The next crop is buying homes in their 20s and taking many other types of loans as well
Recently, I attended the 50th wedding anniversary celebration of the parents of a dear friend. Just the relatives numbered over 100 and they made it a point to come and be a part of the celebration. The obvious outpouring of joy at the event was also in part due to what her father had done for the family. Uncle was in the railways, and my friend tells me that it was this one job that funded the education and marriage of an extended family cohort. Many of us can identify with this story of that one job and its ability to lift an entire extended family out of genteel poverty. For many of us who grew up in households where the primary bread winner worked not just for the nuclear family but an extended family know the pressures it put on the house. Many of us, who rode up the rising tide of prosperity unblocked after the 1991 reforms, cannot scratch out our tight-money growing-up years. We cannot ditch the risk averseness that was built into life as it was. And I believe it did us good in terms of teaching the value of things and money.
However, the urban mass affluent next generation is different. They have brains that are different from ours. They were born with a cell phone in one hand and a tablet in the other. Growing up in homes that don’t worry about money so much and at a time when the good life is all around, they feel secure about their future. The way their brains process risk and money is very different from ours. Credit is no longer a bad word, and enterprise is no longer restrictive to opening a retail shop for kids with no ‘business background’. When you feel secure about your future, you take more risk. A thick rope allows you to bungee jump. Examine our own behaviour—our parents bought a house, cash down at the end of their careers. We bought a home somewhere in the middle of our earning years, taking a home loan because we were secure about our ability to earn and repay the bank. The next crop is buying homes in their 20s and taking many other types of loans as well. Personal credit is galloping. Credit card outstandings grew at just above 26% over the year ended February 2016.
Money and the way we deal with it has deep roots in our past, in the environment at home and in the larger social construct we grow up in. Our investing behaviour, too, is a reflection of our early experiences. Our parents mostly stayed on the zero risk spot of the risk-return curve. We know that higher returns are accompanied by a higher risk. Zero risk—or no risk of losing your investment—was the dominant paradigm 25-30 years ago. There was no room for failure. There was one job. There was only so much money, and you did not mess with it. If the demand was missing, so were the products. Everybody had fixed deposits, Life Insurance Corp. policies and some gold. The 1990s changed a lot of things; we began to feel secure about the future and were open to some risk. We also began to understand the silent death our purchasing power suffered at the hands of inflation and taxes. The 1990s also saw the financial services industry getting liberalised. There were new companies with new products coming to the market. We experimented, burnt our fingers, some swore off them for ever, others learnt lessons and returned to the market equipped to handle risk much better.
The next 10-15 years saw the rise of the young and confident who are much better placed emotionally to take on risk and have the family back-up in place if things go wrong. Mistakes no longer threaten an entire extended family as they did 30-40 years ago. The demand side for taking on risk-bearing products is ready. On the supply side, the 2000s saw plenty of regulatory action to clean up financial products and remove the most obvious conflicts of interest in some parts of the market. The huge outpouring of information on the Internet makes it possible for just about anybody who wants to know the basics of investing and managing money to learn the main building blocks. The tricks and traps are still there, however, it is much easier to negotiate these than before. And the young people are quite adept at doing that. The supply side is getting there. So, here is a prediction: the next 10-15 years should see a big jump in the assets under management of various risk-bearing market-linked products in India. Whether it is through mutual funds, unit-linked insurance plans or the National Pension System (or other market-linked products as they get introduced), the destination is taking structured risk. It is this generation that will move up the risk-return curve, away from zero risk and away from a blind gamble. The financial services industry should belt up for the ride ahead.
Monika Halan works in the area of consumer protection in finance. She is consulting editor Mint, consultant NIPFP, member of the Financial Redress Agency Task Force and on the board of FPSB India. She can be reached at firstname.lastname@example.org.
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