It’s been 16 years since the turn of a millennium. From the year 2000 till now, mankind has taken giant leaps in terms of technological development, medical advancement, space research, financial growth and much more. The internet, which was in its infancy during the turn of the millennium, has now reached out to billions of people and has become a way of life. The phenomenal boom in Social Media has ensured that everyone from kids to old-timers is hooked to Facebook, Twitter, Instagram, etc.
The kids and the adolescents who witnessed the world’s drastic transition from one millennium to another, have now become young adults in their 20s and are often referred to as millennials. Deeply influenced by the phenomenal changes that they have experienced in the last decade and a half, this breed of millennials is quite different from their previous generations. Millennials are quick learners, great with electronic gadgets, and are equipped to handle technological advancements that others fail to grasp. But there are a few things which millennials struggle to deal with. One such thing is financial management.
The art of handling money and making it grow is something that millennials have failed to understand. This lack of awareness regarding money is frustrating to see and it can lead to big financial troubles in the future. We, at BankBazaar, have decided to list down 9 worrying signs of money mismanagement by millennials and also give tips on how to rectify these mistakes. It is to be noted that these signs of financial mismanagement are targeted to a vast section of millennials but it is not meant to generalise every millennial as individuals who struggle with money. We understand that there might be exceptions too (a lot of them).
- Millennials rely on Credit Cards big time.
The turn of the millennium saw a huge boom in the Credit Card industry. Over the years, there has been a steep rise in the number of Credit Card users and a majority of these Credit Card owners are millennials. While they’re great for one-off purchases, research shows that millennials are relying big time on Credit Cards. A staggering number of millennials swear by Credit Cards as their first choice of payment instead of using a Debit Card or cash.
Kids who grew up in the nineties and early 2000s, have been accustomed to consumerist behaviour and think that they are entitled to have everything. As a result of their keen interest in the latest gadgets and the latest trends in fashion, along with the urge to party on weekends, most millennials are spendthrifts and they don’t even know it. They rely on Credit Cards to pay their bills once they fall short of cash. This inability to differentiate between need and want among millennials is worrying as they are speeding towards financial troubles.
Tip: The best and probably only way to get rid of a Credit Card addiction is by acknowledging that you are relying on your card way too much. Learn to control the impulsive urge to shop or to splurge on frequent dine-outs and shopping. Prepare a budget and follow it religiously. Remember that if you use your Credit Card wisely, it will help you build your Credit Score!
Additional Read: Tips to use your Credit Card wisely
- Millennials don’t pay their bills on time
The one thing which our parents and grandparents never missed was paying off bills before the due date. Unfortunately, millennials have failed to adopt this desirable habit as surveys show that a large percentage of millennials don’t pay their bills on time. There are many reasons why millennials default on their bills. Most of the time they are unaware of the due date of the bills as they don’t carefully check their mail boxes and emails. Sometimes, paying bills takes the backseat for millennials as they prioritise shopping and partying and thus, spending more. This leaves them with no money to pay the bill when the due date arrives. Laziness also results in bill-payment default as they procrastinate when it comes to the cutting off services that they don’t need anymore and later struggle to pay when the billing is done.
Tip: Pay off your bills, rent, etc. at the start of the month before you splurge on shopping and other expenses. Activate auto-payment services that will help you pay bills on time without you having to remember the due date. Yup, it’s that simple!
- Millennials don’t know how to pay their taxes
Millennials can be gifted when it comes to understanding complex technology, but their knowledge about tax and tax savings leave a lot to be desired. We know that calculating how much tax you have to pay and figuring out tax-saving schemes all by yourself can be tricky but it is by no means a herculean task. A vast section of millennials spend loads of money on chartered-accountant services to help them with tax benefits. There are quite a few millennials who aren’t even aware of taxes being cut from their income as TDS and those who are aware don’t seem to be too bothered about tax savings. We are not making this up. It is a common observation made about millennials when it comes to tax savings. Ignorance, lethargy, and lack of interest about tax benefits are the reasons why millennials are paying more in taxes than they necessarily need to.
Tip: First of all, millennials need to understand the seriousness of the issue and should be made aware of the amount of money that is getting deducted in the form of taxes. Instead of shelling out money for chartered-accountant services, one can simply read up on how to calculate your taxes, tax benefits, and tax-saving schemes.
- Millennials don’t understand the power of investing early
We have all solved compound-interest problems while studying math in school. But we tend to forget its practical application in real life. According to research, millennials make investments late in their careers without understanding the benefits of investing early. Thanks to the magic of compound interest, your money grows exponentially depending upon the number of years you have invested your money. So, the sooner you put your money in good yielding investment schemes, the faster your money will multiply. But unfortunately, the sedentary lifestyle of millennials forces them to lead a hand-to-mouth existence in the initial years of their career. And thus, they miss the opportunity to make their money grow considerably.
