Financial mistakes: Why it happens?
Have you wondered why people make mistakes while buying financial products? Well here is what I think:
1. Products are complicated: Most financial products are complicated. This is absolutely necessary so that the charges can be well hidden.
2. Salesmen are always in a hurry: This is easy to understand. They are paid for closing, not impressing the customer, not educating the customer, not increasing his awareness, …just closing. So he will target closure.
3. Ego prevents people from admitting that they do not understand the product. Why women will not understand illustrations and men will not ask for explanations (my next book title!).
4. If I can buy a house for Rs. 1.2 crores, a vacation for Rs. 5 lakhs, a car for Rs. 25 lakhs – I really do not need some ‘financial planner’ who will tell me how to invest Rs. 100,000 a month for 30 years. Only problem is this figure will be far, far bigger than the house, vacation and car put together.
5. Pressure from classmates, friends, relatives: Sales people are recruited based on their ‘natural circle’.
as I think of more…will write more!!
Ronak Hindocha
The most basic one being that we tend to look at the product purchase in isolation rather then understanding how it fits into my financial goals. Eg. I want to buy a house 12 months later and if I invest say 5 lacs in a 5star rated equity diversified scheme it does not make sense. The transaction per se makes sense. But if you look at the larger picture (ie where will the money be used) it may not be the best decision.
Anurag
One more reason of people making the mistake – They do not read your blogs 🙂
Jsan
Also, people try to save their Tax by making wrong investment decision. People save 10% to 30% of tax on the amount invested and end up paying high commission (5% to 30%) to agent by buying a ULIP
Surio
@Jsan,
You nailed an important issue. That was the topic of my latest post. Do you want to pre-pay your housing loan or keep availing ‘tax-benefit’ 😉
http://sawbonessurio.wordpress.com/2011/08/15/free-case-study-from-businessline-ii/
Ram
can u pls explain point #4 more.. “Only problem is this figure will be far, far bigger than the house, vacation and car put together.”
subra
The retirement corpus a person needs – to retire is likely to be much bigger than the house and all the cars that he/she buys over his/her lifetime…just imagine paying Rs. 50,000 per month into a plan for 30 years…growing at 12%pa….amount is quite high
Shannen Doherty
Hi,
I was browsing through your blog subramoney.com and found very interesting contents on finance which are pretty informative. I was hoping I could write a guest post on your blog with an article related to your blog, I believe this will be of interest to your readers.
The article will be entirely unique, written just for your blog and will not be posted elsewhere. I hope I can produce informative and viscid content for you. If you are interested in this idea, please get back to me.
Thank you so much for your time and consideration.
Thanks,
Shannen
BHARAT SHAH
some financial mistakes could be because of not figuring real cost of the necessity /luxury , he is buying, v/s his income.e.g. a person with @6 lacs yearly income , and having some worth balance, buying a car costing 4-5 lacs for social status seems ok on face, but its financial+depreciation+insurance alone would be more than 1 lac per year. would it be justified ? it could be more than 25% of his present yearly home maintenance expense.
sg
viscid??? doesnt that mean viscous and sticky? is there some other sense in which this is used?
subra
sg…/????
sg
am referring to shannen doherty’s post