We save to tide over difficult times. We invest to pursue financial goals like a comfortable retirement.
AT 22.3 per cent, India’s savings rate is respectable. And yet India, and Indians, are not wealthy. This high-savings-poor-savers contradiction occurs because we believe in saving for a rainy day rather than in creating wealth. We look at putting money aside for emergencies or even for a comfortable retirement, not to make our money grow and create wealth. We seek the security of keeping our capital intact rather than taking a well-planned risk with it. We focus on saving rather than on investing. One of the problems is our belief in this equation: saving = investing. I have seen even experts confuse these two words and use them interchangeably. While on the face of it they may be the same–in that both sacrifice present consumption for future use–in spirit, they’re not.
Different goals. People save in anticipation of uncertainties–a sudden hospitalisation, being out of a job for six months and so on. It’s all very well when there’s a cheque coming at the end of the month or when business is growing. But when things aren’t so good, this money helps them get by without too much misery. On the other hand, people invest to pursue life goals such as building a house, financing a child’s marriage or a comfortable retirement.
Opinion in Outlook Money