ForumIAS

Spend it or Save it?

—

by

RaviSingh
in

Depends on who you are asking.

Recently , I read a comment on ForumIas that got me thinking. The comment was regarding the rich spending money and the poor being unable to do the same. I hear this often . People complain about the amount of money being spent by the rich . For a long time , I too had a similar line of thought.

Of late though , after understanding the basics of economics , my thinking has changed. The rich should spend! After all isn’t this redistribution of money? What else should the rich do with their money? Stack it up in one room?

Lets take an example. Assume a person called Mr A who is extremely rich . If he goes out to buy a car worth Rs 50 lakhs , is it wrong? No. Where does this 50 lakh go if he buys the car? It gets distributed between a large group of people – the showroom dealer , the manufacturer , the labour on the shop floor etc. What if this rich guy didn’t buy the car? None of these people would have benefitted and in all probability the unemployment rate would have increased. Similarly in the case of Mr A buliding a large bungalow. So many people benefit. It is all a case of redistribution and to a certain extent inclusive growth.

Now assume there is another person , Mr B , who is extremely poor. He works as a daily wage labour and earns Rs 100/day on his best day. Should Mr B spend the money or save it? I would say he should definitely save it. Only if he saves it will he one day be able to lead a better lifestyle. But wait, he doesn’t seem to do this. Each day he spends anywhere between Rs15-20  on beedis and say close to Rs 50 on liquor. Although this too can be termed as redistribution , but Mr B ends up as a loser in the end. If instead of wasting Rs 60 , he had saved it , he could have had a saving of close to Rs 2000 in one month. To a certain extent I may be generalizing and stereotyping the poor in this example, but more often than not this does happen.

So what needs to be done? Education of course is the foundation to begin with. The poor must be educated to use their money wisely . If not them , atleast their next generation could lead a better life. On the other hand , people must stop scorning at the rich for having spent crores of rupees on just one pair of jeans or shoes. The rich must spend and not save their money. The poor must save and not gamble away their money.

The intention of this article is not to hurt anyone’s feelings but to get people thinking. Please feel free to share your views on the above opinion.

Comments

11 responses to “Spend it or Save it?”

  1. Kanti Avatar
    Kanti

    Agree in principle. But as few of the fellow peers commented, it is crucial what for that money is spent. It serves the cause better if spent on labour intensive products/brands.
    Everyone spends on food, how much of it reaches farmers’ pocket? After all, Gandhi was not ignorant about economics when he initiated Khadi movement.

    Regarding the poor, their savings (being invested properly) is one of the factors that push them into lower middle class group. May be discussion on intricate details as to what percentage he saves and spends on little comforts is not warranted here.

  2. kjrelfjk Avatar
    kjrelfjk

    first of all buying high end products is not at all a wealth redistribution in any sense.

    as it restricts the wealth in rich only. bcoz most of the time these products are having high margins reserved for owner, with very little labour costs.

    whatever fractional trickling down u r talkin about will of be no use to our economy which needs a better investment in the sectors which are labour intensive and not in the fashion products meant for elite.

    so, it would be nice for rich to put that money in banks, which in turn will invest it in growing sectors which will create oppurtunities and growth.

    p.s. saving money is not bad at all n no one, in hell, would keep money idling at home…untill n unless it is black money.

  3. kjrelfjk Avatar
    kjrelfjk

    ekjtlrkjkrj

  4. KimiRaikkonen Avatar
    KimiRaikkonen

    I was equating the middle class with the poor .
    Its not the way we want to see things. Its what different people see in different environments and different circumstances.

  5. AK_CS Avatar
    AK_CS

    Neither does every spending by rich means wise and desirable spending

    Did i ever say, rich should stop spending? That will be the death-knell of economy. Almost everyone agrees with that and most of them know it.

