KARACHI: In last week’s column I talked about some of the myths that circulate in Pakistani drawing rooms about the financial services sector.
This week, I will focus on the foolishness with which most Pakistanis manage their own money. I will likely offend many of you in the process. I am comfortable with that. Let the myth-busting continue.
“A wedding is a legitimate major life expense.”
There is absolutely no justification for the absurd amounts of money that is commonly spent across the country and across economic classes. It is unconscionable to waste such copious amounts of cash on what is essentially a consumption item rather than focussing on investing in one’s future or the future of one’s children.
The most common responses that are heard when challenging this most ridiculous tradition go something along the lines of “It is an integral part of our culture” and “It is an investment in the future of our daughter.” None of these reasons, nor any of their million other variants, make any sense.
As to the idea that it is a part of Pakistani culture, my response is simple: culture changes. Get over it. As to the second, perhaps more serious, excuse used by people to justify gigantic dowries and gaudily ostentatious weddings, one can only say this: if a person is about to marry off his or her daughter into a household that measures her worth by the rupee value of her dowry, then that person should be locked up for child abuse.
Here are some ground rules for weddings and their costs. Firstly, the man getting married should pay for the whole affair himself. Secondly, the entire cost of the wedding should not exceed three months salary of the groom. If you want a big party where you can dance and have fun, skip out on having the mehendi, mayoon and other frivolities and go take your new wife to a part of the world where there are dance clubs. (Let’s face it: mehendis and mayoons are really just the Pakistani substitute for that.)
“My children are my retirement plan.”
This is one of the most destructive concepts in Pakistani culture, mainly because it forces a couple to make a balance sheet out of their children. Sons are placed on the assets side and daughters are placed on the liabilities side. The sons are expected to provide for their parents in their old age (hence an asset) whereas a daughter is just a long-term visitor whose departure needs to be paid for (hence a liability).
Unto itself, it is indeed quite admirable for a son to want to provide for his parents in their old age, but this model has absolutely no room for flexibility. For example, what happens if a couple do not conceive a son? What if they cannot have children at all? What if the son dies? None of these circumstances can be accommodated for in this family balance sheet, with the only certainty being that any daughter is unfairly lumped into the liabilities column.
A more flexible and manageable way to manage this would be to begin retirement savings and buying life insurance. Both of these concepts will be covered in comprehensive detail in columns to come. But I do want to leave you with this tiny taste of what proper planning is capable of accomplishing.
If a young man, aged 25, begins saving Rs1,000 every month for his entire working life, retiring at the age of 65, he will have saved about Rs480,000. If instead he invests in a diversified portfolio that broadly tracks the performance of the KSE 100 Index, he can expect his Rs480,000 to have swelled to Rs5.6 million, after adjusting for inflation over those 40 years. If that does not grab your attention, I do not know what will.
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