All of 19 years old, Manjusha Menon already has definite ideas about saving and investing.
“At this age, investment—like splurging on myself—is better than investing for the future,” says the Ruia College student with a penchant for branded attire. She spends all of the Rs12,000 her parents give her as annual pocket money on weekly movies, eating out and shopping in Mumbai. “Saving is something you do when you start earning,” she says.
Now listen to Sanjay Durgan, a Delhi-based financial planner, who also has definite ideas about saving and investing when it comes to young people. “Teenagers these days need to get their aspirations right,” he says. “They should understand why it is important for them to save for a rainy day.” Durgan goes on to paint a grim but not far-fetched scenario: “Just imagine a situation where a father passes away leaving behind nothing for his family. As a teenager, your studies can be disrupted. It is for these unforeseen contingencies that one needs to start saving early.”
Between these two extreme views lies the dilemma that many Indian middle-class parents face each day: how to get children to appreciate the value of money while enjoying its benefits—something the parents themselves probably didn’t get to—but also think about what might happen down the road.
With an economy growing at a nifty clip, rising incomes and income-generating opportunities, a young India (some 60% of the population is under 25), is confronting an unusual shift in its psyche—going from a hardscrabble nation of savers and worriers to a country full of optimism, easy access to credit and the myriad temptations of an increasingly consumerist society.
Gaurav Singhal, an MBA student at Delhi’s Apeejay College, is a classic example. He gets a relatively hefty Rs2,000 a month as pocket money and has zero balance in his bank account. “My parents keep on telling me to save, but I’m just not able to do that,” says Singhal, who is partial to treating his girlfriend to expensive meals. “I don’t want to look poor in front of my girlfriend.”
It isn’t just students. Sampath Shetty, a vice-president at TeamLease Services Pvt Ltd, the temporary staffing company, has observed similar behaviour among many of the 62,000 employees who work with his company. “As the earnings potential has increased across sectors, youngsters who are joining the workforce seem to have a complete disorientation towards saving,” says Shetty. He estimates that less than a quarter of his incoming employees, especially those in their first jobs, had any understanding and awareness about the need to save, let alone how to do it smartly.
So is there any hope? “Teenagers should learn to cut down on their expenses,” says Surya Bhatia, an asset manager at Delhi-based Access Financial Services Ltd. “Cut down on the number of movies, DVDs and eating out. These may seem like small things, but it can help save a lot for the future and would also cultivate saving habits…in the long run.”
But as all parents—and many well-meaning teenagers—know, this is easier said than done. So, rather than try and preach, Mint first asked some young people, who appeared to have got their savings act together, to tell us if going from the average teenager—and spendthrift—to being relatively savvy about the need for putting aside money for the future, is possible.
Jay Goradia, an engineer, has been working for just about 18 months now and still remembers when he used to spend all his money in college. That habit continued into the early months of his job, with all the salary going towards expensive watches, sunglasses and keeping up with a peer lifestyle also oriented on conspicuous consumption. “After six to seven months of working, I have had times when I didn’t have any savings,” says Goradia. “That triggered me to stop my reckless spending.” These days, Goradia can’t stop talking about the virtues of saving and minimizing taxes including how National Savings Certificates (NSC) and Public Provident Fund investments aren’t the best way to go about saving when you are young, because they tend to keep your money locked in for a long period.
While being constantly broke was what prompted Goradia, for Utsav Sahu, an engineer who is doing his management course from NITIE in Mumbai, it was all about being in the financial capital of India that did the trick. “When I came to Mumbai, I was amazed to see the level of understanding about money and stock markets among the people around. This prompted me to open a bank account,” says Sahu. Faced with a total income of Rs2,500 per month, Sahu had to manage rent as well as all living expenses. These days he gets a stipend of Rs5,000 a month but the discipline of having to do with half that means Sahu can put away a hefty 20%, or about Rs1,000, every month. Some of it ends up in the stock market, whose allure has pushed Sahu to even take and clear NSE’s certificate course in stock markets. He says that now there is another form of self-imposed peer pressure: a group of five friends at NITIE who meet regularly to discuss stock market ups and downs, and possible investment opportunities.
