In her case, that value system has determined career choices. Her attitude to her personal wealth is similar to her attitude toward building the business and whom she partners with.
Infibeam began with founder Vishal Mehta’s personal investments. In 2008, he teamed up with Sharma and two others to start the e-commerce venture. Till it listed on the Bombay Stock Exchange earlier this year — nine years after it was founded — the company was unique amongst the breed of e-commerce firms for never having raised venture capital in its journey.
They built their company on a different model, by keeping a tight rein on the working capital and a hawk eye on the balance sheet in the run up to the listing in March 2016, where the company raised 450 crore ($67 million) through an initial public offering (IPO).
Saving the spend: the Indian way
In an article in the annual overview of Asia’s private banking and wealth management industry by consulting firm Hubbis, Andrew Long — co-founder of Ten Group, a concierge service that caters to the world’s wealthy — talks about the counter-intuitive attitudes of the wealthy across geographies and regions.
In the article, he recounts an experience from China, where Ten Group sent an email newsletter that contained a picture of twelve different Hermes and Birkin handbags. One of the customers emailed back with a “yes, please” and bought all the bags showcased for $500,000 ( 3.3 crore). Interestingly, though, when they organised a tour to Europe, the Ten team assumed that somebody who would spend that kind of money on handbags would obviously want to fly business or first class, or perhaps even hire a private jet. Their client surprised them by wanting to fly economy and then by staying in a four-star hotel. In the Hubbis article, Long says, ‘Many Asian families place a high value on physical displays of wealth, yet are budget-conscious when it comes to more transitory acts of spending.’
China and India, pegged as the two stand-out stories in the Asia Pacific region over the medium term (five to seven years), already represent 10.5 per cent of global wealth, managing to double their share in this pie over the past fifteen years15. Backed by strong economic growth, the two countries account for 17 per cent of the global increase in new wealth since 2006, having added $3.2 trillion ( 21, 46,976 crore) during that time16.
Because expansion of private wealth is relatively new to both the countries, attitudes and mindsets on consumption, indulgence and spending are rapidly evolving, say those who track these two nations.
Raghav Bahl, author of the books Superpower: The Amazing Race between China’s Hare and India’s Tortoise and Supereconomies: America, India, China & the Future of the World, says the Chinese pattern of consumption is vastly different from the Indian. ‘The Chinese indulge more because wealth is a newer phenomenon for them than for us,’ he says.
‘In India, we have always been used to the notion of private property, even if it is small. China is very different because their wealth is very new. Consequently, there is also much more ostentatious display of wealth. In India, maybe a fraction of the country is ostentatious but by sanskaar (traditional values), we’re taught to be frugal, and much of the wealthy in India today were once middle-class so we know how to live on a fixed income. So far, these values have endured much more in India because they are germane to us; they are embedded in our conditioning,’ says Bahl to me.
China also beats India in the suddenness of wealth created. Wealthy Chinese have emerged only in the past two decades. The first billionaire in China came out in the mid-2000s. ‘This is surprising, considering it’s an economy that has been roaring for at least three decades now,’ says IIFL Wealth’s Amit Shah.
He believes there was a greater inclination to splurge in China because the wealthy there lived with an inherent threat that the riches might go as you never knew what the Chinese government might do.
‘The Indian wealthy have enjoyed protection of private property for generations, it isn’t new for them. The quantum of the wealth has increased rapidly now and there has been a change in who the wealthy are but private wealth has always existed,’ he adds.
China is an interesting market, feels Michael Stanhope, founder and CEO, Hubbis. Much like India, the reality isn’t easily apparent, Stanhope says. So, even though consumerism is booming on the surface today in China, conservative spending habits are still deeply ingrained in the culture.
China still saves over 50 per cent of its GDP17. Although it has been sliding downwards, mainly due to inflation, India ranks thirty first17 out of 184 countries on its gross domestic savings in 2014, at 31 per cent of the GDP (down from 32.5 per cent in 2011). The new Indian wealthy seems to match this savings rate; most people said they would easily be saving upwards of 30 per cent of their wealth, if not more. Ultra-high net worth individuals (UHNI) who are entrepreneurs either save or invest in their primary business 39 per cent of their wealth; professional UHNIs saved up to 21 per cent of their income, according to a recent report18.
The eternal discount hunters
The Indian saving mindset comes from an incredibly strong value-for-money orientation. In particular, it’s ingrained in the DNA of its first-generation wealthy. An affluent Indian customer is both demanding of quality, especially of service, yet deeply influenced by the price.
‘We don’t compromise on quality but if there is a discounted deal, we don’t mind spending ten extra minutes to avail it,’ says IIFLW’s Shah, who, as the head of his company’s offshore business, is based out of Singapore. Having lived in New York for several years, he spends more than half a month across the world’s top financial centres. Shah finds the value-for-money focus of his firm’s clients in Mumbai rather striking compared to other cities.
