Tuesday, April 17, 2012

Do you have a Financial Disease?

The only thing which emerges before us on hearing the word Disease is Pain, dysfunction and discomfort. Till so far you have been hearing of Medical Diseases, but have you heard of Financial Disease? Medical diseases affect the body of a person and cause dysfunction and distress. On the other hand ‘Financial Diseases’ affect the mind of a person and cause distress and health problems. It is imperative to avoid and cure both in order to stay fit.

Let’s see that how can we identify the symptoms and causes of various financial diseases.

1. Hyper Insurance/ Over Insurance:

Human life is invaluable but it is still possible to calculate the ideal cover for a person depending upon various factors. These factors can be his projected earning capacity, current and projected expenditure and requirements of the dependents, time frames etc. Hence if you believe in locking all your savings in insurance policies solely, you may be suffering from Hyper Insurance!

Also Life Insurance is never for the person taking the policy or the cover, but it is for his/ her dependents. Insurance cover helps the dependents in case any untoward happens to the bread winner or the financial supporter of the dependents. So if a person with no financial dependents is taking insurance policy, he is suffering from Hyper Insurance.

This disease is very common in youngsters buying insurance for tax savings and aged people being sold insurance for wealth generation.

2. Hypo insurance/ Underinsurance:

You may have 20 insurance policies but may have never calculated the total Sum Assured. Sum Assured is the amount which you and your dependents will get in case of your death, disability or critical illness. Mostly insurance is seen as the total premium paid where as it is the Sum Assured which is of significance.

Hypo Insurance is very common with recently married couple and parents with small kids. General trend is to buy more number of policies to safeguard the future for example buying a child policy at the birth of child or for his education.

3. Debt Trapping:

There is nothing like good loan or bad loan! Loan is a liability. You do not own an asset, product or investment until you have completely paid for it from your own pocket. It has its own cost attached to it as the Interest you pay. Your purchase may become costlier by 30, 40 or even 100% if you do not get rid of your loans in time. A credit card purchase may cost you 36% more and a personal loan purchase may be 30 to 45% pricey if you do not pay them off timely. 

Loans should be taken to address the need of cash crunch for a necessity and not for the conspicuous purchase and speculative activities. It can become a costly mistake. Further options like servicing a loan vs. investing for better returns should be dependent on your overall financial, physical and psychological situation.

If you boast of your multiple credit cards but forget to pay on time or if you do stock market investments taking personal loans, you may be suffering from Debt Trapping.

Debt Trapping is prevalent among youngsters with new jobs and young couples. Impulsive buying is slowly but strongly becoming a habit with young Indians.

4. LRI or Low Returns on Investments:

Safety of money is important but it is equally important to grow your money as well. It is like raising your kids…you cannot keep them off from going to schools, driving vehicles or playing outdoors. It helps them grow. Similarly keeping ALL your money locked in low yielding investments like FDs, traditional insurance policies or NSC’s may hamper its growth. Your investment pattern should comprise of both safety and growth opportunities for your money. Else you may soon be compromising on your life goals.

If you trust only recurring deposits, fixed deposits, PPF or LIC policies, you may be a victim of LRI.

This disease is common among all age groups. It can be inherited… ‘As my father does so!’ syndrome. It can be circumstantial… ‘I have lost my money in market crash!’ syndrome.

5. Long Term Horizons:

What is this Long Term 5, 10, 20, 40 or 60 years? How long are you planning to keep investing in particular asset class? You ought to keep the end objective in mind.

Not only you must tie your investments with your life objectives and time horizons but also you must monitor and rebalance them regularly.
If you also do investments for the sake of savings or tax savings specifically, you may also fall prey to LTH (Long term horizons) disease.

It is a new buzz word and people from young to middle age are suffering from it.

Is there a remedy?

There is no quick fix remedy to any of these diseases. In personal finance all decisions are interrelated. Every penny that comes in has an effect on every penny that goes out and vice versa. Analysis of your entire life situation (financial, physical and professional) is required before taking any corrective measures

And as the adage says…’Prevention is better than cure’, Get your comprehensive financial health check up or comprehensive financial planning done before you are a patient. It is never desirable to be diseased!

You may also like to ponder upon some more realities of life, here is the link:



  1. Good topic at a right moment, somehow feel that point on hyper insurance could have been explained a bit more...in a sense, tries to convey that person with financial dependent need not meticulously plan for his insurance ...- Quoting the point - (if a person with no financial dependents is taking insurance policy, he is suffering from Hyper Insurance.)

  2. Hello Shanmuga,

    The line says "So if a person with 'NO' financial dependents is taking insurance policy, he is suffering from Hyper Insurance."

    A person without any financial dependents does not need life insurance coverage as no one will be financialy affected in his/her absence.


  3. Nice article Shilpi, informing people about financial mistakes made by many in their life but not acknowledged by them. Unlike the case of any medical problem when a person immediately visits a doctor for its cure, here most families just keep suffering as a way of life and do not even come to know about their mistakes.

  4. You are right Sukhvinder, people come to know about the financial diseases at very late stages. It is important to understand that these disease can do serious everlasting damages to a person's life.