Saturday, September 6, 2008

Why can't we handle Personal Finance properly?

Most of us avoid taking financial decisions or generally do a sloppy job with our personal finances. I was wondering why and I could figure out three reasons. 

One, there is an information asymmetry in this industry. That means that the seller of financial products knows more than the buyer and he uses it to his advantage and not the buyers advantage. The lack of transparency puts off people.

Two, the sellers use a lot of jargons and number crunching which makes people uncomfortable. Probably that’s another reason why people avoid personal finance.

The third reason that comes to my mind is of a psychological nature. In Mahabharata, the great Indian epic, there’s a story of a Yaksha who challenges Yudishthira to answer his questions.

What is the most surprising thing in the world was one of the questions. Yudishthira answers that the most amazing thing is that even though every day one sees countless living beings that are old and dying but no one can imagine him/herself as old or taking that last journey!

That’s why people have a natural tendency to avoid financial planning. Do you have any other ideas? Let me know, please.
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