The Pew Research Center classifies millennials in this demographic cohort born between 1981 and 1996. A quick mathematical exercise reveals that people aged 24 to 28 in 2020 fall into this category. This generation was fortunate enough to witness the advent of the digital revolution, a consequence of which was the plethora of career and education opportunities around the world that older generations did not have. But when it comes to the portfolio, a lack of basic financial literacy remains a problem for many millennials.
Compared to older generations, millennials face more detours in recognizing the importance of being financially prudent. This can be attributed to ever increasing aspirations, a penchant for greater materialistic pleasures, and the unspoken need to have a life “fit for a gram”. Therefore, most millennials find themselves struggling with the problem of their finances evaporating faster than acetone. The rising cost of living, especially in large cities, makes the challenge of maintaining financial health a unique and delicate challenge.
According to the Deloitte 2020 Millennial Survey, around 80% of millennials said they were stressed about their finances. This was mainly because their priorities are different from those of previous generations.
Financial literacy and money problems
The fact that even the basics of “personal finance” have been kept light years away from our education system has made people in this age group more vulnerable to money problems. Generational attitudes in India also do not encourage conversations about money with children. The lack of participation of women in financial decisions within the household also acts as a barrier for young children to understand the basics of financial management. With the exception of loans and credit cards, many millennials are learning new personal finance terminologies on an experimental basis. And sometimes, trying to gain insight into the spectrum of investment management without proper guidance can be a costly mistake.
Shwetalini Singh, a Bangalore-based software engineer, says: “As advances in medical science have increased the lifespan of humans, we still rely on the same retirement plans. How is that supposed to cover the extra years people are going through? This is an example of the importance of incorporating basic financial planning into our school curriculum.
Describing her own difficulties with managing finances, Shwetalini says, “When I first started working I was so ignorant of financial matters that I thought it was enough to have a little money in the bank. Filing taxes was another nightmare. Simply put, my relationship with money was limited to having enough in my bank account. But over the years, I have put a lot of effort into training myself and have regularly sought professional advice.
The quicksand of easily accessible credit
The ability to use debt wisely is also a problem for many millennials. The easy availability of credit cards and loans, coupled with limited knowledge of debt management, has resulted in many people being in vicious debt cycles. Millennials have been known to have a tendency to move things from wish lists to baskets by swiping credit cards, which inevitably leads to problems maintaining financial discipline.
Shreya Mukherjee, 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 forces people to spend more than they can afford. I refrained from using credit cards even before the pandemic but if I have to apply for credit I will look for short term credit policies which is still a new concept in India. I also realized that investing in SIPs is a great way to achieve short term goals than going into debt.
Shilpa Singh, who also works as a senior executive at PwC Gurgaon, also advocated investing in mutual funds rather than facilitating credit: “Less reliance on loans would be the way to go. It is especially for an asset which depreciates like a bicycle, a car, etc. For purposes like these, investments in mutual funds are better at creating the necessary reserve of cash. Debt management was my biggest challenge, so much so that at one point I didn’t have enough money to pay off my loans. Now, I will not take on credit card debt unless there is an emergency.
Changing the 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 that serves 68% of MFs in India, out of the 3.6 million new MF investors it onboarded 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 swipers than savers, the pandemic has prompted many to re-evaluate their approaches to investing.
For Mayank Biyani who is involved in refractory manufacturing at Ranchi, the past few months have been an eye opener when it comes to planning uncertainties. He says: “The pandemic made me think about what I would have suffered if my business had been closed for six months! How would my employees have survived! I had invested in mutual funds 5 years ago and the returns I am getting now have proven to be a lifeline in these stressful times. I also keep an eye out for more funds during these times for long term investments. “
For all those millennials, who are new to mutual funds, watch your risk tolerance levels, as well as your investment goals, before deciding if this investment option is for you. New investors are turning to SIPs or liquid funds because they offer more flexibility with a much lower risk factor. It goes without saying that there are a number of factors that you need to consider to make sure that you are comfortable with your investments.
Tips for managing finances:
• You can save now and spend later: With the cost of living rising and inflation rates rising each year, the importance of saving first and spending later cannot be overstated.
• Plan a budget and try to stick to it: A budget helps you prioritize and create a healthy balance between wants and needs. Prepare a list of possible expenses, then create a reasonable budget, keeping the sources of income in mind.
• Create an emergency fund: If not something else, the pandemic and subsequent economic recession have taught us the importance of keeping a contingency fund for rainy days.
• Invest in strong 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 provides you and your loved ones with sufficient coverage.
This article is part of the HT Friday Finance series published in collaboration with Aditya Birla Sun Life Mutual Fund