Influencing Financial Behavior To Improve Financial Well-Being
Influencing Financial Behavior To Improve Financial Well-Being
Financial behaviour and financial decision-making are two closely related aspects of an individual's financial well-being. The impact of financial behaviour on the financial well-being of an individual has long been a subject of interest for researchers. Multiple studies study suggest that financial behavioural factors have a significant impact on an individual's financial well-being. Knowing and influencing these factors can help individuals improve their financial well-being over time. In this article, we will attempt to understand these factors and how we can influence them.
Before we proceed, let us first try to understand the terms which we have been using in our daily lives without giving them much thought.
Financial behaviour is how individuals respond to the information obtained and take action in the form of decision-making. It refers to the way a person makes financial decisions, manages his money and deals with financial issues. This can be influenced by a number of factors like education, personal experiences, culture, personality, upbringing, income level, present financial situation and the influence of others on financial matters.
The way people feel about their financial situation can be considered as financial well-being. It is a state of being wherein a person can meet current and ongoing financial obligations, feel confident and secure in their financial future and be able to make choices that allow them to enjoy life.
As said, financial behaviour impacts the financial well-being of individuals. Studies have shown that individuals who engage in healthy financial behaviours, such as budgeting, saving, and investing, are more likely to achieve their financial goals and build financial security over time. Conversely, individuals who engage in unhealthy financial behaviours, such as overspending, impulse buying, and excessive debt, are more likely to experience financial difficulties and stress.

Here are some specific ways in which financial behaviour impacts financial well-being:
Studies have found budgeting is an essential tool to create financial stability and discipline. People who kept budgets were able to track their income and expenses, make informed financial decisions, and stay on track to honour their commitments and better achieve their financial goals. A recent study by the RBI found that only 31% of Indians have a budget. This suggests that there is a significant opportunity for financial education and awareness to improve financial budgeting behaviour in India.
Saving is something found to provide psychological security and help boost your overall sense of well-being. Surely, saving is a very essential component of financial well-being and allows individuals to build a financial cushion to cover unexpected expenses as well as save for long-term financial goals. It simply involves setting aside a portion of income regularly. Saving money is a discipline that requires individuals to be committed and consistent. While in general there is a healthy savings culture in India, savings is something which can easily be influenced more by culture, personality and values.
Investing is a way for individuals to grow their wealth over time by investing in assets that deliver higher net returns above inflation. Investment behaviour and decision-making have a sizable impact on financial well-being. The investment choices we make, especially the asset classes and the investment products go a long way in determining how much wealth we create. An individual's personal experiences, knowledge and interest in investments go a long way in shaping his/her investment behaviour. For eg., investors are ofen found to systematically hold on to losing investments far too long than rational expectations would predict, and they also sell winners too early.
Spending is linked closely to your financial well-being. Studies show that poor control over spending is linked to materialism and status-seeking along with impulsivity and low self-control. Basically, one can also break this up into compulsive and impulsive spending. While impulse buying is largely unplanned and happens at the moment in reaction to an external trigger, compulsive shopping is more inwardly motivated. There are also instances where people were found to be addicted to spending. Overspending was found to lead to debt problems and financial stress.
Debt is often closely linked to financial stress, stability and freedom of individuals. The credit behaviour in Indian society has undergone radical change both from the perspective of acceptance and access. With easy access, however, the debt burden on individuals has gone up significantly. Individuals who are mindful of taking credit and repaying the same on time can be expected to be closer to financial well-being than those who rely on debt as a part of life.
If you are interested in improving your financial behaviour, there are a few things you can do:
The more you know about personal finance, the better equipped you will be to make sound financial decisions. There are many resources available to help you learn about personal finance, such as books, articles, and online courses.
What do you want to achieve with your money? Do you want to buy a house? Save for retirement? Start your own business? Once you know what your financial goals are, you can start to develop a plan to achieve them.
One of the best ways to ensure that you are saving and investing regularly is to automate your savings and investments. This means setting up a recurring transfer or say SIP in a mutual fund portfolio from your bank account to your investment account each month.
If you need help with your personal finances, there are a number of professionals who can help you, namely Registered Investment Advisors and mutual fund distributors.
Your financial behaviour has a significant impact on your financial well-being. By developing healthy financial behaviour, one can improve the financial situation dramatically and with time. As one learns, introspects and improves one's actions and behaviour, progress happens. What is needed is the right attitude to acknowledge and evaluate the problems and the possibilities out there. Even if we simply practice what has been mentioned in this article, that should be enough for us to get ourselves on track to financial well-being.
