Not perfect, but it’s still good

Has it happened to you? You know, you need to decide on something, but the fear of taking the wrong call makes you freeze. I have noticed that I push the decision to a dark corner of the brain, promising that I will deal with it ‘soon’. Years go by, but ‘soon’ doesn’t become now. Over the years, I’ve learnt to notice when the stealthy creature in the brain begins to slide the problem away. That’s the trigger to yank the problem back under the spotlight. I’ve learnt that to plunge head-first into the most unpleasant task frees up space for other stuff later. It also unchains the mind from the guilty tap-tap-tap of the big hairy decision that lurks in the background growling for attention. I’ve learnt that a sub-optimal decision is still better than no decision. At least you’ve moved from the rut of inaction into doing something. Mistakes can be corrected but to resurrect something from an ossified state is so much more difficult.

This, I find, works equally well for financial decisions as well. There is something very final about choosing a financial product—which is something that you cannot see, touch, feel or taste and whose moment of truth is far into the distance. I find that it has worked better when I’ve gone ahead and taken a decision rather than not moved from status quo. Other than products that are built like traps and swallow up your money if you change your mind, most products have an exit route open, sometimes at a small cost. So, rather than stress about the ‘wrong’ decision, it is better to go ahead with a small toe in the water rather than stay away from the swim.

The other complication with a financial decision is the pressure to choose the ‘best’ investment. We all have sat in meetings or social dos where some people brag about their wins on the stock market or how they’ve quadrupled their real estate investment. The pressure such messaging puts on the listener is huge. You don’t want to be the dunce in the group who is the only loser who does not double her money each time the market rises. Of course, you don’t get to hear the stories about the losses the same winners have had to take home. If the punt doesn’t work, such people turn the ‘short-term’ gamble into a ‘long-term’ investment. Of course, those who invested in some junk stocks in 2008, are still waiting for ‘long-term’ to kick in.

This is what I have understood: it’s better to stay with what you understand in money decisions than to get into products that you do not. Don’t jump into the deep end of the pool without knowing how to swim.

Even with this clarity, the final act of making the actual transaction gets postponed because of operational issues of not having the right paperwork. The work gets done when the road is clear. I call it the ‘clear the runway’ method. The final act of buying a product or renewing a policy or repaying a loan gets stuck because the runway is cluttered. In the financial world, this clutter is made up of documents that you need to have handy when making the transaction (think Permanent Account Number card, address proof, photo identity), or even account information (account numbers, user names, passwords) and the compatibility of your bank account with the product vendor. Notice at what point you abandon the decision to buy a product—nine times out of 10 it will be due to some operational roadblock. Clear the runway and see how the efficiency of your financial life goes up. Transactional ease will also make it easier to reverse ‘wrong’ decisions and get into ‘right’ products.

End note: It has been almost two years since the Securities and Exchange Board of India (Sebi) instructed mutual funds to use two basis points of the daily net assets for financial literacy. (One basis point is one-hundredth of a percentage point.) As the size of the industry rises, the spending is soaring from 160 crore last year to well over 200 crore in the current year. While some good work is being done in this space, the buzz from on-the-ground reports is that the money is getting diverted to compensate distributors. There are stories of banners being changed and photographs being taken of the same venue to tick the regulatory box. There are other stories of the same set of ‘learners’ sitting through several trainings and getting a small kickback for the effort. Yet others of big agents agreeing to ‘fix’ the regulatory boxes and pocketing the money for no education done. Sebi needs to come out with a report on the efficacy of this effort soon.

Monika Halan works in the area of financial literacy and financial intermediation policy and is a certified financial planner. She is editor, Mint Money, Yale World Fellow 2011 and on the board of FPSB India. She can be reached at expenseaccount@livemint.com