‘What you’re sitting on is as old as the company itself, probably older,’ Stellar’s Akshay Sethi tells me, referring to the less-than-spiffy three-seater sofa in the company’s corporate office in Noida. ‘It’s been re-upholstered over six times but never been replaced,’ says Sethi.
In that time span, the company has built more than two million square feet of real estate across commercial and residential projects. His father, Ravi M Sethi, the company’s founder and a former Uttar Pradesh-cadre Indian Administrative Service officer, still staples a bunch of food delivery, dry cleaning and beauty salon advertising flyers that come with the morning newspapers and uses the unprinted reverse side as his rough note pad during the day. As much as possible, he also re-uses the envelopes they get their mails in for internal, intra-departmental correspondence.
Wealthy entrepreneurs in their 60s and 70s can be incredibly cost-driven, says a senior private banker in Mumbai. They might spend several lakhs in buying jewellery for a family wedding, because it was an asset that would appreciate, but would not spend an extra rupee on lifestyle needs. In contrast, the younger wealthy, whether first-generation entrepreneurs, successful corporate professionals or the second-generation of a business family, were usually more willing to spend on lifestyle but continued to look out for deals.
‘They will travel around the world at least two or three weeks a year, but they will not necessarily stay in the most expensive hotels in the city or fly first class,’ a wealth manager tells me.
Much like “creating value” is constantly brought up as the motivation that powers achievement, spending the money sensibly consistently comes up as a badge of honour the new rich wish to wear with pride.
A technology entrepreneur in his late 30s, who comes from a middle-class background, confessed to often feeling guilty after the end of a holiday or a sudden, impulsive buy. To him, it wasn’t about the amount of money spent but the conditioning he has imbibed.
‘If you haven’t hunted for a value deal, or spent time comparing prices on a decent-size purchase, you feel stupid. You might have still made the same decision to buy the same thing, but if you haven’t taken the time to think about it, it takes away from the joy of owning,’ he explains.
Assets, legacies and children
The ones who are older —
in their late 40s to early 50s /– are obsessed with communicating this “value” to their children. For most people, beyond a certain expense on lifestyle needs, wealth is really a tool for the future.
Unsurprisingly, children feature prominently in every conversation with a wealthy individual. Most first-generation rich — entrepreneurs and professionals alike — take great pride in the middle-class environments they grew up in and from which they imbibed the ethos of hard work and discipline that they give credit to for their success.
There are examples of very successful children of successful parents but this is more the exception than the rule. A large number were constantly worried their success would end up curbing their children’s hunger for growth as well as their entrepreneurial instincts.
The belief that there were some advantages to adversity that privileges could never match was a concern shared by several first-generation entrepreneurs, especially those who had come from the least economically well-off backgrounds.
The gulf between their own childhood and the upbringing they were giving their children was so dramatically different — they wondered if the eventual outcome would be as divergent as well?
Several, therefore, worry about how to make their current wealth work to an advantage for their children, especially in finding the right balance between giving their children access to best-in-class education, facilities and experiences without breeding entitlement and complacency.
More crucially, they want them to understand the value of money because these children have grown up in homes where the true luxury money afforded was that it allowed them never having to think about it.
How could they make sure their children inherited the wealth and ambition as well as the hunger and work ethic that first-generation entrepreneurs and professionals believe was their secret sauce?
‘If I have managed to create this first-generation wealth, I’d rather not give them the wealth but give them the right education. That’s my investment. I do worry about this all the time. Everything I do, every decision we take as a family, be it a holiday or a big purchase, I am wondering what they’re making of that, what they’re understanding, why they think we could afford this purchase, and somebody else they know couldn’t, or vice versa,’ says a first-generation technology entrepreneur who sold his 200-people strong company to a global IT services company.
Wealth’s birds and bees: an uncomfortable conversation
An interesting insight I gained was also the fact that people are divided on whether they should give their children details about the family wealth or not. Several felt that money wasn’t something to be discussed with children till they were at least young adults while there were others who believed it was somewhat delusional to expect that children did not understand the family’s economic situation. It was worse if they made wrong assumptions. Much like any other important issue children faced while growing up, it was best they got an accurate picture at home from their parents.
Children are curious about money because they rightfully sense early on the power of money, writes Ron Lieber, author of the book, The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money. In an article19 after the book was released, Lieber, recommends that parents begin “talking about money” with children as young as five or six years old with the help of tools such as the grocery bill so they can start understanding concepts such as budgets, wants and needs.
His advice for the wealthy was the same: That even in the case of plenty, children must know what sustains their standard of living.
