What are Millennials doing with their Money ?
The Gen Y is trying to explore new
choices, whether it’s in goal-setting, investing, spending, insurance or
career. Find out if it’s getting it right.
Gen ‘Y’ is an apt moniker for a generation that has grown to
question financial norms. More banally referred to as ‘Millennials’, the tag is
in keeping with their arrival at the turn of the millennium (born between 1981
and 2000). A bridge between Gen X (mid-’60s to early ’80s), that slogged its way
out of a poverty-laden past, and Gen Z (mid-’90s to mid-2000s), the pampered
progeny that breathes tech and wants for little, millennials couldn’t have
timed their entry better. Stepping into a country that was shrugging off
financial inertia and rushing into the promise of riches, they were in the
right place, at the right time. They have surged with the startups, gyrated
into the gig economy, embraced the markets, and wizened up after the global
crash. “They are completely different from any other generation that India has
seen so far, be it their sociological and demographic profile or the financial
eco-system,” says Nitin Vyakaranam, CEO, ArthaYantra.
At 440 million, they form about 34% of the Indian population and
46% of the workforce. A force to be reckoned with, they are also a paradox
beyond parallel in the personal finance space. Renting is preferable to
purchasing, be it a car or a house, but buying a house is still the biggest
aspiration. Parents are not to be heeded, yet traditional insurance plans must
be bought on their prodding. They need to be seen as sui generis,
yet follow the herd as investors. They may not have matured as investors, but
love to invest in themselves. They are getting married late, spending a lot on
their education, and spending a lot, period. Yet, most are starting to save
early. Living on credit is de rigueur, yet the finances must be in
order. Vacationing is no trite goal to be trifled with, but kids’ goals must
not be compromised.
Borne of Gen X, a generation that would rather save than spend
and buy rather than borrow, Gen Y stands out in stark contrast. Still, they can
teach a thing or two to their parents about being open to investing in equity,
about the need to buy term plans, about maintaining work-life balance. “This
generation is more sensible than the previous one but is prone to a lot of
financial traps. If they can navigate these, they will do well,” sums up Jayant
Pai, Head, Marketing, PPFAS Mutual Fund. In the following pages, we take you
through the financial path the millennials are taking, the things they are
getting right and the money lessons they need to learn. If you are a millennial
and are not on the right financial track, it’s good time to start asking Y.
Goals
Most millennials are not thinking long term and it is probably a
function of their age and lifestage. In the 20-35 year age bracket, “they are
single for a longer period, have fewer responsibilities, are spending-oriented
and, hence, have a short-term view”, says Vyakaranam. Unlike Gen X, who started
saving for their long-term goals—house, children’s education and weddings,
retirement the day they started working, Gen Y puts these off for later. What
they are focusing on instead are cars, vacations, smartphones and electronic
gadgets, not necessarily in that order.
Among long-term goals, buying a house is the biggest aspiration
for millennials, as per the BankBazaar survey, Aspiration Index 2018 – Decoding
Indian Millennials, among 1,551 people in the 25-35 age group. However, the
large ticket size is prohibitive, and most are happy living on rent because it
doesn’t tie them down and clip their career ambitions. “Since both I and my
wife are fresh in our jobs, we don’t want to tie ourselves down to one place,”
says 27-year-old Sabari Harsh, who currently stays in Bengaluru.
Millennials may also have retirement on their mind, but it’s not
on the financial radar yet. “Since I have recently married, I am focusing on
settling down. I will probably start planning for retirement after I turn 30,”
says Harsh. Adds Kolkata-based Raunak Ramuka: “I’m only 28 and it is too early
for me to plan for my retirement. I will do it after I’m 45.”
Are they on the right track?
While it may seem easy to postpone saving for a goal that is
25-30 years away, it will make the task easier if one starts putting away a
little sum, even if it is 10% of the income, towards long-term goals like
retirement right from the start. This is the reason Gurgaon-based Upasna Singh
is on the right track; she began saving 5% of her income when she started
working at 23 and has increased it to 30%, most of it in equity, at 29.
Investing
“Millennials are asking the right questions when it comes to
investing,” says Financial Planner Dilshad Billimoria. “With higher salary
packages, most do their due diligence before investing because information is
available like never before,” he adds.
