VR Logo

Crisis Changes Mindsets

If the current crisis readjusts a generation's attitude towards savings, it'll be worth it, writes Dhirendra Kumar

Crises change people's mindset and their behaviour. The deeper and longer the crisis, the deeper and more permanent are the changes. We often see this in people who have faced personal crisis and I think we are going to see this happening on a large scale as a result of the economic crisis. In fact, I'm sure that you can already see it all around you. Businessmen are asking, "When will things get back to normal?" If by normal they mean the way things were back in early 2008, then the answer is, not for a long time.

That sounds pessimistic but actually isn't. On New Years' Eve 2007, restaurants and shopping malls were crowded by young people who apparently had solid evidence that life would be easy. They had found their first (and even second or third) jobs without much effort. Their wallets were thick with credit cards issued by banks who kept pleading with them to take more and more credit. The owners of the shops where these credit cards were being used too found the going as easy as they had dreamt of. As did the builders of the malls who rented out these shops.

When measured by the numbers, those days will surely come back both for individuals and for the economy as a whole. In fact for some people, they may never actually have gone away. The jobs, the sales, the salaries, even the credit will eventually climb back to that 'normal'. But what won't come back is the gold rush atmosphere, that euphoric feeling of rushing headlong into a fabulous future. That irrational exuberance is gone, if not for ever, then for a long time indeed.

In America, people say that the Great Depression changed the way a whole generation thought about money, about financial risk and about savings. In India, things will never get as bad as they did during the Great Depression in America, but here too, we have a generational divide of this sort. Indians who joined the workforce before about 1990 or so have a different way of thinking about money, savings and about future prospects in general. They grew up in the sort of atmosphere in which intelligent college students used to get easily depressed just thinking about the future. They don't take opportunities for granted and compared to later generations they have an underdeveloped sense of entitlement, which is one way of putting it.

Personally, I notice this divide easily because it runs deepest in the contrasting attitudes to savings, investments and indeed all aspects of personal finance. Based on the people I know, I think a good majority of the later generation have negative savings and a negative net worth. They have casually predicated years-even decades-of their future on being able to maintain a growing income flow. And that is exactly where the economic crisis has hit like a psychological shockwave.

I don't know whether the crisis will get much worse. But if all it does is readjust a whole generation's attitude to savings then it would almost be worth it. The future is not a straight line upwards. Instead it is a cycle that will have its ups and downs. An important function of the up cycle is to allow us to prepare for the down cycle. This realisation alone could save India's vaunted household savings rate from being flushed down the drain of the new consumerism.