Ignorance is bliss — Thomas Gray

Ramesh Bhagwat had just landed in Mumbai from New York for his yearly holiday with his parents. As always, he found the heat unbearable. Back in Chicago, it was snowing. Mumbai had not changed despite the grand talks of making it another Shanghai. “Let them first make it a Delhi, that itself will be a big improvement,” he thought.

Every winter, when the university where he taught Economics closed for a month, Bhagwat came to visit his parents. His father had retired as an Air Commodore in the Indian Air Force. The first thing he noticed once he entered his father’s flat was that there were a lot more additions in the book rack, and too many magazines were lying around.

On a closer look, he realised that most of the books and magazines dealt with various aspects of personal finance. “How had the Commodore suddenly become so interested in personal finance,” he wondered.

After exchanging pleasantries, Bhagwat popped the question to his father, “Why do I see so many books on personal finance?”

“Well, these are to help me ask the right questions,” pat came the reply. “Right questions, as in?” Bhagwat asked.

“Well, you see when I was with the Air Force, I never really bothered about money. But after retiring, it suddenly struck me that from now on, there will be no inflow of money, only outflow. I thought I should do some financial planning. And so I went to the public sector bank I had always banked with. They were still in the pre-1991 era. No one really helped. Then I went to one of these many new generation private sector banks that have sprung up. The men and women there spoke better English and smiled a lot more and tried selling me products on which they made the most commission rather than products that were right for me. See an investment expert may not always give you the correct advice. They are human and they will respond according to the way there incentives are structured,” came the long response.

The Commodore paused to have a glass of water and then continued. “Most of these distributors of financial products make use of our financial ignorance. So, if you want to ensure that the so-called experts are not taking you for a ride, you need to have the ability to ask the right questions. And for that, the only way out is to educate yourself. I have started very late in life. But I really do not regret it. Even if I had started earlier, I would be living much more comfortably than I am”.

Bhagwat was impressed. He was an economist. But when it came to the nitty-gritty of investing, he really did not keep himself up-to- date. He had absolutely no idea what interest rates he was paying on his credit card bills or, for that matter, how much fees his mutual fund was charging him.

Financial illiteracy plagues developed countries in a big way as well. Bhagwat remembered reading an article in The Economist that 37% of the people who had investments in Australia were not aware that their value could fluctuate.

In this age, when permanent jobs are obsolete, being financially literate can help individuals tide over uncertain times. “Ignorance is no longer bliss,” Bhagwat concluded.

The example is hypothetical