“They are definitely more open-minded and have many more ready
sources of information than the previous generation,” agrees Pai. “This is the
reason that they are investing in stocks and mutual funds even if their parents
tell them not to. At the same time, to avoid conflict, they open fixed deposits
or buy traditional insurance policies,” he adds.
What this means is that though they are inadvertently
diversifying their portfolios, they do not always know what they are doing.
Consider 29-year-old Divya Shah from Ahmedabad, who is investing only 30% of
her investible income in equity, while 70% goes in debt even though her age and
goal horizons warrant a higher equity exposure. More importantly, she is
banking on PPF for a long-term goal like her daughter’s education, while
investing in mutual funds for a short-term goal like travel. On the other hand,
29-year-old Upasna Singh is on the right track with an 83% exposure to equity.
“Within millennials, there are three segments,” says Vyakaranam.
One, who will do exactly what their parents tell them to and invest mostly in
conservative instruments. Two, the independent ones who will try out new
things, but will also talk to their parents and invest in traditional avenues.
Three, the complete rebels, who will not listen to their parents
and even invest in bitcoins. Ramuka is clearly independent, intending to create
wealth from the market and puts 75% of his savings in stocks and equity funds,
while 25% goes in debt funds.
“Most of them are likely to make mistakes while investing and
realise it later, but at least they are willing to experiment,” says Pai.
Are they on the right track?
It’s a hit and trial for most millennials because nobody has
taught them how to invest. The important thing, however, is that they are open
to learning and trying new avenues of investing. Combine this with various
channels of information and they will gradually get on track, synchronising
their investing instruments with the goals to achieve them.
Spending
A clear unifier for millennials is their penchant for spending,
be it on travel, gadgets or apparel, a pattern captured well in Deloitte’s
report, ‘Trendsetting millennials: Redefining the consumer story’. The lower
inclination towards saving, which accounts for 10% of the overall or any
incremental income, indicates a shift towards the consumption economy rather
than savings economy, a predominant feature of Gen X. Millennials spend mostly
on essentials, followed by education and utilities, says the report. Of the
incremental income, 32.7% goes into eating out and entertainment, 21.4% on
apparel and accessories, and 11.2% on electronics.
Travel is another preoccupation that takes up much of their
income and features in practically every millennial’s short-term goals. “I want
to travel every six months and make it a point to save for it,” says Singh.
This passion for vacationing is in jarring contrast to Gen X, who considered it
a frivolous expense, best forsaken in favour of the crucial long-term goals.
One reason millennials are big on spending is because they have
higher disposable incomes and fewer responsibilities. “It is also a function of
the ease of borrowing, not just in terms of taking loans, but also maxing out
their credit cards,” says Pai. Agrees Vyakaranam: “Most of them are buying new,
expensive smartphones every 6-9 months not just because they want to be seen
with one, but because the market is flooded with phones and are available on
easy EMIs.” According to a study conducted by ET RICS (Research, Insights &
Consumer Survey), more than half of the mobile handset users in urban India are
planning to change their mobile devices in the next six months and almost 65%
of these are millennials. This was not even an option for Gen X.
This may not always be a good thing since not everyone is not
aware about the dangers of rolling over the credit card bill and it can send
them hurtling towards a debt trap.
The good thing, though, is that most millennials understand the
need to start saving early, whether they get the investing instrument right or
not. So while Singh saves nearly 30% and Shah puts in 40%, Ramuka manages to
squirrel away as high as 60% of his income in various instruments ranging from
mutual funds and stocks to fixed deposits, PPF, EPF and NPS.
Are they on the right track?
It may seem as if the spending habit could prove to be a bane
for millennials, disrupting their financial plans and spiralling them into a
debt trap if they don’t keep a check on their credit card spending. However, it
is very likely a factor of their age and situation in life, and financial
responsibilities after marriage could pare the expenses and trigger the saving
mode in earnest. So unless the millennials continue to be extravagant at the
expense of crucial financial goals, it shouldn’t be a cause for concern.
Insurance
Insurance is another area that has seen a shift in attitudes.
Gen X was irrevocably tied to traditional life insurance policies, confusing
insurance with investment, and using these to fund most of their life goals.
This implied that not only did they remain without an adequate life cover, but
also had to be content with low returns. “For our parents, insurance was never
a part of their essential needs,” says Shah.
The choice of traditional plans was primarily the outcome of an
inordinate fear of the markets. “Things were a lot harder for Gen X because of
lack of readily available information and, hence, they looked for safer and
more prudent options,” explains Billimoria.
