Comparing Indians, Americans and Their Approach to Personal Finance

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“What kind of truck should I buy?” – this was the beginning of the first personal conversation I had with Kumaresh. Kumaresh was a manager for one of the teams I was setting up as my company outsourced labor to India. Since I’ve bought several cars in my lifetime and this was his first, he asked for a few suggestions.

I was a little surprised by the question. In Bangalore, our company provided transportation (when the drivers weren’t on strike) to work since many reps lived on the outskirts of the city where transit was all but non-existent. I was also surprised by his choice in vehicle, a truck. Seeing as my only experience at the time with Indian-made vehicles was Tata Motors, my uninformed assumption was that everyone drove a tiny car.

So when Kumaresh asked what he should get, I asked what he was looking for in a truck. I simply assumed he had some utilitarian need for a truck. His response was that he wanted something big and powerful; not for hauling felled trees, but because he wanted to have the biggest truck on the road. Not all that different from many truck owners in America.

According to Tammy Erickson from Harvard Business Review, new generations of Indians and Americans share similar characteristics thanks to the explosion of the internet and global communication. However, similar characteristics does not mean that Indians and Americans approach personal finances in the exact same way, so I wanted to know more.

Here to share his thoughts on how Americans and Indians approach personal finances is SB, author of the blog One Cent at a Time. SB moved to the US from India relatively recently, and has worked the last seven years here in the tech department of a financial corporation. One Cent at a Time was a finalist for a Plutus Award this year.

(Me) Have you noticed any differences between how Indians and Americans approach personal and family finances? If so, please elaborate?

(SB) The major difference, I see, is the financial bond between a parent and children. In this country, with a few exceptions, you are basically on your own once you attain adulthood. Similarly once you retire, you are on your own and your children, with few exceptions, will not look after you monetarily.

On the other hand, in India, this financial dependency never breaks. Parents pay for the child’s education; they pay back the money to the lender. In return when parents grow older children take care of them. This has many purposes:

  1. Absence of social security does not put pressure on retirees
  2. Young people do not start working with a debt burden
  3. Kids get an education and guidance from grand parents
  4. Very low divorce rate as parents are always available for consultation in dispute

Many Americans, that I know, hate the idea of living with parents. Back in India it’s the norm and if you don’t do it you will be looked down upon by others.

A high number of Indian families still live together where three generation live together with one grandparent, multiple parents and their children. Finances in those families are run by the head of the household usually the grand parent or the eldest son (or whoever has more financial acumen).

This practice is legalized in India by means of an investment classification “Head of Hindu un divided family” with different rights than an individual investor has.

(Me) Since you are immersed in two different cultures, do you feel your approach to personal and family finances is influenced by both experiences? Or, do you gravitate toward one culture’s norms?

(SB) I am more influenced by my Indian culture as I spent all but 7 years of my life in India. India is the place where I learned all my personal finance lessons.

7 years in US taught so many things, I had trouble equating ‘Provident fund’ with 401(k). I confused entire BOFA staff members at my local branch when I tried opening a current bank account with them. Finally we both realized it’s a checking account I am looking for.

I had no clue about credit score and why it’s an important financial factor. Nevertheless, since my background was strong, within a year I could grab the basics. In my second year in US I opened my first brokerage account and in my third year I started contributing for 401(k).

Personal Finance is same everywhere in the world, earn more-spend less without sacrificing current fun and let the savings grow at faster rate.

(Me) What are some advantageous or not advantageous norms in how Americans approach finance when compared to Indian norms?

(SB) The biggest two personal finance disadvantages I see in America compared to India are high cost of education and health care.

I can get quality health care in India and pay out of pocket, except in high quality hospitals I don’t need health insurance and the related premium.

I studied in one of the most respected universities in India and my parents or I didn’t borrow a single penny. Education at premium colleges are subsidized by the government

The biggest disadvantage I see in India as compared to US is the absence of social security payout. Parents usually remain at mercy of their children.

Other very big difference I see is in the work compensation vs. cost of living ratio and America is doing very well in this aspect. This is the reason I decided to stay back in this country.

(Me) Traditionally, Indians are thought to have a strong orientation toward the extended family unit. For example, you’ve mentioned before that you send money home to help support your parents. With the rapid economic expansion in India and growing consumerism, is this a tradition that will persist or is it going away?

(SB) This tradition is quite expectedly breaking and taking shape of other developed countries. Families are shrinking, take example of me, I studied computers and came to America. My brother is working in a different city and my parents are still in their home town living on their own.

(Me) What can Americans learn from Indian norms that would help them with their finances; what could Indians learn?

(SB) India has a lot to learn from US, sad but true that a country with 1000s of years of history need to learn from a country which doesn’t even have more than 400 years of history.

Government employee and law enforcement should learn skills from their counterparts in US. India has all the regulation and rules but the judiciary and the law enforcement is full with rampant corruption. You can get away with bribing. You can tweak law in your favor at will.

It’s because of them that Indian economy struggled for long time and when economy sees no growth how worker class can earn more money. Our personal finance is always related to major factors of the economy, you see the point why I brought corruption factor?

On the other hand Americans might learn India’s family values.

(Me) In America, there are a number of English sayings that pertain to finance. For example, “a bird in the hand is better than two in a bush” (the concept of time value of money). Are there any interesting Indian sayings relating to finance?

(SB) “Amdani Athanni Kharcha Rupaiya” means Income 50 cents, expenditure dollar, usually uttered for a person who lives in debt.

I think I already ran out of space for this interview, so, just one for now.

(Me) Is there anything else pertaining to Indian and American approaches to personal/family finances that you’d like to share?

(SB) Interestingly minimalism is a choice in America – but, in India for more than 50% of population (remember it has 1.2B population) minimalism is a necessity. When I order food and can’t eat the whole portion, I think about them and pack home the rest for eating later.

I once eating at a Dunkin Donuts late evening and they just threw the unsold donuts in trash before closing the store. In India such a store would have 100s of people waiting outside during store closure. The example was not ‘personal’ finance but definitely shows the difference of thoughts of the people of these two countries.

Here AC is a necessity, in India AC is luxury. The cars we call small cars, in India they are big cars. We are frugal by nature, we don’t learn frugality on the web reading a blog.

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