Understanding financial freedom from the eyes of millennials
Millennials have earned a not-so favourable reputation for themselves when it comes to financial management. The deluge of internet memes on the theme of millennials struggling with money management is proof that their different approaches towards finances compared to that of their parent’s or grandparents’ generation have led to the cementing of this stereotype. If one were to gauge the chasm of generation gap between millennials and the older generation, the best way to do so would be to understand what financial freedom means for the younger demographic.
Millennials don’t believe in the idea of relegating ticking off things from their bucket list in their post-retirement years. They don’t look at retirement as an exclusive phase when they can actually start enjoying lives contrary to the entrenched perception among older people. Millennials have shown more inclination to pursue a life replete with travel and pleasure and this drive has become the dominant force in the way millennials define financial freedom.
Parvati Iyer, chief investment officer at Femwealth.com, an online investment management platform explains the shift: “Millennials have reached adulthood in this century. They have been exposed to the latest innovations of our age. Their thinking is, by design different from the perceived shackles of the previous generations. Unlike the gen Z, they cannot shake it off completely and tend to follow a few traditional beliefs. Being the largest demographic group in India, they have reaped the advantages of increases in salaries or business in the last decade as our economy took off. Conscious of this increase, they are serious about wealth creation. At the same time, they do not would to sacrifice short-term experiences and many are willing to even take a small loan for it.”
Unmoved by the Immovable
Alisha Sinha (name changed), a 29-year-old lecturer based in Bengaluru corroborates Iyer’s take. “To an extent, I do align with my parents’ views with regards to the way I spend my money but the difference lies in the way I define meaningful purchases. For instance, my parents would never be able to reconcile with the idea of taking a small loan for a vacation but I have done that and I don’t see the harm in it if you are not letting your debt become a menace. I am also averse to the idea of owning a house at this point of time in my life because I don’t want my career opportunities to be restricted because of that.”
The global emergence of the work-from-home culture has also contributed to the increase in the number of millennials for whom buying a house is nowhere in there in their list of priorities. Vikas Gupta, CEO and chief investment strategist at OmniScience Capital believes that the era of work from home or rather work-from-anywhere, has seeded and nurtured a new paradigm in the minds of the millennials and the subsequent generations. “Millennials are no longer attracted to owning so-called hard assets or immovable assets. Forget being tied down to a house, locality or any city, for many millennials staying in a particular country all their lives is also uncertain. They see opportunities everywhere and would like to have the freedom to grab them wherever they might appear. For them traditional ‘assets’ like a house or a car are ‘liabilities’ which could tie them down along with a portion of their incomes. For them financial assets which can be managed from anywhere in the world and which can be easily moved across the world are preferable.”
Only those millennials are enamoured by the idea of owning a home who can afford big-ticket loans over a 10 to 20 year period and are confident about fair increases in their income, Iyer opines. “Millennials are confident about making their own financial decisions, and despite a starkly different mindset with respect to finances, they are serious about long term wealth creation,” she says.
The role of a solid emergency fund
That millennials have unbridled ambition can be inferred from the fact that this is the population group which has catalysed the start –up revolution and unsurprisingly for many millennials the start-up goal is the ultimate dream. Hence, it is common for many millennials to forgo goals like buying a car or a house so that they can focus on building a contingency fund should they decide to quit their jobs and embark on the uncertain path of entrepreneurship.
Tanmay Shah (name changed), an entrepreneur based out of Kolkata narrates that owing to his decision to live his cushy job abroad and venture into the start-up life, he has always prioritized building a contingency fund over other goals. “When you step into the start-up life, the way in which you financial freedom undergoes a tectonic shift. I would define financial freedom as being in a state where I am prepared to deal with a situation where I can comfortably sustain myself for a while should my business reach the unfortunate point where it has to shut shop.
Gupta suggests, “Millenials should plan their future with larger emergency funds since the new world is a "hire and fire" world, or they themselves might want to quit their jobs and go for a business or a passion project. Beyond the emergency fund they need to save a significant corpus which can help them follow their passion, whether combined with business possibilities or not. Liquidity and accessibility from anywhere is quite important. Until their corpus is built they should be saving a significant portion of their incomes and investing in high-return, though risky, asset classes like equities and equity mutual funds, so that they achieve financial freedom faster.”
Why millennials love mutual funds?
Given that millennials tend to steer clear of investment avenues that do not afford flexibility and ease of managing, it is unsurprising that more and more millennials are gravitating towards mutual fund investments.
Iyer reasons, “Mutual Funds offer everything that millennials need for their investment journey. The ease of investing in mutual funds can be seen from the very fact that, opening mutual fund accounts and linking with bank accounts can be done in a very short time. One can fill the application form online and upload the required documents including fulfilling KYC obligations. This attracts millennials who hate tedious paperwork. Also, the minimum investment in mutual funds SIP’s is only Rs. 500 which is an added attraction. Both long term goals such as retirement and short term goals such as a vacation abroad can be easily achieved with a judicious mix of debt and equity mutual funds specific to each goal. Convenience is a big plus when investing in mutual funds, it is very easy to buy and redeem mutual funds online.”
• Irrespective of how you interpret financial freedom, the importance of building a financial reservoir which you can tap into in the event of a job loss or an illness cannot be disputed. Start building one now if you haven’t already.
• Your preparedness for health emergencies is a strong determinant in your financial freedom. The right insurance coverage for you and your loved ones is always a must.
• Keep re-evaluating your money management strategies regularly so that should there be any change in your goals or the situations in your life, your finances are prepared for the same.
• The ease of investing in mutual funds can be seen from the very fact that, opening mutual fund accounts and linking with bank accounts can be done in a very short time. Mutual Funds offer everything that millennials need for their investment journey.
This article is part of the HT Friday Finance series published in association with Aditya Birla Sun Life Mutual Fund.
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