Five money rules that won’t work for millennials

In my interactions with 250-300 millennials, while researching for my book, Hacks for Life and Career: A Millennial’s Guide to Making it Big, inadequate knowledge about personal finance emerged as the single-biggest pain point for the generation. This gets pronounced as some older theories are not fully relevant to changing millennial aspirations.

In the upcoming decade, millennials are likely to pursue non-linear careers rather than steady three-decade-long careers of the previous generation. They are also likely to dabble with multiple careers where a primary career pays EMIs and a secondary one fulfils their passion. In the context of emerging millennial careers, here are money theories that may not work for them.

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Younger people can take more risk: The traditional theory that youngsters can take more risk as they have age on their side and an upcoming two-decade-long career ahead of them is not appropriate anymore. Most millennials are likely to dabble with their own ventures at some point and the notion of a younger age being proxy for taking greater risk is flawed. In the context of emerging millennial aspirations, capital safety with an allocation of over 50% to quality debt instruments is more prudent.

When in doubt, invest in real estate: India has an incredible fascination for owning real estate. During the early days of the lockdown, a survey by a leading housing portal indicated that real estate was ahead of gold, equity, debt and other asset classes. However, real estate as an investment class in India makes little sense due to its illiquidity, large transactional value and poor rental yields. Hence, real estate should only be looked at for the purpose of staying and not from the lens of investment.

Emerging equity markets will give greater returns: It is conventional knowledge that emerging equity markets should provide for higher returns over a period of time, especially with easy flow of money for the better part of the last decade. However, interestingly, it is the US stock markets that have outstripped most asset classes in the last decade with a five-year return of 13-15%, while most emerging market asset classes have given around 6 - 9%.

This trend is likely to continue even in this decade as the US economy is likely to remain the strongest, aided by potential bumps in the Chinese economy. Also, investors can seek currency gains with the expected long-term depreciation of the rupee. It is an asset class that should be seriously considered in the upcoming decade.

Domestic equity markets can always beat inflation: It has been historically believed that domestic equity markets are the best asset class to outstrip inflation over the long term. The equity markets reflect the nominal GDP of an economy and the future returns after tax, in a targeted inflation environment of 4-5%, are likely to be around 8%. But the nature of long term has changed with the pandemic from five-seven years to nine-11 years.

Innovative products will work: Across industries, it is common knowledge that millennials are early adopters for most innovative and futuristic products and services. However, with their career trajectories being riskier than earlier generations, they should avoid any innovative instrument which they don’t understand or that which is not regulated.

In short, the more boring personal finance is, the greater the chance of making money. In conclusion, being competent at personal finance is the first step in setting up a sound professional career. Avoiding out-of-sync personal finance theories to build a robust financial nest will go a long way.

Sandeep Das is director, PwC India