35-year old Sunaina, started working with a private multinational corporation when she was 25. She got married to one of her colleagues at the age of 28 and raised a family along with her husband and two kids aged 3 and 5. Being newlyweds, the couple was trying to bond with each other over luxurious overseas vacations and by showering expensive gifts. Financial planning for future was not on the couple’s minds until their first kid started going to school. Suddenly, their expenses shot up with no monetary savings to fall back on. They realized a bit late that children’ future and retirement savings were top financial priorities and ended up investing large amounts of their income in financial instruments. Had they started saving sooner in their career beginning, they would have had ample savings to meet the short-term goals today.
Financial planning across generations from Baby Boomers to millennials differs on several counts, and the differences lie in the kind of lifestyle and ecosystem that each generation survives/has survived. Millennials’ financial planning is surely ambiguous and differs largely from their parents’ adulthood in manifold ways. Here are a few ways in which today’s adult millennials are different from their parents in financial planning:
Lack of a financial plan
Sound financial planning entails a basic structured proposal that reflects on important financial milestones in life - short-term and long-term, and the possible means to reach them. Young millennials today have big goals for the future but do not have a plan because they are unable to look life 30-40 years into their future. However, they are interested in seeking financial planning advice from their parents or any credible financial advisors to cater to their requirements.
Millennials are probably the first generation to be plagued by notorious amount of debt. Lack of a proper financial planning is pushing them into a vicious cycle of debt. Even before millennials can start joining the workforce, the millennials are drowned in neck deep student loans borrowed for paying off their college tuition fee. Students loans are at an all-time high given the doubling of college tuition fee since 1980s. This debt is clearly choking the millennials the execution of any financial plan they might have had in mind.
Millennials also are spending more as compared to their parents during their adulthood. Their spending habits are characterized by spiralling credit card bills, soaring rents, taxi bills, and luxurious lifestyle involving high-end gadgets, premium cars, yearly travel vacations, fitness club memberships, fine dining, etc. A key reason that can be attributed to these insane spending habits could be the pressure to match up to the financial habits of their peers as evident from their social media profile posts. The fact that they are frequent job switchers for better pay packages also explains their spending habits leading to their financial instability. These habits reflect the generation’s priority towards focus on experience and convenience over reduced spending.
Savings and Investments
Millennials have increased incomes, but their spending habits are delaying their savings and investment plans by a few years. They are certainly willing to save and invest their disposable incomes but are short of any worthy financial expertise that their parents possessed. They would have plans to own a home, invest and save for their kids’ education, their post-retirement life, but a little later, perhaps in their 30s or 40s when they wish to raise a family. Also, lack of suitable financial advice makes millennials risk averse towards investments urging them to go for simpler investments like fixed deposits, provident fund and public provident fund that fetch relatively lower returns.
As millennials hope to retire early, it is essential for them to also start investing early, albeit in smaller amounts. Investing early shall build a huge savings corpus to fulfil financial goals like kids’ education, health and a retirement fund for themselves. For this, it is recommended that millennials diversify their investments and add considerable risk instruments like ULIP (unit linked insurance policies) and equities that fetch comparatively higher returns within a specified time frame. Good ULIPs such as Future Generali Wealth Protect Plan offer a combination of high cover upto 30 times the annual premium amount and six different investment fund options of debt, equity and balanced assets suited to meet an individual’ long term financial goals over a policy period of 15 to 40 years, while safeguarding his dependents’ interests. ULIP facilitates systematic investments in small instalments on a monthly, half-yearly and annual basis along with fund switching options.
Another good investment instrument for an individual to accumulate his retirement corpus are the retirement pension plans. In addition to the creation of a savings corpus for retirement, these policies also guarantee a disbursal of any declared bonuses and a nearly full return of all premiums paid on maturity.
Conclusion Millennials might think that time is on their side and they have enough time to invest and save. However, building resources to achieve life’s financial goals takes time, and the sooner they start, the better the pace of wealth accumulation. Starting to invest later in the 40s and 50s will require them to invest large amounts of their income for creation of comfortable retirement wealth. Thus, it is recommended that millennials seek efficient and proven financial expertise that can advise them monthly on their investment goals and diversification of their investment portfolio.