Gen Y or millennials are people born between 1981 to 1996. India has the largest GenY population which is around 33% of the total population and this is also around 47% of the working population. As the first to be born into a digital world, members of this group are considered ‘digital natives.’ They’re India’s first non-socialist generation, the first to have consumption encouraged, not curbed. These people are mostly between 25 and 40 years old, all in the workforce and “full nest" householders. More than 85% are married, most have children presumably, and this is the first cohort of both parents and children with post-liberalization consumption sensibilities.
As per the affluent Millennials Survey, around half of the millennials accepted that they are not saving enough and most of them agreed that they would need to work beyond their retirement age. Around 90% make their own financial decisions, 57% invest in Fixed Deposits, 56% invest in mutual funds and 36% contribute in Public Provident Fund and Employee Provident Fund.
Apart from investment, millennials borrow a lot of funds for their lifestyle needs. A report released by CASHe, a digital lending company, in 2019, millennials borrowed the most for medical expenses and to purchase consumer durables.
Seeing the investment and borrowing history of millennials, it is important for them to save as per the requirement of different phase of life. There should be separate kitty of saving and investment as per the short- and long-term goals as well as separate investment for emergencies.
For long term goals
For long term goals like post retirement requirements, children’s higher education etc., they may invest in RBI taxable bonds, Public Provident Fund, National Pension System (NPS)etc. While RBI bonds and PPF are assured return instruments, NPS has an exposure to equity but in the past decade has provided an average return of 8-10%.
They may also purchase annuity from life insurance companies. While immediate annuity starts paying annuity immediately after the lump sum amount is paid to the insurance company. Deferred annuity pays the annuity at the deferred date as required by the annuitant.
For short Term Goals
Fixed deposits provided by Banks, NBFCs, Corporates can be a good option as the tenure of an FD can vary from 7, 15 or 45 days to 1.5 years and can be as high as 10 years.FDs can be tax free as well as taxable. The FDs provide secured investment with liquidity.
Systematic Investment Plans (SIP) allows to do fixed monthly investment in the preferred mutual fund scheme. One may start with as less as Rs 500 per month and get a lumpsum amount as per their requirement. The beauty of SIP is that one can benefit from both bullish and bearish market trends.When the markets are down, more fund units can be purchasedwhile fewer units are purchased when the markets are surging.
People make a separate kitty for children education, marriage, post retirement etc, but what if one misses to make a kitty for untimely deaths or a critical illness, accidents etc. In that case, the option left is to break the kitty which was supposed to me reserved for child education and other planned goals. In that case ifone buys insurance it can be of great relief.
Health Insurance policies provide for the hospital expenses on cash less as well as reimbursement basis. Different health insurance policies are available with sum assured available from as low as Rs 1 lac to even 1 crore. Even if one is covered with the employer group health insurance policy, they should have individual health insurance plan. As employer group health insurance policy only provides coverage till the time of employment. Also, one can’t modify the features of the policy as per your needs in group health insurance plans.
Life insurance policies provide a safety net to the family in case of untimely demise. Term insurance plans provide huge sum insured at a very low cost. There are term insurance policies with return of premium in which premiums are returned if the insured survives the term of the policy.
As per the survey by British Lender, Standard Chartered, half of the millennials in India increased their borrowing in Covid-19 pandemic. Many of them have also lost jobs or have seen salary cut during this phase. Covid-19 should be taken as a financial wakeup call bymillennials. They should be more aware about their money management- saving for the long-term, being careful with spending, and pursuing better investments.
(Dr Pallavi Seth teaches in Amity University, Noida)