Jokes about expensive brunch habits aside, millennials are actually a financially savvy bunch. However, Covid-19 has thrown this group for a serious loop this year. These are their top money worries for 2020 and a host of solutions to help ease the pain.
The double whammy of a global economic recession and Covid-19 did no favours for any of the generational groups. It was a trying time for people young and old alike as they managed their financial, physical, and mental health like never before.
This year’s OCBC Financial Wellness Index clearly reflected that struggle, dropping by 2 points compared to last year.
Millennials definitely felt the strain, with 49 per cent of those surveyed saying that they had worries about money within the last week alone. That’s no surprise, considering that this group isn’t financially stable just yet.
Younger millennials have either recently graduated from university or are still pursuing their undergraduate studies. On the other hand, older millennials are tasked with building their careers while taking care of their parents and children.
Despite that, millennials are still a financially savvy generation. Their saving habits have improved from 2019, with approximately 29 per cent of monthly income kept aside for emergencies, retirement, and big ticket purchases such as a house or holiday.However, their top money concerns lie elsewhere.
Money stress 1: Millennials are worried about having insufficient funds for emergencies
Just 48 per cent of millennials surveyed said that they can sustain themselves financially for six months if they were to lose their job. This is in stark contrast to baby boomers, where 70 per cent surveyed said that they were able to weather the impact of a job loss.
This might be because they already had sufficient time to build up an emergency fund along with several income streams through the years.
Solution: Save at a consistent pace
What millennials can do to combat this problem would be to save at a consistent pace. Although that solution sounds obvious and easy to accomplish on paper, it’s hardly the case in reality.
Millennials have their fair share of financial commitments, not to mention the need to invest, especially in this economic climate. To save consistently, create a monthly budget and stick to it religiously as you build up your emergency fund.
25-year-old graphic designer Izzul Islam bin Jumat says: “I always set aside 50per cent of my pay for my savings. I’ll spend the rest of my salary but I don’t usually use everything up anyway. Around 10 to 20per cent will be left, which then goes back into my savings.”
Once you are confident that the amount saved can tide you over for about six months with no income whatsoever, give yourself some leeway and re-evaluate the budget you have set. From there, you can start to accomplish your other financial goals by allocating money elsewhere.
Money stress 2: Millennials are worried that they cannot afford their own home
This is hardly surprising, given Singapore’s perennial issue of land scarcity. BTO launches are closely scrutinised because a great apartment pulls double duty. What’s not to love about a comfortable home that’s also a stable investment?
This former Clementi resident who sold his/her 5-room HDB flat for just over a million dollars would wholeheartedly agree. The fact that it was located near an MRT station, bus interchange, shopping mall, and other amenities contributed to the price being bumped up.
Although homes in non-mature estates are definitely cheaper, you’ll have to tough it out while waiting for various facilities and creature comforts to be constructed. Likewise for the value of your flat, so HODL on tight.
Solution: Research & refinance
Your best bet here would be the various grants and schemes implemented by the Government. These range from the various housing grants disbursed directly to your CPF-OA to schemes that make the downpayment process easier for applicants whose funds are temporarily restricted.
Know which schemes and grants you’re eligible for and take advantage of them. It also helps that all the information you need is within a single portal.
“I had to research the different housing schemes and grants and even make good friends with the HDB’s customer service to learn more”, cites 25-year-old undergraduate Dalvin Lee.
He adds that the information gleaned allowed him and his partner to make a better purchasing decision. He performed more research by speaking with friends, relatives, property agents, and other folks who he felt could help.
Additionally, take the opportunity to refinance or reprice your home loan whenever possible, especially when interest rates are low. Thanks to the power of compounding, even a small decrease in the interest rate p.a. or monthly repayment amount is worth all the legwork you put in.
Money stress 3: Millennials are worried that they cannot take care of their loved ones
67 per cent of millennials surveyed were worried that they were unable to take care of their loved ones. This is understandable because millennials aren’t financially stable yet, as mentioned earlier. University students have little to no income along with tuition fees that need to be paid.
Then there are those just wading into the workforce with adulting problems of their own. Older millennials are arguably worse off, sandwiched between two different sets of people to care for.
Solution: Go for a (financial) check-up
Tackle this issue by going for an annual financial check-up to ensure that your savings, insurance plans, and investment portfolio are optimised. According to the same OCBC Financial Wellness Index, Singaporeans who review their finances annually with an expert see returns that are six times higher than those who don’t.
Make this a habit because your financial needs change as you grow older and optimising the allocation of your money ensures that you will always have enough for your loved ones. And who doesn’t enjoy seeing higher returns on their savings and investments?
Money stress 4: Millennials are not prudent with their spending
Although millennials are savvy with their investments, their spending habits need some work.
More than a third of millennials surveyed who held credit cards said they would often pay the minimum sum every month. That’s a much higher percentage than Gen X and Baby Boomer respondents, where only 30 and 22 per cent respectively said they would pay the minimum sum.
That is a dangerous habit as credit card interest can snowball quickly and turn a small sum owed into a fee that’s unmanageable. That also defeats the purpose of holding a credit card, which is to generate value from money that you would spend anyway.
Solution: There’s an app for that
A surefire way to nip this problem in the bud would be to use an expense-tracking app. Taking note of your monthly expenditure along with what you spend the most on will highlight the expenses that need to be removed.
Although your daily Starbucks habit doesn’t punch as large a hole in your wallet as you might expect, it’s those impulse purchases you make one too often that will have you stuck in a rut.
Money stress 5: Millennials are impatient with their investments
As mentioned above, millennials are invested in… investing. The OCBC Financial Wellness Index cited that millennials are motivated to invest due to their desire to achieve more at a faster pace. However, more than a third of those surveyed who did have investments mentioned that they would speculate excessively to make quick gains.
Although the potential ROI is high, the risk of failure is equally great. The dotcom bubble at the turn of the millennium was caused by said excessive speculation, with more than few companies going public even though they had nary a product developed. The rest is history and serves as a cautionary tale for investors today.
Solution: Portfolio diversification
To hedge against the pitfalls of high-risk trading, proper risk management needs to be implemented. Active trading, especially with leverage, needs to be balanced by setting appropriate stop-loss limits and learning how to manage fear and greed.
25-year old communications professional Vaishnavi Pillai says: “I know and I’m confident in what I’m investing in. Another big factor is that I understand this is an emotions-based ‘game’ and I must not let mine get the better of me.”
Another step that can be taken would be portfolio diversification. Whether they realise this or not, millennials are already doing this by contributing to their CPF accounts.
This provides them with a safety net as they are passively building a portion of their retirement fund while they work towards achieving their other financial goals. To round out an excellent investment portfolio, other low and medium-risk investments such as Regular Savings Plans, blue chip stocks or REITs should be included.
There’s definitely light at the end of the tunnel for millennials yet, even though Covid-19 turned 2020 into an unnecessarily bleak year. This investment-savvy generation is eager to learn the financial ropes and the relative youth of millennials means that they can bounce back from losses quickly.
Although the pandemic quickly exposed their shortcomings, especially with regards to preparing for a rainy day, there are more than a few ways that they can shore these up. 2021 is around the corner and hopefully, with it comes an improved financial index.
This article was first published in SingSaver.com.sg.