The wealth management challenges of Millennials

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The Millennial Paradox – a generation with the world in their hands but almost nothing in their pockets

Who are the Millennials? According to Wikipedia, Millennials (also known as Gen Y) are the generational demographic cohort born between the early 1980s and early 2000s. Now in their thirties, millennials are primarily occupied and driven by the following financial goals and concerns:

> The upkeeping of their desired living standards;

> Starting or maintaining a young family;

> Purchasing their first home;

> Raising children and planning for their tertiary education funding, and

> Potentially preparing for longer retirement years as life expectancy has increased.

Statistics show an unprecedented level of debt among the Millennial generation. It is possible that social pressure, rise of consumerism (due to the convenience of e-commerce), and the culture of “instant gratification” contributed to the bad outcome. According to a study by the Asian Institute of Finance, young people are experiencing significant financial stress early in their life with many spending beyond their means and trapped in a vicious cycle of paying debts with more debts.

Start with the present to save for the future

The crucial elements of financial foresight which every Millennial should have but few do are:

Staying on course to ensure income levels increase – Millennials are unable to visualise their income levels having the capacity to rise significantly to reach their peak income earning years. Often, they become impatient and tend to job-hop or pursue new ventures indiscriminately, resulting in a “back to square one” situation over and over again.

As long as Millennials continue to stay on course and remain focused whether on their employment or on business, their income levels will eventually rise.

Never underestimate the effect of compounding investment returns – another lack of financial foresight on the Millennials’ part is the inability to appreciate the power of starting investing early and letting the investment (and returns) continue to compound and grow.

Avoid losing money unnecessarily – when you are young and still in your prime income earning years, you are less likely to feel the actual impact of losing your hard-earned money in the stock market, money games, bitcoin and other high-risk investments. 

Delay purchases even if you can afford it – Millennials fail to fully understand the benefits of delayed gratification, being confronted daily with lifestyle advertisements, peer pressure to live up to social expectations and “in-your-face” promotions and offers that urge immediate action. It is hard not to act on impulse, especially if it is within your means.

It is entirely understandable that the vast majority of millennials sorely lacks the necessary financial foresight as it is not something that can be learned or gained overnight. The right financial foresight can only be gleaned by having the big picture of your financial position. In order to achieve this, one would require a roadmap to financial freedom, in other words, a tailor-made financial plan based on one’s unique financial position.

Through the roadmap, you will be able to see the impact of every financial decision, no matter how big or small, good or bad, on your financial future. As a result, you can immediately gain valuable financial foresight in your decision making, namely:

> You are able to estimate how income stability and growth over time can help meet your financial goals;

> You would be able to see in actual numbers how your savings can grow with compounding returns;

> You are able to see the potential of long-term investment when you start early;

> You are aware of risky investments that can adversely affect your roadmap and learn how to avoid them; and

> You can appreciate the benefits of your wealth accumulating, as opposed to spending.

Once you have your roadmap in front of you, any further financial decisions should be made in reference to the roadmap to ensure that it is in line with your overall financial goals. 

Address the root cause not the symptoms

It is crucial for Millennials to identify solutions which addresses the root of their problems rather than merely trying to deal with the symptoms.

For example, when you find yourself unable to foot all your monthly bills on your present take home pay, what would you do? Moonlight as a Grab driver or do some freelance work on weekends just to earn enough to cover the shortage? It can only take you so far. Instead, what you really need to do is to find out why you are in the red. Doing so will enable you to have a clear idea how to plan for the long term, rather than put a band-aid to merely close financial wounds.

Reference:
https://www.thestar.com.my/business/business-news/2018/07/07/the-wealth-management-challenges-of-millennials/