Growing Together: Money Psychology for Family Wealth
Individual growth with a family mindset is key to happiness and long-term wealth creation.
We often tend to focus on individual accomplishments, career progress, and financial stability. However, based on my personal experience, I have learned that placing importance on family income, rather than solely individual income, is crucial for overall well-being and long-lasting family relationships.
Couples who share financial goals are more likely to achieve long-term financial stability, experience higher relationship satisfaction, lower stress levels, and improved mental health. In my opinion, it’s not the lack of money but the lack of common financial goals that can strain relationships between couples. This article aims to help you understand the significance of money psychology within a family context in achieving happiness and long-term wealth creation.
Creating wealth for future generations requires a strategic approach. It is not surprising that children from affluent families often have greater opportunities compared to those from less privileged backgrounds. For example, doctors from wealthy families find it easier to establish their clinics, while those from less affluent backgrounds face greater challenges. Statistics show that 70% of wealthy families lose their wealth by the next generation, and a staggering 90% lose it by the generation after that. This highlights the importance of adopting a family-centered approach to building and preserving wealth.
The connection between psychology and money is a significant factor in financial growth. Money psychology refers to your emotions and behavior toward money. People often make money decisions based on emotions rather than relying on objective data. For instance, impulse buying unnecessary gadgets, making emotionally-driven real estate purchases, prioritizing egoistic desires such as owning a larger car, or indulging in expensive vacations on borrowed funds are certainly going to hinder financial goals in the long term. Money psychology plays a crucial role in shaping financial decisions and behaviors within a family. Additionally, it is important to prioritize purchasing assets over liabilities. The major difference between an asset (gold, stocks, real estate, etc.) and a liability (car, appliances, etc.) is that the former helps you make money, while the latter depreciates with time.
As a scientific editor, I read, edit, and write about 10,000 words on any given day. Sometimes, small fonts used to make me tired. I had a 22-inch screen, and although it was big enough, it was not sufficient for my needs. However, when I bought a 27-inch screen, it increased my daily screen time by 30 minutes, and believe it or not, the cost of the screen was recovered within the same month of purchase. I have seen people reluctant to upgrade tools that could actually save them time. It could be anything: a faulty paper hole puncher, a slower PC, a subpar motorcycle, an inadequate screwdriver, or a cheap internet connection. Time is money, and anything that saves you time is an asset. Also, never try to save money by not outsourcing your job. This is one of the frequent mistakes people make. If you can make 1000 per hour, and the job costs you only 200, please hire the person.
Individuals with positive beliefs about money tend to have better financial management skills and engage in activities that help build wealth. A person who grew up in financial scarcity may develop the belief that creating money is difficult, whereas someone raised in a business-oriented family may possess knowledge of multiple avenues for wealth creation.
You need to involve family members in financial decisions not just for transparency but to create leaders. Transparency is a must for trust. I never spend or lend money without informing my wife, and vice versa. We make it a point to discuss any expenses exceeding 5000 INR.
Furthermore, if you don’t involve your spouse in financial decisions, you cannot have their support in savings. It is important to justify your financial aims. For instance, instead of investing in the Public Provident Fund (PPF), an Indian saving scheme, this year I plan to save in Mahila Samman Savings Certificate. The reasons are clear: it has a shorter maturity period of 2 years, offers better interest rates, allows for premature withdrawal, and the income-tax rebate limit has been raised to 7.5 lakhs, making it more beneficial for my wife to skip the PPF investment.
A large population of women (and men too) doesn’t know the best options for 80C investments, which are Indian tax-saving schemes. On the contrary, thanks to my father’s banking background, I learned about these options before turning 18. In fact, I can calculate costs in my mind without the need for a calculator, comparing not only bank interest rates but also factoring in inflation and other possible factors and requirements such as withdrawal timing, premature withdrawal, and tax rebates.
On the other hand, my father never invests in stocks and considers them gambling. Not surprisingly, he instilled the same impression in me until 2020 when I started reading about it and developed a different perspective. I will possibly discuss that in another post.
In a nutshell, financial education within the family is of utmost importance. Get your child a bank account at the earliest opportunity (15 years in India) and let them use digital wallets. Both husband and wife should have individual bank accounts for emergency funds that can be withdrawn anytime and for managing their respective incomes. Additionally, a shared account for long-term savings is essential. If your spouse does not have a banking app on their phone, it is important to educate them about digital transactions. Remember, you are the reason for preventing digital fraud, not the person committing it.
Open and effective communication about money matters within the family is key to developing a healthy mindset about money. Providing financial education, aligning aspirations, and fostering a sense of teamwork among family members can work wonders in terms of wealth creation. Encouraging the development of skills and pursuing education not only enhances employability and income potential but also promotes personal fulfillment and self-confidence. It is important to note that economic progress is not solely an individual pursuit but a collaborative effort that involves supporting and uplifting one another, not just within the family but also within the larger community and nation.
A country cannot truly prosper if a significant portion of its population, such as women or those subjected to discrimination based on religion or other factors, is marginalized. Women’s participation in economic growth, for instance, has been a significant factor in the progress of developed countries.
I once had a laughable discussion with an orthodox Indian male about life insurance. He was against women working and believed that they should be confined to the kitchen, while men should not eat from their wives’ earnings. I countered by saying, “Well, you have life insurance, but I have a working wife.” The money spent on life insurance (which offers a poorer return than a savings account if you don’t die) goes into better investment options. I will probably do another post on the psychology of life insurance (not termed insurance) in the Indian population.
Planning for generational wealth, fostering open communication, setting goals, and providing financial education to family members can help develop a positive mindset about money. By embracing these principles, we can cultivate a stronger sense of financial well-being and create a brighter future for ourselves and the generations to come.
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Best, SKTPHD, emailsktphd@gmail.com