NJ E-wealth
10 Personal Biases Impacting Investments
10 Personal Biases Impacting Investments
Investing should be a logical thing and rational thing. Quite often, long-term investing success is more closely linked to our behaviour and our decision-making framework than anything else. Over the years, this has played the most impactful role in the outcomes. Unfortunately, often emotions and biases play the spoil-sport and influence our decision-making. While emotions can be managed to a certain extent, the biases are more difficult to handle. We may think and believe that we are acting rationally but in reality, even our rational thoughts and decisions are unknowingly influenced by our biases. Thus, it becomes necessary to identify and understand these biases so that we can mitigate their impact on our investment behaviour and our rational decision-making ability.

In this article, we will explore 10 such common personal biases that can impact our decision-making:
We have a general tendency to see patterns and connections where none exist, leading us to believe that one event caused another. For example, an investor may believe that past returns will continue to accrue in future because that is how it has been for the past few months. We unknowingly create the bias for or against based on patterns and connections that we create in our minds.
The anchoring effect is the tendency to rely too heavily on the first piece of information we receive when making a decision. For example, an investor may come across good news on some investment opportunity and develop a preference for the same despite successive more important negative news which may not carry the same importance in mind. In many ways, we tend to create opinions or judgements based on our first impressions which becomes difficult to change later.
We often fall for stories and narratives and often forget to see if they are supported by proper evidence. In the world of social media, these narratives often shape our opinions on everything, including our investments. Unsolicited ideas and money-making strategies are readily available at the click of a button. In such an age of information, we need to be careful in building and shaping our knowledge based on facts and evidence and not on unverified narratives.
The tendency to believe that we could have predicted an event after it has already happened. For example, an investor may exit a market after it has fallen, believing that they should have sold it sooner. Often, we tend to believe that our knowledge and judgement are good after an event has happened even though this may have been for any other reason. Unknowingly, we would become biased on the hindsight of an event happening.
We often do a lot of planning for say things like buying a mobile or going on a long vacation. However, when it comes to investments, we tend to underestimate the amount of time and resources it will take to do it ourselves. With easy information available, we tend to jump to conclusions very fast and think investing is simple and easy. Unfortunately, it takes time and a few losses to acknowledge our mistakes. Investing needs proper planning in some basic level of knowledge and expertise and lots of behavioural traits over time to be successful.
Our bodies and minds have evolved to avoid pain, even the slightest ones. Thus, we tend to feel the pain of losing money more acutely than the pleasure of making money. This can lead investors to make irrational decisions, such as holding onto losing investments too long or selling winning investments too soon. Loss aversion is very common amongst investors and something to look out for to avoid making wrong decisions.
Again, our minds have evolved to see safety in numbers. We tend to follow the crowd, even when it is not in our best interest. We feel that the majority is unlikely to be wrong and even if everyone is wrong, I will not be alone. We see this repeating often in how the market behaves during different boom and bust cycles and the surprising number of new investors falling for this mentality.
It is human nature to have the urge to be right and find ways to prove the same. We unknowingly seek out and interpret information in a way that confirms our existing beliefs. We risk ignoring and giving less importance to facts that counter our beliefs and tend to find comfort in what we already know. As investors, we should be open to ideas even if they are against our beliefs, challenge our understanding and accept that our notions and beliefs can be wrong.
Often, new investors after tasting little success believe that their knowledge is adequate and they are smart enough to play the game. The tendency to overestimate our own knowledge and abilities is the overconfidence bias we have. A parallel can be drawn with driving where almost 90% of people would believe that they are better than average drivers. With this bias, there is a risk that we make decisions prematurely or without adequate research trusting more in our own abilities.
We tend to find comfort with what we know and there is a tendency to prefer things that are familiar to us. We tend to avoid unfamiliar or unchartered avenues. We can see this with the older generation who are generally risk-averse and prefer to invest in traditional avenues. With this bias, we may risk neglecting and not learning enough of the opportunities out there and staying stuck with sub-optimal choices in investing.
How to mitigate the impact of personal biases on your investments:

Now that we know of the biases we can have in investing, the question is what to do next? Well, there are a number of things that investors can do to mitigate the impact of personal biases on their investments. The first and foremost is to educate ourselves about personal biases. The more we know about personal biases, the better equipped we will be to identify and mitigate their impact on our investment decisions. Being open, flexible and with a bit of introspection, we can overcome a lot of biases.

Next is to create an investment plan and stick to it. An investment plan can help you to avoid making impulsive decisions based on your emotions or biases. As investors in for a long journey towards financial well-being in life, we should focus on learning and keeping an open mind to ideas. We should be smart enough to avoid noise and filter information after judging and validating information from diverse sources. Lastly, it is recommended that we also get professional or expert advice. They can extend a holding hand in managing our emotions and our biases in our investment decisions. By understanding and mitigating the impact of personal biases, investors can make more informed and rational investment decisions.
