Money Management: What Can Gen Zs Learn From Parents?

Yet there is always something to learn from them – something they did right, something they learned from their mistakes, and some of their money habits that could be corrected.

Learning from what he did right:

saving with consistency

Some plain vanilla advice is never wrong. For example, the age-old principle of ‘save little, but save constantly’ worked like magic before us for generations in the matter of wealth creation. “And, it’s not that today’s youth don’t want to save, in fact, in many cases they put up more money than their parents, but they lack consistency,” says Investography’s founder, Certified Financial. Planner Shweta Jain says. and author, My Conversation with Money

Explaining the pattern, Jain further adds, it is really encouraging to see many youngsters actively participating in the markets. But most of it is not at hand. “They look at the market returns of the last two years, and jump. Then as the market rally stops, they panic sell, making huge losses.” This inconsistency is extremely harmful to one’s finances, she adds.

“Savings saves you. Try to save 20% to 30% of your income. If you can’t (considering income vs. necessary expenses), save small, but save consistently like your parents, Jain continues.

Money habits that can be tweaked:

Investment Pattern – Then and Now.

The common belief is that people in our parents’ generation are prone to risk. “It is absolutely not true,” Krishnan says, “in the 70s and 80s, interest rates from fixed income instruments were very high. So simply by investing money in them, they would earn double-digit fixed returns.” Krishnan says.

So, basically, there was no need to explore different avenues for higher growth, unless one really wanted to. On the other hand, today money needs to be invested carefully only to be able to beat inflation.

Also, with so many options, we have to ensure that the products chosen by us are commensurate with our investment goals, tenure and risk appetite. For example, as important as investing in equities is, it is equally important that equity-linked investments are especially meant for long-term investments. So, instead of investing randomly, “one should consult a financial advisor to suggest investments according to their goals,” says Krishnan.

At the same time, it is equally important to diversify your wealth, says Jain, “Concentration can also be a big risk. Investing/betting big on a stock or a few stocks can mean that you lose your entire investment. It could set you back a few years.”

changing budget rules

Growing up, most of us have seen our parents bargaining for groceries, counting the number of dinners at restaurants, and even being strict with the number of phone calls. It was all part of maintaining a decent living within a budget. “Today, many families have moved from a single-income structure to a dual-income structure. Many have earlobes from multiple sources, so the same budget formula no longer works,” Krishnan says.

However, “it’s important to keep an eye on where the money is going.”

“If one looks at his spending habits for the last 5 to 6 months, he will understand where discretionary money goes and where non-discretionary money goes. If non-discretionary money is enough, anyone can sit and talk.”

This is how the budget works today.

Learning ‘When’ to Say No to Credit Cards:

In the 80’s or 90’s, most middle class homes used to be home to a vehicle, perhaps much later in life, our parents would think about buying another car. On the contrary, today, when a youth takes up a job after finishing college, the first thing he thinks about is buying a bike or a car. “This is how consumerism has changed and we have to accept it with an open mind,” says Krishnan.

The problem lies elsewhere. With instruments like credit cards and personal loans, we tend to believe that our purchasing power exceeds that of our parents. In fact, when you resort to very high EMIs, your monthly expenses increase significantly. Also, taking into account the interest amount, you are paying extra for every product you buy on credit.

“No one expects you to live like a sage, but a line has to be drawn somewhere, otherwise it will lead to a credit trap. Knowing how much is enough is important,” Krishnan says.

learn from their mistakes

A mix of investment and insurance

Investment and insurance have two different purposes. Investment helps in wealth creation, whereas insurance covers financial risk. Not understanding this concept carefully, many of the previous generation ‘invested in life insurance policies’ believing that it serves both the purposes. “In fact it jeopardizes the finances as a whole. Paying hefty premiums and therefore not earning enough on savings was a big mistake. A simple math explains why,” says Jain.

The coverage amount for a life insurance policy with maturity benefit is usually 10 times its annual premium. At the same time, they provide returns of 3% to 4%. Now, if you buy a buy ₹Insurance policy of 25 lakhs for 20 years, annual premium amount ₹25,000, and the return for that would be approx. ₹7 lakhs.

On the other hand, a. annual premium for ₹25 lakh term plan roughly ₹5,000

Now, if you buy a term plan instead of a policy with maturity benefit and decide to save the rest (say 8% interest rate), its value after 20 years will be ₹9.15 lakhs.

Today’s youth understand this and they know about term plan and how it works. But, says Krishnan, “they make mistakes while deciding the coverage amount. Don’t be ballistic and buy a one crore term plan. You should buy the plan according to your need.

Management of money should be done on the basis of one’s earnings, goals and risk appetite. There is no role model to follow. So learn carefully from the successes and mistakes of others, including your parents, but build a model that serves your own goal.