So what can you do as a parent to steer your children to becoming savers, or at least be aware of what is at stake?
“Leave aside concepts like budgeting, youngsters today are not even aware how much it costs to survive,” says Gaurav Mashruwala, a Mumbaibased financial planner. Recently, Mashruwala went to lecture to a group of MBA students and says he was shocked to see the level of financial immaturity among them, some as old as 24. One student, for example, asked him that if a car loan could be obtained at 14% and if stock market investments generated 20% return, wouldn’t that mean a tidy profit of 6% could be had by doing both. [The catch: a) it is a loan specifically to buy a car, b) stock markets don’t automatically generate 20% return.]
The good news is that both employers and financial institutions are becoming aware and concerned about this issue as well. TeamLease’s Shetty points out that companies in the services sector are already starting to try and educate their young employees about savings. Himanshu Kohli, a partner at Client Associates, a Gurgaon-based wealth management firm, has conducted such sessions in a Noida-based software company. “This is done by asking financial market experts to deliver weekend lectures in which they explain various concepts about money,” he said. Some banks, such as Citibank, are also offering to conduct seminars for children of their high net worth banking clients.
Even independent planners are at it. “We have so far organized four seminars targeting two sets of students from 10 to 18 and 18 to 24 under the banner ‘Minor to Major’, says Lovaii Navlakhi, a Bangalorebased financial planner. “Youngsters have responded extremely well to these seminars and it appears the need is only to educate them,” says Navlakhi. “We are also planning to conduct seminars in schools aimed at students in Classes 6 and 7 onwards.”
Indeed even Menon, our 19-year-old from Ruia who doesn’t believe in investing now, says she would “love to” attend some money management classes and learn the importance of saving early.
But, even without trying to get your child to sit through yet another “class”, here are some basic ideas that can be taken to help raise their financial acumen.
If your child hasn’t opened a bank account, it is getting easier and easier these days. Many banks, such as HDFC Bank and ICICI Bank, to name a couple in the private sector, have specific accounts aimed at teenagers. All it often takes is for at least one parent to have an account and then they can open an account for a minor.
While it sounds very basic, young people with bank accounts seem to “get it” that even small amounts, left unspent, can accumulate into a decent amount over time. Supriya Menon, a freshman from Mumbai, is delighted that her mother has been maintaining a bank account for her ever since she was all of five years old, depositing Rs2,000 each year into it. Today, the account has a balance of about Rs50,000. Menon, a student of Ruia College with a fondness for books and DVDs, gets a part of the amount on her birthday every year as spending money.
Another relatively easy way to get young adults to appreciate money is to let them work for it. While many Indian middle-class parents still feel that their child shouldn’t have to work while studying, especially because they don’t need to earn money that way, holding a temporary or part-time job could go a long way in helping young people realize what it takes to earn the money they are about to spend. With the rapid growth of malls and fast- food restaurants, there are increasingly interesting and safe part-time opportunities for young adults.
There is a reason why Albert Einstein had this to say: “I don’t know what the seven wonders of the world are, but I know the eighth: compound interest.”
For example, presume that an investment of Rs1,000 is made per month for 10 years at 12% per annum compounded monthly. The person who is 25, whose investment is Rs1,20,000 in total over the 10-year period, will get about Rs39 lakh when he is 60. Another person who starts the same process later in life at the age of 40, will get Rs7.21 lakh at the age of 60. So the person who starts saving young gets the benefit of compounding.
“One of the golden chances for these youngsters is to create wealth through systematic investment planning,” says Archana Bhingarde, a Mumbai-based financial planner, who notes that relatively small amounts, sometimes as low as Rs500, invested over a period of time into a savings account or a mutual fund, can help accumulate a good-sized fund.
Agrees Gaurav Gupta, a circuit designer at Rambus Chip Technologies in Bangalore: “Almost all my scholarship (Rs6,000 per month) as a student in IIT, Mumbai, was spent in partying, travelling, buying books and phone bills. Now, I have started saving through a systematic investment plan but I wish I had done that earlier with my scholarship money.”
Rachna Monga contributed to this story.
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