Almost all Indian immigrants who come to the USA become successful in establishing themselves with decent education, professional jobs, comfortable housing, late model cars, etc. Yet most of them seem incapable of getting assimilated into American society despite their faith in Americana. One key reason for this paradoxical situation is the difference in money management styles.

The traditional financial guiding principles among Indians are the following: earn as much money and work as long as possible before retirement, spend modest amounts on every aspect of life, save the difference in secure investments (CDs, gold jewellery, real estate) which appreciate in value, borrow the least amounts of money and pay all bills in full at the end of the month. A key goal is saving money for children’s education, dealing with a crippling illness and to leave some inheritance. The philosophy of money management among Americans seems to be drastically different.

This makes social assimilation a difficult proposition because it results in differences in lifestyles, values and social behaviours. I will call the American method “cash flow management” (CFM), borrowing a term from the economists. The basic concept is simple. Every month, month after month until one dies, the total spending must not exceed one’s total earnings. Unlike the traditional Indian approach, in the CFM, it does not matter how many cars or houses you own or how much money you owe.

It also does not consider the scenarios after you die. Once you die it is no longer your problem. There are two advantages to this way of thinking. The first is that one can enjoy life better by spending more, for example, by buying a fancy luxury car instead of a Honda Accord, living in a large custom house instead of that track home, wearing designer clothes instead of JC Penney sale items and flying once in a while in business class or first class.

The second is that by spending more, one contributes to prosperity in the economy of the country because consumption of more goods means more profit for the companies who make those goods, and who then hire more people to make and sell them. Any amount of borrowing is allowed as long as loan payments are considered to be part of the total expense in the financial equation. Need for money to cover unexpected expenses in emergencies like illness or loss of job are addressed by establishing some credit lines ahead of time. Children’s education can be covered by student loans. There is no shame in lobbying for forgiveness of these loans later depending on the political climate.

Unlike Indians, Americans prefer life insurances in lieu of saving to build up an inheritance. The emphasis is on spending by leveraging one’s healthy financial situation as opposed to saving. The preferred method in CFM in any purchase is to pay the minimum down payment and seek loans with the lowest interest rates. That allows one to buy more things as long as the net cash flow is positive. In case of severe financial distress or bankruptcy, one can simply walk away from all these debts. The CFM method is also the way most companies run. Unless a company has a huge amount of cash reserves somewhere, a negative cashflow every month will eventually drive the company out of business.

Any successful business learns to analyse cash flow one way or another and makes sure that it is always positive. Also, there is no point in a company building up a huge cash reserve; the logical strategy for any profitable company would be to reinvest any “extra” profit into expansion, diversification and acquisition, which would keep the positive cash flow going, while building equity in the company. Governments also follow the same principle. Despite trillions and trillions of dollars in national debt, America seems to be functioning just fine. The reason is that the government earns enough money (and borrows, if necessary) to, at least, make the interest payments on all its loans.

If the present president can continue to do this until the end of his term, then it becomes the next president’s problem, just like your loans would become someone else’s problem after your death. In the worst-case scenarios in personal financial management, even bankruptcy and non-payment of income taxes are acceptable actions in CFM, as long as they are legal. Both of these outcomes are considered to be major taboos for Indians, but many Americans routinely take advantage of the system.

Even Donald Trump declared bankruptcy for his casinos. If done legally, declaration of bankruptcy could wipe out large amounts of your debts and keep you afloat with a continuing positive cash flow because the interest payments on those loans would disappear. Bankruptcy would destroy one’s credit rating for several years and prohibit major purchases. However, one can still use debit cards as credit cards where one needs credit cards for convenience (online transactions, gas pumps, etc.) and credit rating can be restored after about seven years. As far as income tax is concerned, non-reporting of income tax is illegal, but there is nothing illegal about filing a tax return (showing the amount of tax owed) but not paying the tax.

Of course, the Internal Revenue Service (IRS) will track you down and demand their money. There are various options at that point. One can negotiate with the IRS in order to pay in monthly instalments; the interest rate that the IRS charges may be higher than the “market” rate, but remember, the basic goal is to have a positive cash flow, after including these IRS monthly payments as part of expenses. There is an option called an “Offer in Compromise” where a severely distressed person can propose a relatively small lump-sum amount of money to the IRS in order to settle a large debt.

If one has no income and no property or savings in one’s name one can also simply walk away from the tax burden and ignore all the demands and threats from the IRS. The IRS can confiscate social security (SS) income, but only up to 15 per cent of the SS payments per year. That may be a small price to pay if the tax liability is huge. In order to maintain a positive cash flow after retirement, one has to think of every asset as a potential source of continuing monthly income stream until death instead of potential profit on resale or inheritance left for children. Social security, pensions, annuities, rental income from investment property and even a reverse mortgage are attractive from that point of view. Investments in stocks and bonds are not advisable for retired people, especially with all the economic uncertainty in the world today.

I am not advocating the CFM principle. In fact, most Americans are probably so heavily in debt that even a slight unexpected financial difficulty would put them in a tailspin because of lack of any reserve funds. Most Americans are also failing miserably in retirement planning. A recent news report claims that about 65 per cent of Americans have $1000 or less in retirement funds! My main point is that it is possible to balance spending, borrowing and saving in a way different from what we Indians typically do in order to enjoy a much better life.

(The writer, a physicist who worked in industry and academia, is a Bengali settled in America.)