The millennial money dilemma

If you are aged between 22 and 37, give or take a few years, you would be what one calls a millennial. January 12 is National Youth Day, which, however, refers to an age range between 20-24 years.  If we take an overlap of the two and look at a generation that has been born in the 1980s or later, we find marked difference in how they handle their finances when compared to the generation before. And threin lies a conundrum that is interesting to study because they exist together and at the same time contradict each other.

Millennials understand the basics of financial planning: Millennials are a step ahead of their earlier generation. “They readily understand the basics of financial planning. They make sure they explore all investment options properly before investing and at the same time have a better risk taking capacity,” says Ananth Ladha, Founder, Invest Aaj For Kal. This would primarily be because there is so much more information available in the public medium, especially through print, internet and apps. Plus financial planning is now a subject that is discussed when friends meet over coffee or even during lunch hours at office.

Millennials are exposed to a wide variety of investment options. Plus investing is now more easy and convenient through online channels where one can invest through the click of the mouse or through an app. The Bankbazaar Aspiration Index July 2018, which attempts to understand the aspirations of millennials through the lens of personal finance, throws up some interesting insights on this.  About 91 per cent millennials surveyed said that they handle their finances themselves without leaving it to a member in their family, friend or a relationship manager.

However, even among millennials, only 56 per cent invest in mutual funds while 57 per cent of them prefer risk-averse investments like fixed deposits and 36 per cent in provident fund and public provident fund. Also 72 per cent of millennials have life insurance.

But they are prone to use excess credit: “The only mistake being done is use of excess credit. Taking loans and using excess of credit card, is more of a habit of spending what is not yet earned than anything else,” says Ladha. Technology and Fintechs have meant that it is now easier to take a loan and millennials are using loans as a stepping stone to achieve their goals, going for instant gratification in most cases. However, when not done prudently, too many loans can mean and an excessive EMI outgo which can put a strain on one’s finances.  EMIs over a long period may look attractive but what one often overlooks the amount of interest one has to pay. Zero interest loans similarly come with a flat processing fee that one often fails to factor in. Millennials thus need to limit the use of credit and strictly keep their EMI outgo to a maximum of 35-40 per cent of their income. Only then is it possible to create a surplus and invest for future needs.

To sum up, millennials are more aware of their finances and are definitely more savvy with investments. A little bit of prudence coupled with proper information can help them take charge of their finances.