#15: Your shopping helps economic recovery.
The how and the why.
It’s the 14th of November and most likely you may have already received your salary and already paid off your EMIs. Every time you earn salary (or profits), you use this money either of the two ways -
Use it for current consumption (going festive shopping, or buying that car, spending on the kids’ tuition fee, or simply splurging on that long-due hair spa), or
Save it and invest for future consumption (think stocks, gold, bonds, or crypto).
And yeah, that’s a constant battle every person making money faces every month.
Let’s just zoom out for a moment and look at the larger picture. What happens when you decide for either of the two options?
Talking about the second option first, what happens when you invest, say in stocks? You take ownership of a company when you buy stocks (however small it maybe), which gives you a share in its profits (or losses).
Effectively, it means that the part of your income that you save and invest gives you even further income. This new income can then again be used for current or future consumption, and the cycle keeps repeating.
Given this discussion, saving and investing does seem like a good idea. In fact, you might just be tilting towards saving more the next time onwards. I would suggest you to hold this urge for a little longer, as I take this discussion forward.
Imagine now that everyone realises the angel that investing is, and decides on putting their money into stocks. They do get a share in the profits these companies make eventually.
But how do these companies make profits? They do that when a substantial number of people “spend” on the goods or services being offered by these companies. But wait, isn’t everyone now focusing against the “spend”.
In fact when the companies fail to generate enough profits for all these new investors (due to the general liking against spending), these investors are once again lured against the idea of investing for future consumption and they would go out and live their lives (read current consumption).
What does it all mean then? Should you spend or should you invest?
The answer, as in all things, lies in balance. And that’s what we see in developed economies too - a growing consumer market along with a growing financial market, with excellent choice in both.
When will India get there? I would say it’s already on the path, especially after the recent increase in retail interest in investing post the pandemic.
So the next time you go shopping, remember you are helping the economy. And if you decide to rather save, you are helping the financial markets. There are no wrongs here!
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Surbhi Singhal (the author for this piece) is a Chartered Accountant and a Company Secretary; and the founder of Advance Thinktank.