The Pew Research Center classifies millennials as that demographic cohort who have been born between 1981 and 1996. A quick mathematical exercise reveals that those between the age of 24 and 28 in 2020 fall in this category. This generation has had the fortune of witnessing the advent of the digital revolution an offshoot of which has been the expansive plethora of opportunities across the globe in terms of career and education that the older generations did not have. But when it comes to matters of the wallet, the lack of basic financial knowhow remains a pain point for many millennials.
Compared to the older generations, millennials face more detours on the path to acknowledging the importance of exercising prudence in financial matters. This can be attributed to aspirations that are forever ascending, a penchant for greater materialistic pleasures and the unspoken need for having the ‘gram worthy’ life. Consequently, most millennials find themselves grappling with the problem of their finances evaporating faster than acetone. The rising costs of living, especially in the big cities, make the challenge of maintaining financial health a very unique and tricky one.
According to the Deloitte 2020 Millennial Survey, about 80 percent millennials said that they were stressed about their finances. This was primarily because their priorities are different from those of the previous generations.
Financial literacy and money troubles
The fact that even the basics of ‘personal finance’ have been kept light years away from our education system has made the people of this age group more vulnerable to money problems. Generational attitudes in India also do not encourage conversations about money with children. The lack of women’s participation in financial decisions in the household also acts as barriers for young children to understand the basic of finance management. Barring loans and credit cards, many millennials learn new terminologies pertaining to personal finance on an experimental basis. And sometimes, trying to gain insight into the gamut of investment management without appropriate guidance can prove to be a costly mistake.
Shwetalini Singh, a software engineer based in Bengaluru says, “While advancements in medical sciences have increased the life span of humans but we still rely on the same plans for retirement. How is this supposed to cover for the extra years that people live? This is an example of how important it is to make basic financial planning a part of our school curriculum.”
Describing her own struggles with managing finances, Shwetalini says, “When I started working, I was so ignorant of financial matters that I thought having some extra money in the bank is enough. Filing taxes was another nightmare. Simply put, my relationship with money was limited to having enough of it in my bank account. But over the years, I have put in a lot of effort to educate myself and have regularly sought professional advice.”
The quicksand of readily-available credit
The ability to judiciously utilize debts is also a pain point for many millennials. The easy availability of credit cards and loans coupled with scant knowledge about managing debts has sucked many into vicious debt cycles. Millennials have been known to harbor the tendency of moving things from wish lists to carts by swiping credit cards which inevitably leads to troubles in maintaining financial discipline.
Shreya Mukherjee, an assistant professor at the Vellore Institute of Technology says, “The economy is on a slippery slope and people are learning the dangers of living from paycheck-to-paycheck. The credit system is one that forces people to spend more than what they can afford. I have refrained from using credit cards even before the pandemic but if I have to seek credit I am going to look for short-term credit policies which is still a new concept in India. I have also realized that investing in SIPs is a great way to achieve short-term goals than relying on debt.”
Shilpa Singh, who works as a senior manager at PwC Gurgaon also, advocated investing in mutual funds over easy credit, “Less dependency on loans would be the way forward. Especially it’s for a depreciating asset such as bike, car, etc. For goals like these, mutual fund investments are better for creating the necessary pool of money. Managing debt has been my biggest challenge, so much so that at one point of time I did not have enough cash to pay away my loans. Now, I won’t incur credit card debts unless there is an emergency.”
Changing perception of wealth
Despite the prevalence of low financial literacy, change is already underway. According to data from Computer Age Management Services (Cams), a transfer agency which services 68% of MFs in India, of the 3.6 million new MF investors it on-boarded in FY18-19, 47% (1.7 million) were millennials.
The economic fallout triggered by the coronavirus has also caused a shift in millennials’ attitude towards money. Considering that millennials have been more of swipers than savers, the pandemic has pushed many to reevaluate their approaches towards investments.
For Mayank Biyani who is involved in the manufacturing of refractories in Ranchi, the last few months have been an eye-opener with respect to planning for uncertainties. He says, “The pandemic has made me think how I would have sustained if my business would have remained shut for six months! How would my employees have survived! I had invested in mutual funds 5 years ago and the returns I got now proved to be a life saver in these stressful times. I am also keeping an eye on more funds during these times for long term investments.”
For all those millennials, who are newcomers to mutual funds, do keep a check on your risk tolerance levels, along with your investment goals, before you decide on whether this investment option is for you. New investors gravitate towards SIPs or liquid funds as they offer higher flexibility with a much lower risk factor. Needless to say, you need to consider various factors to ensure that you’re comfortable with your investments.
Tips to manage finances:
•You can save now and spend later: With rising cost of living and inflation rates heading upwards every year, the importance of saving first and spending later cannot be stressed enough.
•Plan a budget and try to stick to it: A budget helps you prioritise and create a healthy balance between wants and needs. Prepare a list of possible expenses and then create a reasonable budget, keeping in mind the sources of incomes.
•Create an emergency fund: If not anything else, the pandemic and the ensuing economic recession has taught us the value of keeping a contingency fund for rainy days.
•Invest in sound health insurance policies: An unforeseen medical emergency can leave a huge hole in your wallet and cause a complete imbalance in your financial situation. It is important to invest in a good health insurance policy that offers you and your loved ones ample cover.
(This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life AMC)
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