‘Coming clean about income and assets can pose special challenges if you are truly wealthy because (parents) may worry that children will flaunt their good fortune or think they never have to work. But you don’t get a pass: If you don’t work (or don’t work much), older children will wonder how the family affords its life. At the very least, it’s worth trying some starter exercises, like showing your children the details of what a vacation or a second home actually costs. Explain, too, that it requires a great deal of money to throw off whatever dividends and interest contribute to the family budget, and that the investments that do so may not last or may not fall to the next generation if the children don’t make something of themselves in college and beyond,’ Lieber writes20.
A healthcare entrepreneur based in Hyderabad, who did not want to be quoted, told me that his wife and he underplayed their wealth so that their two boys wouldn’t think they had access to a “bottomless vault of goodies and riches” to live off. Even his elder son, who is nearly nineteen years old, does not know the extent of the wealth and would not be able to hazard a guess although it was slowly becoming obvious to him that the lifestyle they enjoyed and the things they could access were much more than what others can afford. ‘It’s a difficult line to get right: You want them to grow up without thinking of themselves as rich and becoming arrogant but also knowing how fortunate they are to have more than others,’ he says.
The wealthy hoped their children would build on the advantages they had inherited, not squander them away.
‘My fundamental philosophy when it comes to getting my children to understand the value of money comes from what I learned from my mother: Never preach, practice,’ IIFL’s Jain said.
‘It’s not enough to say, don’t waste food or don’t waste money. As parents, you have to make sure you don’t leave anything on the plate either and your children don’t see you wasting money. My father, who is eighty two, gets agitated about even a rupee being wasted. Because he lives with us, my three children are exposed to that mindset. Hopefully, they’ll follow in his footsteps,’ he adds.
Others talked about their various experiments with building this value-for-money ethos — having their teenage children plan the family holidays where they are given a budget and asked to make decisions on flight bookings, hotel rooms and must-see tourist attractions. This way, they start to see how their parents seek value.
‘If you are spending $100 a night extra at one particular hotel, there should be a reason for that. When you suddenly find a good deal for a good price, it is a good decision. You begin to train them on the sense of value versus just cost,’ an entrepreneur explained to me.
Sharda Exports’ Aditya Gupta feels that what is even more important with children is getting the work culture right. For him, a seventy-hour work week was the norm. ‘I sometimes wonder why I continue to work so hard. But, I think it’s important for them to see that their lifestyle and the choices they are fortunate to have are sustained by hard work. Hopefully, that will keep the sense of entitlement at bay,’ he adds.
Much like the ultra-wealthy Chinese woman who bought the dozen expensive bags but flew economy class, air travel interestingly came up in many conversations when talking about the value of money.
Several admitted to flying business class as being one of their biggest indulgences. Most are, however, quick to add that their punishing travel schedules — especially flights to the United States, for example — had led them to give in to this guilty, but necessary, life upgrade.
Even those who travel business class for work say they are conscious of travelling economy when taking family holidays, or certainly making sure that their children, especially if they’re older and can take care of themselves, fly economy even if the parents have treated themselves to a first-class ticket.
Interestingly, even though people say they worried about their children’s attitude to wealth, most seemed satisfied by how their children were faring, or had fared, in dealing with their abundances. Those with adult children didn’t seem to begrudge the next generation their expensive lifestyle, understanding that changed economic realities meant priorities and habits would also change.
I wonder if people were less than honest because most would be unwilling to dwell on being unhappy with their children or with their own parenting hits-and-misses with an outsider. But the blind survey had similar findings: Over 80 per cent said they were satis
fied with their effort at making their children understand the value of money and were confident that their children were on the right track.
Yet, for the rich, family legacies are not restricted to the home alone. While working on this book, the one question that was posed to me by those who knew I was writing on India’s new affluent — even more than the “how they did it” questions or “how they managed their money” — was how much did these people donate to charity?
Chapter 7
Do-gooders or reluctant philanthropists?
Globally, the rich have been in a tough public relations spot over the past six years. It began with the Occupy Wall Street movement, a protest movement against social and income inequality worldwide that began in Zuccotti Park in New York’s financial district in September 2011. It was a movement powered by the people, aided by the communication advantages that social media accorded. Although it began small, the movement soon grew to get global attention.
In 2014, French economist Thomas Piketty, whose work focuses on wealth and income inequality, published his book Capital in the Twenty-First Century. It has sold more than two million copies since and his ideas around the inequalities of wealth have been the focus of many conversations. The masterful data Piketty had marshalled has led to countless news reports and magazine articles on the subject of wealth inequality and its damaging consequences.
More recently, in April 2016, the Panama Papers were made public by a clutch of media organisations around the world. The Papers refer to the 11.5 million files leaked from law firm Mossack Fonseca, based in Panama, that reveal how industrialists, politicians and celebrities from across the world used an offshore tax haven like Panama to avoid paying taxes in their own countries.
The Wealth Wallahs Page 7
