How do millennials save?

As we know, millennials — those born around the turn of this century — would be taking baby steps into their chosen career now. The first few years of work is seldom about being frugal and thinking about financial goals or retirement. Often, there isn’t much left in hand after meeting living expenses and spending on friends and entertainment.

Do the millennials save? What are their preferred savings instruments? Are they aware about the avenues available?

Portfolio spoke to young professionals in the age group of 21-28 years to find the answers.

Young professionals find it easier to save when living with the family since most of the day-to-day expenses are then taken care of.

“Since I live alone, I have to take care of all the household expenses, like rent, electricity, employing a maid and so on,” says Shyama Sivasubramanium, 25, who heads the marketing at Vannam, a paint company. “I also like to spend on shopping, entertainment and eating out. But I put aside a small sum in recurring deposit every month to take care of my future needs.”

Financial commitments in the form of student loan also tend to reduce the savings. Kundan, a 27-year-old from Odisha, working in Chennai with Macmillan Publishing Services Ltd, Chennai, says “I’m not able to save because I have to pay towards my student loan, my living expenses and then send the rest of the money to my family.”

Kundan invested a small sum in mutual funds once but has not been able to save anything beyond this. He hopes to invest more in mutual funds once he closes his loan this April.

Lack of awareness about savings products is another reason why surplus money isn’t going into savings. While a few move surplus to recurring or fixed deposits, many let money idle in the savings account.

“If there is any balance in my savings account, I leave it untouched. Anyway it provides me with little interest,” says Shyama.

As most of the millennials don’t fall in the tax bracket, there’s that much less incentive to put aside money.

Vandhana, a 23-year-old corporate trainer, says “After meeting all my expenses, I leave the income in my savings account intact. Since I don’t fall in the tax bracket, I don’t go in for any other tax savings schemes or venture out on other options. I save to invest it at a later date.”

But while the inclination to put aside money might be less marked amongst some, millennials do know that it is important to save for a rainy day.

According to a Nielsen report, 48 per cent of millennials are aware of the benefits of saving though they require guidance. They may not draw up monthly budgets but aren’t unfamiliar with the habit of saving altogether — after all, they did put aside a part of their pocket money as savings.

Recurring deposit is by far the most common route adopted in the first few years of work life. “As I live with my family, I spend mainly on my personal expenses. I get to save nearly three-fourth of my salary as recurring deposit as it is easier to withdraw at a later date,” says Vandhana.

“I keep a recurring deposit, it is simple to maintain and has high liquidity. It is automatically deducted from the bank account at the beginning of the month before my expenses begin,” says Vijay Narayanan, 25, who is with BNP Paribas.

Savings are diversified when there is a need to save tax. Twenty-five-year old Akshay Jain, operations manager at GD Minerals, says “As my income grew, I had to worry about tax, so I now invest in equity mutual funds through the SIP route. I have bought term insurance to save tax.”

Millennials typically use their savings to buy gold, car, bike or laptop. The EMI for the loan taken to purchase these further reduces the surplus.

“I accumulate savings and buy gold in the form of rings or bracelets. I bought a car and I continue to pay monthly for it too. I’m managing well, financially,” says Vandhana.

These youngsters feel guidance is hard to come by. “I didn’t know what to do with the money saved for two years. Then my brother suggested investing in mutual funds,” says Akshay.

The relatively savvy savers among millennials are, naturally, finance professionals. Sneha Sitaram, 25, an internal audit consultant, says, “So far I have saved ₹1.5 lakh, in fixed and savings deposit. I’m going to buy mutual funds to diversify my portfolio. I’m not keen on equities for now and post office is boring though it gives tax benefits.”

Narendra Dev, 27, Team Lead at RR Donnelley, has invested in fixed deposits, recurring deposits, mutual funds and gold coins. “But I have stopped buying gold given the poor returns,” he says.

Drawing up a monthly budget is essential in the early years, especially when one lives on one’s own. It will help in setting aside a definite sum for shopping, entertainment, etc, as well as a little bit for the future.

This will also help one keep tabs on the areas of wasteful expenditure.

There seems to be a misconception that money in the savings account is ‘savings’. While it is partially true, the interest on savings account is among the lowest and is taxed. Recurring deposits are convenient but, again, post-tax interest is low.

It is best to start SIPs in equity mutual funds to earn the best post-tax returns. Even if you save ₹5,000 per month, it can grow to a substantial amount in a few years, thanks to compounding. Post-office schemes might be ‘boring’ but their returns are among the best, especially if you are a conservative investor.

It is also imperative to take insurance, if you have dependants. But take a plain vanilla term cover. Consider buying health insurance after you cross 30.