Sohini Pal, 29, is a public health advocacy professional who prioritizes experiences she can have now rather than focusing on traditional investments like buying a house. While Pal understands the importance of retirement savings, her focus is mostly on immediate goals and expenses. “My partner and I love to travel, so a bulk of what I earn goes into saving for future trips. Plus, with global warming and climate change, who knows when these beautiful places in the world will be destroyed, so we want to see them while we have a chance," said the Delhi-based professional.
Like Pal, a lot of millennials prefer to spend money on their present lifestyles and experiences rather than saving for the future, especially when they realize that they would need a large pile of money to meet most of their life goals. This is a trend being witnessed not just in India but the world over, according to a report on the website of US-based magazine Foreign Policy. The report traces the origin of this behaviour to young people in South Korea. A generation of frustrated millennials there is reclaiming the idea of frivolous expenses—from cab rides to expensive sushi, the report said. The Korean term for it is shibal biyong which combines two words—shibal (a swear word for frustration) and biyong (expense)—which roughly translate to “f***-it expenses".
These millennials don’t like travelling in cramped trains and don’t mind splurging on a few extra drinks at the bar near their office. Bigger goals such as retirement are too far for them, and they would rather “f*** it and spend" instead. In short, they live, or at any rate, spend in the present.
Living in the present
Long-term financial discipline at the cost of their present lifestyle is unappealing for a lot of millennials, which is why there’s a change in the attitude towards investing. “A lot of young people buy gadgets on EMIs, particularly the zero-cost EMIs that companies push to sell their products. Even when they are thinking about goals, they give priority to near-term ones like buying a vehicle, rather than retirement for instance," said Bhavik Dand, a Mumbai-based independent financial adviser.
Given the increased cost of living and low salary threshold, saving for big- ticket expenses like a house can be unsettling because it would require continued investment for a longer period of time. For someone in her 20s working in a metro city such as Mumbai, the financial odds are daunting. For instance, in Mumbai, for ₹40 lakh, which is the upper limit for affordable housing set by the government for tax deduction purposes, you will get a one-bedroom apartment and that too in a suburb far from the city centre such as Panvel or Ulwe, according to data from PropTiger, a real estate advisory firm. A recent survey by ANAROCK Property Consultants said that only 16% of the home seekers in the Mumbai Metropolitcan Region (MMR) are in the 25-35 age bracket compared to 37% in the 35-45 bracket and 28% in the 45-55 bracket.
But it’s not just the high cost of living that is keeping millennials away from investing, there’s a shift in attitude too. “I think, for our parents’ generation, there were some traditional markers of success—a house, a good marriage, two kids, a car. But we as a generation are slowly moving away from those markers. How you define yourself as ‘successful’ is also changing. So, spending on ourselves, which was considered a cardinal sin in our parents’ generation, is becoming more acceptable," said Pal.
“My millennial clients in general are a lot more comfortable renting a house than buying one," said Vineet Iyer, a Pune-based financial planner. “However, this may or may not be associated with higher spending on other things. Some people simply save more in financial instruments," he added.
Perhaps, this shift is also affecting the overall savings in the country. India has recorded a sharp drop in the gross household savings rate—from 37.8% in March 2008 to 30.5% in March 2018—according to estimates from New York-based CEIC Data Co. This is also the period during which banks increasingly started dishing out personal loans and credit cards and fintech companies offering easy credit mushroomed. Some of the drop in savings comes from economic distress faced by unorganized businesses (which are classified as households) but the growth of retail credit in India is a well-established trend. Personal loans in June 2019 grew by 23.2% after a higher than 40% growth in 2017 and 2018, according to a Mint article.
“I typically suggest SIPs (systematic investment plans) in liquid funds to young salaried clients because they have frequent withdrawal needs for things like Europe trips or buying electronics. They could park money in equity but the frequent withdrawals stop this from happening," said Dand.
Impact on money life
Living in the present and enjoying your lifestyle is all very well, but few millennials realize how this can impact their long-term saving potential. “People know they should be saving but they instead upgrade their lifestyles to a point where they can’t save. They thus lose out on the years of compounding," said Deepali Sen, a certified financial planner and founder partner of Srujan Financial Advisers LLP, a financial planning firm.
Sample this: an SIP of just ₹3,000 a month can grow to ₹1 crore after 30 years, assuming a growth rate of 12%. This accumulation can be the difference between having comfortable retirement and old-age struggles. If you add to this SIP by just 5% per annum, you can accumulate an even larger corpus of ₹1.63 crore.
Pal and her partner are not planning on having children, so there are also fewer long-term goals to save for. “We recently upgraded our Kindles, because we really liked the new model," said Pal, who also upgrades her phone from time to time.
You may have fewer goals because of your lifestyle choices, such as spending more on the present lifestyle or not having children, but it’s important to remember that as you grow into the sunset years, your capacity to earn will diminish, which is why it’s during the working years that you need to accumulate enough for your retirement. But that can only happen if you maintain a balance between living in the present and preparing for the future.
While you should save as much as you can, it’s easier said than done. So here’s a cheat sheet instead.
First, if you cannot save a significant chunk of your income, do not give up on the idea altogether. Even tiny amounts will add up to big investments, particularly in equity.
Second, save in products you cannot easily withdraw from, to keep your hands out of the cookie jar. Some long-term products with a lock-in that can build your savings up include the Public Provident Fund (PPF) and National Pension System (NPS). If you are investing in a mutual fund SIP, keep the date early in the month so the money leaves your account soon after you get your salary. “I place clients’ long-term money in locked-in products like equity-linked savings schemes (ELSS). ELSS funds have a three-year lock-in," said Iyer.
Third, remember that you will not miss something that you never had. Getting used to the finer things in life and then giving up on them is a lot harder than avoiding them in the first place.
Given the increasing peer pressure, especially on the social media, you may get tempted to “f*** it and spend", but remember that your future self may be better served by a “f*** it and save" attitude instead.