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The Wealth of Choices: How the New Economy Puts Power in Your Hands and Money in Your Pocket [Alan Murray] on $ 37 Used from $ 6 New from $ 6 Collectible from $ . sets this up by sharing the advice his father always gave him and suggesting that these rules no longer apply.
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However, most youngsters give it a miss. This, then, is the take-off point for our cover story. In the following pages, we shall explain how youngsters should initiate themselves into the seemingly complicated world of personal finance without being intimidated by it.

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There are, of course, many like Bengalurubased Saurabh Tomar and Harit Mehta from Chandigarh, who have already taken tentative steps. So begin by understanding your new financial status and all that you can do now that you are Taxation: You will be treated as an adult for all tax purposes, which means that your income will not be clubbed with your parents and, if it is above Rs 2.

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If your parents gift you any money, it will be tax-free, but the income it earns beyond Rs 2. Banking: You can, of course, open an independent bank account and conduct all transactions, issue cheques, open fixed or recurring deposits, conduct Net banking and have your own credit card. However, refrain from taking any kind of credit or loan at this stage, unless it is for education. Insurance: An year-old can also buy an insurance policy in his name, though it is too early for most.

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Investing: You can even start investing, be it in the PPF or stocks and mutual funds, but first study the benefits and drawbacks of each. This is the time—before you start working—to be introduced to money matters. Budgeting: You may not have too much money at this stage, but even if you get pocket money or are earning a little through freelancing, start budgeting. This is the most critical money management skill for later life and will help you if you are leaving house to pursue higher studies, be it in India or abroad.

It is just a record of incoming and outgoing money and the amount saved. Mohali-based Tarundeep Singh, 20, is already doing it. Budgeting is a simple exercise. Take a diary, use an Excel sheet or a budgeting app on your mobile phone, and keep a record of the money you have at the beginning of the month, the heads under which you spend, and how much you are left with at the end of the month.

The 20 Rules of Money

Not making enough money in stocks? Click here for real-life stories of successful investors. But the increase was the result of fewer inputs, not improved outputs. Fourth, governments often own productive businesses such as railways, postal services, or energy providers. But, by accounting convention, state-owned enterprises that sell products at market prices are counted as private enterprises in terms of value added: Public railways are part of the transport sector, not the government sector. So if the state-owned railway makes huge sales and profits high value added , it boosts the transport sector value added, even if that sector is perhaps only successful because of state ownership.

So, in the case of free public education, while increasing the number of teachers might add to GDP because they are paid , the value they actually produce does not increase GDP.

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All of which means that government can only increase its value added with non-market production, thereby obscuring the true importance of government in the economy: value that government businesses do add is not shown in official statistics, nor is the value that education or health generate.

These rules have been made in order to find a straightforward way to account for economic activity. This thinking by definition restricts how much government can influence the course of the economy. It underpins the theory of austerity. And it is a consequence of fables about government told over several centuries. National accounts do not consider the interaction between public expenditure and other components of output, consumption, investment, and net exports. Quite literally: Every pound or dollar that the government spent would be multiplied, because the demand it created would lead to several rounds of additional spending.

Importantly, the Keynesian approach also quantified the size of the multiplier, so policymakers—who quickly took up the idea—could support their arguments for stimulus spending with hard numbers. More precisely, the multiplier refers to the effect that an increase in expenditure demand has on total production. Its significance lies in the fact that, in the view of Keynes and Kahn, government spending benefits the economy way beyond the amount of demand that spending generates.

Additional government demand creates several subsequent rounds of spending, multiplying the original amount spent. Government spending in recession was seen as especially powerful in getting the economy back on track, since its effect on overall output was much greater than the actual amount invested.

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The sizeable literature on the subject can be divided into two schools of thought: the new classical and the Keynesian. They argue that it crowds out private investment. In the case of a negative multiplier, they assume that public expenditure destroys value, since any increase in public expenditure is more than offset by a decrease in the other components of GDP: consumption, investment, and net exports.

However, the Keynesian view has been revived recently; it has been shown that austerity measures implemented in, for example, southern European countries have led to a fall in total output and consequently a rise in unemployment, rather than GDP growth and increased employment. The poor economic performance of these countries calls into question the austerity prescription of the new classical authors. Recent IMF studies have also suggested that government spending has a positive effect on output and that the value of the multiplier is greater than one—to be precise, 1.

In short, more credence is being given to the view that government expenditure does not destroy private value but can create value added by stimulating private investment and consumption. Keynes argued the need for governments to think big—to have a sense of mission, not merely to replicate the private sector but to achieve something fundamentally different from it.

It is wrong to interpret him as believing that what is needed from policy is to simply fix what the private sector does not do, or does badly, or at best invest counter-cyclically. After the Great Depression, he claimed that even paying men simply to dig ditches and fill them up again could revive the economy—but his work inspired Franklin Roosevelt to be more ambitious than just advocating what today would be called shovel-ready projects easy infrastructure.

Equally, it is not enough to create money in the economy through quantitative easing; what is needed is the creation of new opportunities for investment and growth—infrastructure and finance must be embedded within the greater systemic plans for change. President John F.

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Kennedy, who hoped to send the first U. In a speech to Rice University, he said:. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too. Replacing these bold ambitions with financial rigid cost-benefit analysis has dismissed the public value that governments can create.

Civil servants are told to step back, minimize costs, think like the private sector and be fearful of making mistakes. Government departments are ordered to cut costs, inevitably also diminishing the skills and capacity of the public structures in question departments, agencies, etc. When government stops investing in its own capacity, it becomes more unsure of itself, less able, and the probability of failure increases.

It becomes harder to justify the existence of a particular government function, leading to further cuts or eventually to privatization. And, when it does create value, such value is treated as a private-sector success or goes unnoticed. Government already has developed the key infrastructure and technology upon which twentieth-century capitalism was built, even though it has received inadequate recognition for things like the microchip and global positioning technology.

Of course, the story is not always positive. But doing hard things means being willing to explore, experiment, make mistakes and to learn from those mistakes. Once we recognize that the state is not just a spender but an investor and risk taker, it becomes only sensible to ensure that policy leads to the socialization not only of risks but also of rewards.

A better realignment between risks and rewards, across public and private actors, can turn smart, innovation-led growth into inclusive growth.

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As we have seen, neoclassical value theory for the most part disregards the value created by government, such as an educated workforce, human capital, and the technology that ends up in our smart products. Government is ignored in microeconomics—the study of production—except in regulating the prices of inputs and outputs.

The marginal theory has fostered the idea that collectively produced value derives from individual contributions. Collective value creation entails a risk-taking public sector—and yet the usual relationship between risks and rewards, as taught in economics classes, does not seem to apply.

So the crucial question is not just about accounting for government value but also rewarding it: How should rewards from investment be divided between the public and private sectors? As Robert Solow showed, most of the gains in productivity of the first half of the twentieth century can be attributed not to labor and capital but to technological change.

We must change that. It is especially important that we rethink the terminology with which we describe government. Portraying government as a more active value creator—investing, not just spending, and entitled to earn a rate of return—can eventually modify how it is regarded and how it behaves.

Aiding the spending spree are credit cards and mobile wallets. While these are tools of convenience, irresponsible use can lead one into a debt trap. Mumbai resident Kirti Patial, 30, woke up late when reality hit home. Patial had a good salary but focused on spending rather than saving.