Money is about what goes on inside our heads

A friend worries about not doing enough for her daughter. The daughter’s now married and has a girl of her own. The single mum, my friend, periodically calls up to ask what she should do for her daughter. Of late the calls have been more frantic. She’s afraid that she’s been left behind in the real estate boom and is chasing the multi-bagger that has eluded her. People all around her have made huge pots from smart real estate investing and she’s just not done anything. A self-employed person who lives off her own small business, she wants to give a good start to her child. Egging her on is the 30 lakh sitting in her bank account telling her to go ahead and do something bold. I ask her three questions. One, if you stop working what will you live on? Two, do you have the energy and patience for the run-around that land requires? Three, do you really need to do more for your child than you have already done?

The answers to all three questions are linked. No, she doesn’t have a large asset base to fall back on if she stops working. The cash in the bank, when invested, will be part of her income; the rest is invested in equity funds. No, she does not have the mind-set to do what real estate investing takes. She says she’s the happy-go-lucky type who is not very regular with monitoring her money. No, she says, she feels she’s done quite enough already, though of course, like a good Indian mum, can always do more.

Lots of non-money stuff is going on here. At the core is the loose cash in the bank screaming to be spent or put into something that looks like a great investment. Tendrils of thought around this core lead to many different directions. One tendril gets her thinking about the family lunch where she may have a story to tell when the boys are all talking about their big punts on the real estate market and the sister-in-laws are shaking the diamond eardrops in indulgent approval. The other goes towards her daughter and her new life and the desire to help in buying a house for her family. Another goes to the strong desire to do something smart with the money, so what if she’s single. She can manage just as well.

An hour of conversation later, we drill down to what she really needs: income security in her old age. Money is really not about itself, but about relationships and their power structure. It’s about fear and greed as two sides of a coin. It’s about self-worth. It’s about feeling in control. When such giants are on the stage, the dull unexciting options around sensible uses of money get out of the mental spotlight. The recurring thoughts are not about the risks or even about just the return, about what that return will do to you. What it will do in your own perception and that of others around you. The emotion is so powerful that anybody who wants to shift the spotlight on the silently standing sensible options is brushed aside. The friend’s case may be unique to her, but in this story I see the story of lots of other people because each of us confronts such money-linked choices at some point or another. Not in a real estate vs fixed deposit kind of a way, but in unique ways, customized for our own unique weak spot.

What helps? It would take a combination of a psychiatrist and a financial planner to work on this one, but what could work to keep the veteran players of fear, greed and self-worth at bay are to make a grid that allows them little room to enter the discussion. It’s worth spending time to think about what your own money investing style is. What kind of a person are you and what makes you not lose sleep. And of course, don’t keep loose cash in the home or large chunks in a savings deposit. That money will vaporize before you know it.

Advice for the friend? Tax-free bonds, fixed deposits and a gradual shift from equity to a less risky portfolio. And keep some money in cash to go have some fun and buy the daughter and grandkid lavish presents.

End Note: The market has moved up more than 25% in the last 12 months and those who had sold equity cheesed off by a stagnant three-year return are suddenly regretting the sale. The tough thing about the markets is that theory works only in hindsight. We know that staying invested is the right thing to do with well-chosen equity funds, but at some point, even the smartest lose faith and dump them. Still not a bad time to restart the systematic investment plans. The more you wait, the worse you may feel.

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