Perceived as a highly dynamic and unique generation, millennials (Generation Y) are the youth, who were born after 1982 and had turned 18 by the year 2000. Synonymous with an increased usage of all things digital, they love innovation, spend a lot of time on the internet, look for curated experiences and are open to experimentation. The millennials want to retire early, own a business post retirement and contribute to varied social causes. Regardless of what the preceding generations perceive them to be, we are now at a juncture in time when they’re turning into the primary contributors of society.
India is home to more than 450mn millennials, the highest millennial population in the world with a median age of 28 years. These millenials 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. This segment also happens to be the world’s most untapped economic potential, comprising of 31% of the population and 46% of the workforce.
Most brands and sectors are rapidly adapting to this vigorous palate shift, with a more consumer centric perspective and approach. Millenials are demanding seamless experiences matched with unseen service quality that aims to deliver in a customized way. With maximum aspirations and consumption in the education; housing and ecommerce space, these sectors are battling it out the hardest to keep up with the changing demand.
The financial realm is one such space that has also undergone a sea-change, with both consumption and expenditure patterns transforming. Paper money is out of the way, cheques are passé, and most of the transactions are done either through credit/debit cards or online and more recently using e-wallets. Looking at the above, it is clear that this generation has become more quality conscious and is looking for products that provide distinctive value to each consumer.
As millenials get more fiscally active, it is pertinent to tread carefully and stay clear of areas that could put one’s future to risk.
1)Expectation without Attention: With a comparatively increased awareness of the investment avenues, millennials are high risk takers. A noticeable change in the investment style change the different age groups i.e. the older Gen X and Gen Y (millennial) is also seen, with the former believing in long term investments while the later vying for quick returns. It is advisable to undertake a thorough due diligence before investing, to associate with ideas that one understands. While in general, new age investors have become cost conscious, good service is of utmost importance. Real time/online access of the investment portals is expected along with quick & seamless execution. Any kind of investment avenues suggested by the financial advisors should be cross checked for transparency in prices and in product selection without blindly trusting the advisors.
2)Expenditure over Pay back: Though millenials are competent in taking investment decisions, it is prudent to avoid some of the oldest investment mistakes in the playbook. It is suggested that if they have taken any students loans, they should pay them off early. What happens in most cases is that millennials take this as a second priority and spend lavishly on luxury items through credit cards & even personal loans, which eventually leads them to debt trap.
3)Dissipation before Saving: A proper expense budget and early start to saving/investing for retirement should be the priority for the millennials. Salary or income received should be first utilised for necessary expenses, making provisions for emergency funds followed by making investments for retirement corpus. Once the above rationing is done, remaining money can utilised for leisure activities. Regular savings through the SIP (systematic investment plans) route in mutual funds can help build a big retirement corpus. As the risk taking capability for the millennials are generally high, greater allocation can be made to equity mutual funds/direct equity. Taking the help of a financial advisor/wealth management firm is suggested to draft a customized financial plan and also to identify the correct investment avenues as per the risk profile.
4)Today atop Tomorrow: “Insurance needs” is an overlooked factor for the millenials. A “term life insurance” with coverage of 15 times of the annual earnings, coupled with a health, accident and disability insurance should be taken by the youngsters. Millenials like change; job hopping is a reality, but sometimes millennials make a mistake of withdrawing their retirement corpus (Provident fund balances) when they change their jobs. On the other hand this PF balance should be transferred to the next employer and withdrawn only at the retirement age.
The above suggestions are not exhaustive, but lay down the periphery of the playground that millenials should play within, for a secured financial future. The key is to be proactive and take control of the financial reins by laying down a strong foundation and a proper investment road-map for overall well-being.