Me and My Investment Behaviour

Jyoti Mehndiratta Kappal

Money is of paramount importance for survival of an individual. We earn it to meet our immediate needs and then save for the rainy day. We plan our future expenses and then look for appropriate investment instruments that will help us meet our financial goals. Every investment instrument has a risk element attached to it and return that an instrument promises is directly proportional to the risk associated with it. And these investments then help us to plan for retirement and attain financial satisfaction It is easy to learn about these factors by meeting financial advisors, taking courses and then experimenting. This is the knowledge part.

But is the knowledge of investment instruments the only factor that helps us make investments are there other factors also that play in part in how we invest and where we invest.

Interestingly other than demographic factors like age, income and gender, there are various behavioural factors that direct our investment decisions.  Factors like our personality, financial behaviour of our parents, mind set of our spouse and our own thinking process defines our investment choices and investment behaviour.

There are behavioural aspects of investing which will help the investors understand their own investment pattern. This understanding of self can then be used to monitor their investment behaviour thus minimise risk and maximise returns in investments. This in turn would lead to optimised financial portfolios, better retirement planning and financial satisfaction.

An important element in this is what I saw in my house growing up. Our home is our first school. Whatever I observe and experience in those impressionable years defines me as an adult. I tend to emulate behaviour of my parents in my adult life. In investments also this phenomenon is observed, which is called as Parental Influence.

In a survey on women entrepreneurs on their personal investment decisions, it was found that their preferred investment instruments are the ones their parents invested in. So if growing up they heard their parents speak of fixed deposits, they are now investing in fixed deposits. While if their parents had diversified in equity, then these women entrepreneurs are comfortable investing in equity. Their preferred investment instrument had nothing to with their education or financial acumen. This came to them naturally. This is what we call “Parental Influence”.

As per social learning theory individuals learn by observing others. Using this concept in family context:

👍Children learn skills and imbibe behaviours by observing. When you pay your bills on time or use credit card prudently, though you are not telling this to your kids, they are absorbing this thru the conversations they hear around them.

👍Parents play an important role in shaping attitude towards money in young children. If you are insecure about money, your kids will follow the footsteps. If money is a source of power, unknowingly kids are also forming the same relationship.

👍Children who experience their parents absorbing them in the financial decision making processes, use those financial investment skills when they grow into adults. Give them a budget to work on. If you have to buy a gadget for them, let them research on the available options. And then let them present it to you; which one to buy and why.

So let’s work on giving the right financial socialisation to our kids who are observing and imbibing every move we make. This will ensure that they will take more informed decisions in their adult lives.

Jyoti Mehndiratta Kappal is Associate Professor, Symbiosis International Deemed University, Pune.

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