NJ E-wealth
Busting myths on Motor insurance
Busting myths on Motor insurance
The number of deaths in road crashes in India was at an all-time high in 2022 with fatalities above 1.68 lakh. This is approximately 462 deaths per day or a death every three minutes. The number of injured persons in accidental crashes stood at 4.43 lakh and these are only the reported accidents. Unreported accidents and their financial impact would be much higher.
Some vehicle owners believe that car insurance is optional. Those who drive cautiously and carefully, feel they do not require it. However, this is not the right thought process. As we all can understand, accidents can happen at any time and may even happen due to the mistakes of others. Thus, every vehicle on the Indian roads must have adequate insurance with third-party liability insurance cover being the bare minimum necessity. With adequate insurance, you will be protected from any legal liability in case a third party or his/her property gets damaged due to an accident involving your vehicle. With proper insurance, even you would be protected against damages to your vehicles. Remember, being a good driver is not enough, you need to also have adequate papers and insurance taken on the vehicle.
Motor third-party liability only insurance policy is mandatory in India. As per Indian Motor Vehicle Act 2019, if you are driving without valid motor insurance, you will be charged a hefty penalty and may even attract imprisonment. The IRDAI (Insurance Regulatory and Development Authority of India) determines the third-party premiums. The policy covers the loss or damage to a third party person or property while you are driving. Most people believe this should be sufficient but it is not. Such a policy does not cover the expenses incurred when your vehicle gets damaged. Own Damage Cover or Comprehensive policies cover your third-party liability and even protect you from financial losses due to theft, accidents, and natural disasters that damage your vehicle.
Car / Two wheeler insurance offers a range of coverage, like third-party liability, personal accident and own damage cover that includes damages to your vehicle. However, multiple factors determine the premiums. For eg;
  • a) Cubic capacity (cc) of your car - if your car's cc is less than 1000 cc lower premiums are charged and if cc is more than 1500 cc higher premiums are charged.
  • b) Zone - if your vehicle is registered in Zone A city (Mumbai, New Delhi, Kolkata, Bengaluru, Chennai, Hyderabad, Pune and Ahmedabad), a higher premium is charged than Zone B (rest of India).
Before making a decision, do a cost-benefit analysis of the premium against the cost of repairing your car after an accident or replacing your vehicle due to theft or total loss. What would be the cost of that? There are motor policies with different & comprehensive add-on coverages at very affordable premiums which you can customise as per your preference.
Many believe that insurance is only for those people who want claims. It is only a perception that you must file claims to benefit from the policy. Motor policies offer very good discounts on premiums for careful drivers. Similarly, It is also not essential to ask the insurance company to pay for minor dents and scratches. Such a step would stop you from enjoying the no-claim bonus (NCB) and increase your premium for the subsequent years. Also, it may lead to the insurer denying some add-ons upon renewal. Therefore, it is always advisable to carefully evaluate when to use your insurance policy to file claims and to benefit from the insurance coverage without impacting your wallet or future coverage.
Comprehensive motor insurance offers 360-degree financial protection for you and your vehicle. But before you decide to buy a policy, must analyze & understand the following factors:
Take a moment to assess your individual needs. Ask yourself what level of coverage you require. Cautious drivers and those who park in secure areas and drive less frequently may not need a high sum assured. On the other hand, people who cover long distances regularly or frequently drive through busy areas may need more protection. Consider your requirements and select a plan accordingly.
Don't settle for the first insurance plan that comes your way. Take the time to compare different policies from various insurance providers. Look beyond just the premium amount. Consider the coverage offered, the network of garages for cashless repairs, and the claim settlement process.
Read the policy document thoroughly to understand the exclusions and inclusions. Different insurance plans might have varying coverage options for engine damage, natural disasters, and roadside assistance. Knowing what is covered and what isn't can save you from surprises during a claim.
Many insurers offer add-on covers that can enhance your policy's coverage. These may include zero depreciation cover, engine protection, and consumables coverage. Having insurance policy add-ons can give complete protection to your vehicle. To be able to enjoy the extended benefits of motor insurance, you should carefully choose insurance add-ons as per your requirements.
Claims are the litmus test for any insurance policy. The claim settlement ratio of an insurance company mirrors its capability in processing and settling claims. A higher claim settlement ratio indicates faster claims handling and high reliability. Examine the claim settlement ratios of different insurers before deciding.
Motor insurance is a crucial aspect of being a responsible vehicle owner and citizen of India. It helps to fulfil legal burdens and provides financial security in case of an untoward event. By busting common myths surrounding vehicle insurance, we've illustrated the importance of making informed decisions about insurance coverage. But considering the evolving needs of cars, today car owners need comprehensive protection for their vehicles to enjoy driving without worrying about financial loss. Insuring with the right motor insurance ensures a smoother journey on India's busy roads.
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