Why Some Millennials Just Can’t Manage Their Money
(Bloomberg Opinion) - In 2008, Jackie and I got our investment banking jobs on Wall Street. After college, we were among the top earners in our peer group. More than 20 hours a day, most days of the week, working hard on pitch books, models and deals. We saw most things at eye level: people, what we wanted to eat that night from seamlessweb.com, and more or less life.
We were both millennials, defined as those born between 1981 and 1996. There were a few big differences. One of them was that she thought about savings and invested her earnings. I was more basic, just thinking about spending less than I earned. The day Jackie had to go out to check her account with Charles Schwab Corp. I hardly understood what she was doing. She came back with fliers talking about bond funds from Pacific Investment Management Co. or Pimco.
I was amused. While going through the companies' financial statements and running accretion dilution and discounted cash flow models, I was almost able to keep track of my personal income. I was basically financially illiterate when it came to my own accounts. That, as I can see now, came from the more fundamental difference between us: We grew up on two sides of the world - she in Maryland, I in Indore, India.
Our micro-example is reflected in several surveys that show that financial literacy rates in Asia are far lower than the US, Canada, and the UK. (1) This means having a basic understanding of concepts such as interest rates, compounding, risk diversification and inflation to make decisions about personal savings. Money management behavior is closely related to this knowledge.
Part of this has to do with cultural investment priorities. In Asia, real estate and gold - hard assets - always take precedence over speculative stocks and bonds. The capital markets were not deep enough for previous generations to participate with confidence. Retail investment products were also not mainstream. A recent survey by China's central bank of more than 30,000 urban households in 30 provinces found that nearly 60% of wealth was tied up in real estate. About 70% of the liabilities were mortgages. The share of financial assets was low.
However, the privileges of investing and even holding financial assets are often impossible for many people in rich countries who are just trying to make ends meet. This is all the more true for emerging markets.
In India, the average household has 77% of total wealth in real estate and 11% in gold, according to a report by the Reserve Bank of India. In the US, the total is 44%. About 5% is held in financial assets like savings accounts, mutual funds, and publicly traded stocks, compared to 17% in the U.S., according to a report by Goldman Sachs Group Inc.
Generation attitudes are passed on. My parents didn't really talk about money at the table or otherwise. it was only ever mentioned as prudent. (That's a very different topic that I'll save for another column.) Jackie's family took a slightly different approach. Her allowance (and that of her younger brother) has been broken down into four glasses: taxes, savings, charity, and pocket money. You have to choose the charity. That helped create a sense of where the money is going. "My dad was always (like) dollars and cents, spent wisely and made good decisions," she told me recently. "But not stingy."
For millennials, choices are always changing. In the US, gurus like @MrsDowJones drop knowledge on their hundreds of thousands of Instagram and Twitter followers. Millennial Investing podcasts praise putting money where you spend your time and thinking about your own hourly price as you head off to a new purchase. Playing is great; Experiences are more valuable than things. Millennials tend to think more about wellness and what's good for the environment (greener packaging, no plastics). The fashion choice is sustainable - vegan leather, as you call it.
In Asia, the tech-savvy generation is beginning to take responsibility for their finances. Millennials have increasingly become a bigger part of the Asian consumer class who have driven travel and spending around the world. In India, savings on physical and financial assets as part of gross domestic product have declined, while financial savings as a proportion of gross disposable income have also decreased.
Property and jewelry look increasingly old-fashioned to this cohort. The permanence of such holdings is a shutdown. These assets are fraught with problems parents have faced when buying property (especially in India - poor advance sales, an incomplete project that cost their money) and the changing relative value of gold. There are also questions of taste and practicality. Am I going to pull out bling and unfashionable traditional jewelry to go to the office? Unlikely. Online finance makes increasingly sense. More and more people in China are buying wealth management products or considering how to maximize their balance sheets and take out consumer loans. In India, investing in apps like Groww is all the rage. Backed by Sequoia India, the company has 8 million users for mutual fund offerings and a few hundred thousand have bought shares. Zerodha, ETMoney, and others are growing in popularity.
The economic uncertainty of Covid-19 is likely to accelerate change. Millennials will be less likely to splash on soy laths and yoga pants, especially in Asia, as they become savers again. What they buy will be higher up the quality ladder - "premiumization". This behavior will come with smarter ways to get your money going instead of tucking it away in vanilla bank deposits. Risk profiles should change.
There may be a whole new class of savers, but the need for financial literacy will continue to be paramount. A YouGov-Mint Millennial survey in India recently found that post-millennials born after 1996 "are far more likely to keep their savings than cash and are the least likely to invest in mutual funds." However, this crowd was more inclined to invest in cryptocurrencies and alternative investments.
I'm still behind the curve when it comes to investing my retirement savings, but I'm going to set up four glasses for my kids today first.
(1) But even in the USA, the financial literacy of millennials is viewed as low compared to older generations. https://gflec.org/wp-content/uploads/2020/08/Millennials-and-Money-Technical-Report-August2020.pdf?x38887
This column does not necessarily reflect the views of the editors or Bloomberg LP and its owners.
Anjani Trivedi is a columnist for Bloomberg Opinion and reports on industrial companies in Asia. She previously worked for the Wall Street Journal.
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