“The millennials are more open to buying term plans and,
importantly, not having money at the end of the term,” says Pai. This is the
reason Shah is set to buy a term plan for herself soon. “I’m planning to buy a ₹2 crore term plan, splitting it
between LIC and a private insurer. Since critical illness plans are also
available along with the term plan, I shall consider that as well,” she says.
Vyakaranam doesn’t seem so optimistic. “The awareness level is
still very low and unless there is a fundamental shift in the way information
is dispensed by the system, millennials will continue to make the same mistakes
and keep buying traditional plans and Ulips,” he says.
As for health insurance, millennials are still relying on the
covers provided by their employers, much like their parents. The awareness for
independent health plans is rising only gradually. “I have a ₹3 lakh cover by my company, and
since I got married recently, I am planning to take a family floater plan even
though my wife also has cover by her employer,” says Harsh.
Are they on the right track?
While they seem to be drifting towards a greater realisation of
the need for buying insurance, be it term plans or health covers, the trend is
confined to large metros and cities. Besides, the parents’ influence is still
strong and most end up buying traditional plans to appease the Gen X. It will
take a concerted effort by millennials and the insurance industry to ratchet up
these awareness levels.
Career
The job scenario has undergone a paradigm change in the past
decade or so and millennials seem to have readily adjusted to the new-found
work ethic and rules. Being a part of the gig economy entails more flexible
work location and hours, and Gen Y is clearly pushing the envelope here.
“With more Internet jobs which do not require a fixed location
or work hours, all their decisions are being affected by their choice of
careers,” says Vyakaranam. “They don’t want to live in larger cities, picking
Goa or Coimbatore or Jaipur instead, because location is irrelevant. They don’t
want to be in the rat race and retire early, or not retire at all,” he adds.
“The downside of this heightened connectivity is that the office
never leaves millennials. They are in constant touch with office through
e-mails, via Skype or video conferencing,” say Pai.
Millennials are also changing jobs faster, lured by lucre or
work conditions. According to the Deloitte Millennial Survey 2018, good pay and
positive work culture attract millennials, but diversity and flexibility are
key to keeping them happy. This may be the reason that most of them have
changed at least 2-3 jobs by the time they hit their 30s. “This is my fourth
job in 12 years. The ideal period for a job change is 3-4 years, but it also
depends on growth, job satisfaction and work culture,” says Shah.
Contrast this with the millennials’ parents, who changed only
2-3 jobs, if not fewer, in their entire careers. “They looked more for
stability and retirement benefits while considering a job,” adds Shah.
Are they on the right track?
There is no clear distinction between right and wrong when it
comes to career decisions for millennials because they are a product of the
eco-system, which is changing radically and faster. What they will need to
focus on is adapting quickly to the changing scenario and upgrading their
skills at a faster pace. This is where they are on the right track.
“Millennials are investing a lot in their education, continuing to study and
get additional certification even as they are working,” says Vyakaranam.
Online exposure
Millennials are clearly living their financial, social and
professional lives online, be it carrying out work assignments, conducting
banking transactions, shopping, paying bills, making bookings, filing tax
returns or interacting on social media. “When it comes to making payments, they
are not satisfied with Neft transactions; they want instant, peer-to-peer
transactions in real time,” says Pai.
Little wonder then that Gen Y is craving gadgets at the pace
that it does. Latest smartphones and laptops are acquired every couple of years
to heighten and simplify the online experience. “I cannot think of a life
without my smartphone, tabs and Internet,” says Ramuka, who changes his mobile
every year and conducts 80-90% of his transactions online or on phone.
Compare this with Gen X, who are only now acquiring a degree of
comfort with online transactions and interactions. While it has simplified
their financial lives, they are unlikely to acquire the same level of ease with
smartphones or laptops. “Like most parents, mine are not too tech-savvy and
rely on me for their online transactions,” reveals Ramuka.
Are they on the right track?
Since millennials are a product of the digital age, they have
glided into it without effort. Since the way forward is clearly online, they
are on the right track and would do well to initiate their parents into it as
well.
What the millennials can also teach Gen X is to be more
open-minded about their investment choices, and in turn, learn from them the
benefit of starting saving more and from an early age.
By Riju Mehta, with Rimme Dirchi
ET6AUG18
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