A millennial, also known as Gen Y, is someone born from the early 1980s to the late 1990s. Currently, millennials are in the age range of 20-40 years.
According to a financial wellness survey, up to 84% of millennials have significant financial concerns. Managing money tops the list, with issues like saving, investing, money management, and future planning being hot topics.
This article discusses common financial problems millennials encounter and why these issues arise.
Common Problems Faced by Millennials
1. High Student Loans
After graduating and landing a job, many millennials find themselves burdened by substantial student loans. These loans often amount to lakhs for postgraduate courses or crores for international programs. For instance, an MBA from IIM Ahmedabad costs over ₹20 lakhs. With interest rates around 10% per annum, monthly EMIs can reach ₹40,000 – ₹50,000, making early career financial management challenging.
2. Expensive Rent
Renting a decent home in cities like Mumbai or Bangalore can be a shock due to sky-high rents. This expense, combined with student loan repayments, can consume most of a millennial’s salary. Renting a home in major cities requires careful financial planning.
3. Saving for Retirement
Many millennials are stressed about saving for retirement, with early retirement becoming a growing trend. Inflation further complicates this, as the value of money decreases over time, reducing the future value of today’s savings.
4. Debt Management
Over half of millennials carry long-term debt, whether it’s from home loans, auto loans, personal loans, or education loans. Many take on more debt than they can manage, often due to lifestyle choices. It’s crucial to borrow conservatively, based on one’s cash flow capacity.
5. Creating an Emergency Fund
Many millennials spend their income without saving, leaving them unprepared for emergencies. Life events like medical emergencies or natural disasters can demand large sums of money. Setting aside 5% – 10% of monthly income for an emergency fund is advisable.
6. Following a Financial Budget
Creating a budget helps manage money effectively, track debt repayment, and monitor spending. It instills financial discipline and ensures savings and emergency funds are built up.
7. Ignoring Credit Scores
Credit scores are crucial but often overlooked. A low credit score increases borrowing costs and can lead to loan denials. Maintaining a good credit score is essential for financial health.
8. Lack of Insurance
Insurance is vital for financial security, yet many millennials neglect it. Life and health insurance are crucial, and coverage should be sufficient to meet potential needs. Insurance for all family members is equally important.
9. Living Paycheck to Paycheck
Spending all earnings without saving leads to financial instability. This approach works until a significant expense arises, underscoring the importance of saving for future needs.
10. Reluctance to Consult a Financial Adviser
Many millennials believe they can manage their finances independently, but professional advice can be invaluable. Financial planners help clients make informed investment decisions and achieve financial goals.
Why Do Millennials Face Financial Problems?
Lifestyle choices, such as unnecessary spending and lack of planning, contribute significantly to millennials’ financial problems. Overspending, failing to save, and over-borrowing are common issues. Detailed financial planning, including saving for unforeseen events and avoiding excessive borrowing, is often neglected.
Potential Investment Solutions
Millennials should adopt disciplined saving habits, such as setting aside a portion of their salary for specific funds:
1. Emergency Fund
Keep liquid funds for emergencies.
2. Long-Term Investments
Invest in equity funds, particularly those focusing on small-cap stocks, for capital growth.
3. Short-Term Investments
Use hybrid or debt funds for regular profits and moderate risk.
Conclusion
Financial planning, including expert consultation, budgeting, insurance, and savings, is essential for everyone. Investing wisely for the future through options like Systematic Investment Plans (SIPs) offers benefits such as rupee cost averaging and compounding, making it a sound strategy for achieving long-term financial goals.
