Millennials are often harangued by their parents with financial advice that starts with ‘during our times’ or ‘when I was your age.’ How much of this advice is relevant in the modern age?
As the world moved from pagers to smartphones, much of the conventional financial wisdom applied to Gen X or Boomers is obsolete. So let’s look at what has changed exactly and what the millennials are saving for.
Real estate
Despite new financial challenges, most millennials have their parents to thank for securing a roof over their heads. While their parents had to battle high-interest rates and low disposable income, the target is now to buy better or more real estate for most millennials. With higher monthly incomes and easier home loans, millennials are saving for a second or vacation home.
Jewellery/Gold
Traditionally for Indian households, Gold has always been looked at as the safety net. For the affluent, Gold and Jewellery have been a status symbol. However, as newer investment opportunities such as mutual funds have presented themselves over the years, the popularity of Gold among millennials as an investment option appears to have decreased [1].
Travel
The average Indian is traveling more than ever[2], and the reasons for our travels have also changed. Traveling abroad for bachelor parties/bachelorettes, graduation trips, and destination weddings has become part of the culture and requires thorough financial planning.
Higher education
Education has become expensive, and although much of primary and high school education is funded by parents, millennials are bracing themselves for the expensive reality of higher education. Getting a postgraduate or management degree after a couple of years of work experience has become increasingly popular and requires a substantial sum of money, as do summer school programs and professional courses.
Other expenses
As per a report by Deloitte, India has the world’s largest millennial population, and this group is increasingly health-conscious and places importance on physical wellbeing. As a result, millennials spend more on gym memberships, health insurance, health supplements, gourmet dining, and electronics than their parents did.
Now that we have figured out what millennials are saving for, let’s look at how they do it.
As per a report[3] published this year by Bank of America, millennials in the US who are saving for their retirement start from an early age of 24, compared to their parents, who began at an average age of 30. The report also states that 67% of millennials who are saving are using retirement plans sponsored by their employers. While their parents had limited options to save money – like fixed deposits, Gold, government bonds, and shares, millennials are spoilt for choice.
Millennials are not satisfied with saving money for exigencies or goals and instead invest the money and watch it grow. Financial apps are a new and easy way of doing this and offer various options, all at your fingertips. A couple of factors make financial apps an attractive option for saving money – ease of use, live tracking of finances, and comprehensiveness of these apps.
Several financial applications on the app store offer specific investment services. For instance, tracking and comparing various stocks or investing in mutual funds you are interested in. In addition, apps like IIFL Markets help you facilitate the investment after you make your pick. Some apps have multiple financial services bundled into one, allowing you to study, track and invest in mutual funds, insurance, and fixed deposits. Also known as personal finance apps, ET Money and Groww help you manage your money from your smartphones by providing additional features like expense tracking and innovative money-saving options to allow the user to optimize their finances without using separate apps or tools.
Various banks have increasingly sought to capitalize on the growing user base of fintech services in the market by launching their own apps that facilitate banking operations for their customers.
Apart from mutual fund investments discussed earlier, modern market-related investments popular with millennials are ELSS (Equity Linked Saving Scheme) and ULIPS (Unit Linked Saving Scheme). Typically, Equity Linked Saving Schemes and Unit Linked Saving Schemes are tax-saving, have a lock-in period, and offer an attractive (10%>) annual return.
Every generation has different financial goals. For many boomers, it was dealing with increasing family expenses and spending on home, health, and educational needs. For millennials, the challenge has been differentiating needs from wants. Millennials must be all but hasty as a new economic world order shapes up post the COVID-19 pandemic.
[1] https://theprint.in/economy/indians-buying-less-gold-millennials-partly-to-blame/312221/
[2] https://www.newindianexpress.com/lifestyle/travel/2018/oct/19/indians-are-now-travelling-more-for-leisure-study-1887230.html
[3] https://about.bankofamerica.com/assets/pdf/2020-bmh-millennial-report.pdf
Mihir Narvilkar 