcated into the school curriculum, so the young are equipped with the financial discipline required to equip them to survive in a competitive world.

For the financially literate, it would make sense to begin developing a savings culture in your children at an early age. This can be achieved by making them understand that they can have that very expensive toy but if they do some chores and earn a cash reward, which they can then save to eventually afford it.

Developing financial literacy is a two-way street. The banks too must encourage this habit by being innovative and offering attractive products that makes it worthwhile to save. Yes, there are a few products, one aimed at children, the other at farmers, among others. But what could perhaps encourage savings in the near future is a revision of the savings interest rate.

It is important that the inflation rate is accounted for prior to determining the interest rate. If inflation is equal to or more than the interest rate then saving money would make no sense as earnings on interest are then eroded by inflation.

When the customer is aware that inflation devalues purchasing power of money, you only discourage them from saving.

The banks can also make it easier to save. The introduction of cash deposit ATMs is timely, perhaps overdue. Internet and mobile banking in Bhutan also needs to become easier and closer to real-time. Banks abroad have developed mobile apps that track customer spending habits and provide information that can encourage behavioral change.

But a recent study has shown that many who reside in rural areas are discouraged from using technology for their banking needs. There is a need for the banks to go the extra mile and accommodate this clientele. It would not be asking too much for banks to designate one or two officials to guide those who are unsure of how to operate an ATM.

The government could also provide incentives to encourage more banks to compete in the rural areas.

Only by meeting half way can savings be encouraged and horrible stories of bad loans and incredulous financial behaviour avoided.

1 reply
  1. irfan
    irfan says:

    So for a behavioural change to happen in expenditure trends and our investment philosophies, we want our banks to come up with more innovative banking services and financial products or commodities. But that alone will not be considered enough unless there is a healthy competition promoted in the sector of banking and investment.

    Increase in access to savings in one way can also introduce access to loan for investments in another way. Both can be very tricky without the right set of calculations in place for interests in borrowing and costs associated with expenditures and investments.

    Purchasing power of money can’t always be just about uninterrupted supply of one currency in an economy. When supply gets unrestricted, inflation is bound to happen. Or, is it actually so when there is nothing restricting the ever increasing demand for employment in an economy. No one wants to pay and work; we work so that we can be paid for.

    And if our savings start to loss its values and purchasing power due to inflation in the economy, we do have a reason to blame prices for that. So we need competition in all sections of the market to get more for what we spend today and even years from now. Any falling prices can potentially devalue an already managed inventory which has been accounted for. But treatments to the logistics chain both on supply and demand side can be altered for the correction and still, no businesses involved in finance or banking or both would like to consider their profit objectives same as that of the ones involved in inventory management and logistics solutions.

    It’s unfortunate that in an inventory, products in quantity and prices in quality usually don’t multiply. So when we promote savings in a economy, we do expect people to get more returns through increased interest rates. But money that is spent, borrowed or invested today will have its pre calculated future values when inflation trends get factored in for risk evaluations and analysis. No one, real or artificial, should be feeling lucky the day it dies.

    Unemployment and under-employment have been a reality in so many economies today. We all need to save whenever there is the opportunity. But there is usually no guarantee to that future value of our monetary or physical assets. Every value considered for future will partly be balanced with costs or we are having periodic corrections in the economy. But the question is exactly where and how the things are getting corrected. And still, it makes good sense to save and invest even though the corrective measures in the economy are always beyond our understanding or control. At best, we all can try to be good students of economics.

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