Generational shift in financial planning: Spending averse to cautiously indulgent3 min read . Updated: 17 Jun 2018, 08:37 PM IST
There are close to 1,000 mutual fund schemes in India, but most people in their 50s remember corporate fixed deposits that used to pay as high as 14% interest
Mumbai: Bengaluru-based Amol Gupte, 53, couldn’t help but feel gratitude towards his father. Gupte worked in multinational finance firms for many years, and now works as consultant. His education in the US wasn’t easy to pay for. “My parents lived a narrow existence. Whatever my dad earned, he put it away to finance my education," said Gupte. Did he also imbibe his father’s frugality? “My dad was extremely cautious to the extent of being averse to spending. I am cautiously indulgent," he said. However, Gupte’s son, 22-year-old Tanay, spends easily. “He doesn’t think twice before spending, but he still doesn’t have a tablet or an iPhone. He says ‘when I need them, I’ll buy them’," said Gupte.
The generational shift in the outlook towards spending is unmistakable. “The relationship we have with money is usually defined by one generation above. How our parents deal with money has a bearing on how we deal with our money, though the approach changes with each generation," said Munish Randev, chief investment officer, Waterfield Advisors Pvt. Ltd, a family office advisory.
Risk-averse to risk-taking
There are close to 1,000 mutual fund schemes in India, but most people in their 50s and above would remember the US-64 and the assured monthly income schemes from the erstwhile Unit Trust of India. Not to forget countless corporate fixed deposits that used to pay as high as 14% interest. Investments have gone through a sea change.
Suresh Sadagopan, founder, Ladder7 Financial Advisories, says that investors in their 60s were used to earning high returns from less-risky investments. “Such investors aren’t comfortable even with debt mutual funds today. They ask how much return these would give," said Sadagopan.
Earlier, investing options were limited; they were restricted to insurance, post office schemes and PPF. Risk aversion, however, may not be the hallmark of all senior citizens; many of them invest in equity shares. Gupte’s father, who was born and brought up in Mumbai, has always invested in shares. That taught Gupte, patience; a key attribute in wealth creation. “My dad had bought equity shares and held them for years. He had bought shares of Hindustan Unilever Ltd at levels of ₹ 16, ₹ 20, and ₹ 30." On 14 June 2018, the share closed at ₹ 1,621.50.
Both Sadagopan and Gupte vouch for the fact that as generations go by, the urge to invest online and use tools to analyse investment options grows. Gupte had a tough time convincing his father Nandakumar, who is 84 years old, to enlist a financial planner. The octogenarian felt financial planners “only cater to millionaires". Ultimately, they got PeakAlpha Investment Services Pvt. Ltd, a Bengaluru-based financial advisory, which then re-structured his finances and suggested systematic withdrawal plan facility, as opposed to dividends, as a means to keep getting regular income. Gupte’s son Tanay, who is pursuing a course in chartered accountancy, also started his investments with them.
Fixing financial goals
The generational shift can also be seen in how we set our financial goals. Many financial planners said people in their 60s and 70s now, had one big financial goal; their kids’ education. Foreign education was a dream only few could afford, “unless the kid was brilliant and the entire sum could come from scholarship," said Sadagopan. Now parents increasingly want to send their kids abroad. “If I tell them to set aside ₹ 1.5 crore for a Masters course in, say, the US, they don’t bat an eyelid," he said. From being open to taking educational loans, many parents are also open to their kids shouldering financial responsibility like taking a loan or working part time.
Another key difference is that earlier parents were keen to leave behind inheritance. Today, after providing for kids’ education, parents are open to focussing on their retirement and leading a comfortable life themselves.
Children initially take on from their elders as to what they can spend on and what they cannot, till they become financially independent. But what sets this generation apart, says Randev, is their ideas about what assets and liabilities are. For instance, many of today’s generation don’t believe in owning something if they can rent it. “From renting furniture to taking Uber rides, they don’t feel the need to build assets. What their elders saw as assets—say, owning a car—this generation sees as liability," said Randev.
Perhaps, all generations can learn from the other. Gupte, for example, says he has learnt to take risks in investments from his son Tanay. “If I had bought, say, 100 shares and the prices went up consistently over time, my son would tell me that I should have bought 1,000 or 10,000 shares because it shows conviction. ‘Don’t just nibble on it’, he would tell me," said Gupte.