Why millennials are broke

India has never been younger. An analysis by Bloomberg, the international media giant, reveals that the country will have the world’s largest workforce by the year 2027 and, more importantly, two-thirds of our population are under the age of 35. We are a country of millennials, and while the vast majority is far more educated, technologically savvy and ambitious than the previous generation, they are lacking in an area that their parents excelled in — money management. A recent Morgan Stanley survey reports that an astounding 84% of India’s millennials already own a smartphone, are looking to own a car and are spearheading growth in the ‘credit sector’ — meaning they are ready to get into debt to get what they want. This draws the spotlight beyond the economic transformation they are poised to bring, to some dark truths: that many young people in urban India are finding themselves deeply entrenched in debt, without money for rent or food because of the ways in which they mismanage their money.

How did this happen?

“We live in a time where there is an overload of information versus lack of basic education about money, whether it is in schools or colleges,” says Preetha Wali, one of the three founders (along with Vinita Jain, a chartered accountant, and Anu Seth, a software professional) of Pay It Forward, an initiative that looks to empower young professionals with the knowledge of personal finance and money management. What makes their enterprise distinctive is that they do not endorse any financial brands or institutions, and consider themselves a knowledge platform.

They have conducted a number of customised workshops across Bengaluru and other cities since their idea came to life last November, and have a lot of insights about millennial money habits. To start with, most millennials have, or at least like, projecting an appearance of being well-heeled, even if they don’t have the means to do so. Rohit Mahtani, a BBA student at Georgetown University in the US, agrees. “What I’ve noticed among my Indian friends in college is that they tend to splurge on designer clothing, clubbing and dining out. I think a lot of this spending is a means to compete with peers.”

Harnidh Kaur, a policy analyst and writer in her 20s, however, offers a different perspective. She says millennials would much rather spend on experiences. “I have no intention of buying a house anytime soon,” she says. “I would rather spend on travel, going out and education. I think because our spending patterns differ from our parents, it is assumed that it is out of peer pressure.” But she admits that the need to have ‘a curated lifestyle’ for social media, and getting over FOMO (fear of missing out) when friends are eating out at expensive restaurants reduced only after she got to her mid-20s, became financially independent and ‘money wise’. Until then, she says, the ‘Instagram effect’ is real.

Social crunch

The Instagram effect can also bring financial ruin. The New York Post published an article just last week of a 26-year-old who racked up thousands of dollars in debt trying to achieve social stardom. Although this is a story out of the US, given the number of social media ‘influencers’ here, it does hit close to home. We are seeing a culture of aspirational spending, which is reinforced by pop culture figures — Harvey Specter wears only bespoke suits and Carrie Bradshaw does not think twice before buying a $500 pair of Manolo Blahnik shoes. The end result: young people collecting steep credit card dues and having empty bank accounts. An ICICI Lombard study stated millennials, on average, spend 69% of their salaries every month. Meanwhile, State Bank of India alone collected a whopping ₹1,772 crore in 2017 by way of penalties levied on savings accounts that did not maintain minimum balance. How many of them are millennials?

Jain talks about how many who attend their workshops had no clue as to how much they were spending each month. “Savings is the last thought on their minds,” she says. And it doesn’t help that when millennials do end up saving, it is usually haphazard, last-minute and solely for the purposes of tax planning. “That simply won’t do,” says Seth. “They need to learn how to estimate their future expenses, set goals, and work towards it in a disciplined manner. They also need to ensure that they have enough savings to sustain them in between jobs.”

Thinking ahead

The ‘in-between jobs’ comment stems from the fact that India is seeing a significant shift towards ‘gig economy’, with an increasing number of workers opting for contract-based or freelancing opportunities. The flexibility of freelancing allows one to follow ones interests or tend to social and familial responsibilities, which is not always possible with a conventional 9 to 5 job. However, this also means there is no stability or assurance that there will be enough money to cover the month’s rent. “It is imperative that one has a coffer of savings they can count on to tide them through,” says Wali. “The benefits of saving early are immense and millennials must work to make sure their first ‘expense’ at the beginning of the month is savings.”

Seth also talks about the importance of teaching economic concepts like inflation or price rise to young people, so that they start getting serious about money sooner. “Almost all the corporate firms where we held our workshops had young employees who were determined to pursue an MBA or a master’s degree abroad,” she says. “But most of them had no idea how expensive these degrees were and how much more expensive they were going to be in the coming years. Education inflation is 10%, which means the cost of not only your course, but also the associated expenses are going to be 10% more expensive every year. We ask them, are you accounting for this? The answer is almost always a no.”

On the outside, Indian millennials look like they’ve got it all figured out. However, if they don’t learn to manage their finances and plan prudently for their futures, their dreams run the risk of becoming nightmares. “It’s never too early to start thinking about the next 10 or 20 years, or even retirement. And it is never too late to learn how to manage your money,” concludes Wali.

Pay It Forward organises a variety of workshops across the country — from two-dayers to one-on-ones. Details: ask.payitforward@gmail.com

Lavanya Mohan is a chartered accountant, and writes about everyday personal finance on her blog, pennmoney.com.