    Now you are equating middle class with rich.
    Ambition is good everything is good but i was just saying, rich (and to some extent your 2nd para) generally have a condescending and paternalizing outlook towards poor. They think poor gamble their saving, they need education, they need that and so on. Generally, common sense of poor is severly underestimated.
    I too am commenting based on my everyday examples. Its just the way we want to see it.

  6. KimiRaikkonen Avatar
    KimiRaikkonen

    Thank You!

  7. KimiRaikkonen Avatar
    KimiRaikkonen

    Pleasure doesn’t necessarily have to mean beedis or desi liquor .

    You yourself have mentioned, corporate MNCs benefit from the money spent by the rich. I would like to know who works at these MNCs? Doesn’t it generate employment? If people stop buying , job avenues will reduce. Being self reliant and having one’s own job is what everybody wants. I dont think anyone wants to remain dependent on government schemes and subsidies.
    Also , there are people working in the real estate sector too.
    Doesn’t the middle class have ambitions of growing too? If the rich stop spending , their ambitions will have to remain ambitions.

    I have not said spending is noble . I have only argued that spending is not as bad as it looks.

    I accept that my comment on gambling may not have been the right thing to do but it was based on the everyday examples that I see around me.

    And yes , there are always two sides to a coin.

  8. AK_CS Avatar
    AK_CS

    2nd part: >60% of poor people’s measly income is spent on food related essential things. Not every poor “more often than not” gambles his money. Expecting from them let go of occasional pleasures like cheap bidi or desi liquor is like expecting them to live a life of robots.

    It is agreeable that spending in itself is not bad. But not each and every spending is noble and beneficial as is portrayed. By holding money, rich own the power to direct investment towards a particular direction. e.g. Buying Ferrari or Ultra-costly brands/Whiskey or investing in land ultimately benefit

    -Corporate MNCs
    -increase real estate bubble
    -not the lndian/BD labour which you seem to claim. He will have to sell their cheap labour to brand custodian MN companies through contractor in some of the cases.

    Though it is their money they spend where they want it. But spending-in-itself is not necessarily a noble thing and not necessarily align with what is mostly morally desirable.
    Similarly, portraying spending by poor as unwise/gambling/in need of education is also not right. Probably poor know even saving 24000/year in a robot like manner will not be able to get them a decent enough medical treatment for some out-of-turn medical emergency/education.> not to mention impact of inflation.
    People dont complain about spending, they complain about the way wealth is distributed/earned/produced and the way it is spent. But this itself is a very complex debate.
    The point is everyone loves complaining, rich to poor as subsidy thriving inefficient creatures, poor to rich as filthy spenders.

  9. KimiRaikkonen Avatar
    KimiRaikkonen

    I am definitely not against taxation. I have not mentioned anything about taxation.
    If Mr Amabani buys a yacht , atleast a small fraction trickles down. What if he didn’t buy the yacht? Even that fraction stays with Mr Ambani. Labour is required to build a yacht .

  10. Ayush Sinha Avatar
    Ayush Sinha

    While you are not wrong in your observation, I may point out that what also matters is *where* the rich spend the money. Are those services being produced by the poor at the bottom of the chain. For example, if Mr. Ambani buys a yatch for his wife as a birthday gift for a few hundred millions, does this money go to the poor?

    And if at all does, how much of it is retained by the rich and what fraction reaches the poor?

    What you are talking about is trickle down. Trickle down may not necessarily work. Hence we may need to tax the super rich, to provide more to the poor. Via the government. Or the non-government.

    Take a look at the critique of Trickle down theory. Directly on WSJ Blog

    http://blogs.wsj.com/economics/2009/06/30/trickle-down-economics-fails-to-deliver-as-promised/

  11. dallu Avatar
    dallu

    Good observation.Earlier when i heard that amitabh bacchan brought goggles for 2.7 lakhs then i use to think that such people are misusing money and hence creating danger for indian economy.But after your article i feel like changing my stand.
    thanks..

Leave a Reply

Your email address will not be published. Required fields are marked *