Tip: Right from the day you start your first job, follow the motto of spending less and saving more. Instead of splurging on a luxurious lifestyle, focus on saving at least 30% of your salary and invest half of your savings regularly in schemes that offer good returns with minimum risk of loss.
- Millennials struggle with debt repayment
According to sources, student loans and Credit Card bills are the two most common types of debts that millennials have to deal with. And research shows that they are not very efficient when it comes to debt repayment. Thanks to their consumerist way of life, millennials often find themselves struggling to clear off their debts. Their over-dependency on credit makes it even harder for millennials to lead a debt-free life. Defaulting on debt repayments shows up in their credit history and damages their Credit Score. Most millennials are unaware of different ways to manage debt like refinancing loans or balance transfer of Credit Cards that could help keep their heads above water.
Tip: If you are already struggling to clear off your Credit Card debt, it is necessary that you put aside your Credit Card for a while and focus on ways to clear off the debt. Transfer the unpaid balance to a new Credit Card which offers 0% APR for a certain period of time. Make sure that you don’t use the new Credit Card for purchases but only to clear off the debt before the offer period of 0% APR runs out. Similarly, refinance your student loan by opting for a new loan with a lower interest rate and lower EMIs.
- Millennials don’t bother to find which Health Insurance policy is best for their family
Millennials are creatures that live in the present, often unprepared for what the future holds for them. Health Insurance is an essential part of future financial planning that takes care of your family’s medical needs in case of emergencies. But unfortunately, Health Insurance is not a priority for millennials as they are busy with their hand-to-mouth existence. And since most companies offer medical insurance to its employees and their families, millennials aren’t bothered when it comes to buying Health Insurance. Millennials fail to understand that it is still essential to go for a Health Insurance policy that covers their family’s medical needs as the medical insurance provided by the employer may not cover all bases. For example, there are some medical insurance policies that don’t cover illnesses caused due to diabetes or high blood pressure.
Tip: Conduct a thorough research of the market of insurance providers and select the Health Insurance policy that best suits the needs of your family. Paying premiums for Health Insurance will ensure that you don’t have to panic when a medical emergency strikes and it also helps reduce tax.
- Millennials don’t have retirement plans
Retirement is a phase that is inevitable in a person’s life. And since the thought of leading a life with no income sounds scary, a lot of people invest in retirement plans. But millennials are so busy living in the moment that they don’t think about the future and certainly not about life after retirement. It is a worrying trend that millennials don’t have retirement plans and they fail to prepare themselves for the financial instability of old age. Apart from the contribution to the Employee Provident Fund that is deducted from their income, most millennials are clueless about retirement plans. If this trend continues, coupled with growing inflation, we are looking at a future where millennials will be struggling to keep up with the financial needs of life post-retirement.
Tip: The solution is simple. Educate yourselves about different retirement-plan options that are available in the market and slowly start investing in different schemes that will create a good financial repository by the time of retirement. Keep in mind the growing inflation and invest generously in retirement plans.
- Millennials don’t know the art of negotiating
We often admire how our parents manage to bargain and strike a favourable deal when it comes to shopping. But millennials aren’t bestowed with the gift of bargaining and negotiating as they have grown up in a consumerist environment with the advent of malls, showrooms, etc. where everything has a fixed price. It is frowned upon if someone tries to bargain when it comes to such posh commercial stores and establishments. Thus, a lot of millennials shy away from the art of negotiating and it affects them in all walks of life. E.g. we don’t bargain enough with the landlord to lower the rent or we don’t negotiate enough with the employer when it comes to salary. These little things add up and affect our finances in a big way.
Tip: The art of negotiating and striking a favourable deal comes with practice. Look for opportunities where you can bargain. Once you develop confidence to bargain, unleash your negotiating skills to your benefit in all walks of life. Negotiating the price of land or a house, for example.
- Millennials have no emergency fund for a bad hair day
Apart from investing in the future, it is crucial to save money and create an emergency fund to tackle financial uncertainties. From unfortunate accidents to a sudden loss of job, you need money to deal with emergency situations. But, millennials lack this planning for a bad hair day as they live in the moment assuming that nothing bad will ever happen to them. But when financial emergencies arise, they find themselves unprepared, often running from pillar to post looking for monetary help from all possible avenues. And in the process of looking for financial aid, they tend to add up more to the pile of debt that they are already struggling to repay.
Tip: We had mentioned earlier about saving 30% of your monthly income and investing half of it for a better future. The other half of the savings should be used to create an emergency fund that will be useful when financial trouble strikes. Create an emergency fund that can help you sustain for at least 6 months without income.
If you are a millennial and have related to what you have just read about money mismanagement, it is time to regain control of your finances by rectifying the above-listed mistakes committed by most millennials. If you master the art of money management, millennials, who are already pioneers of networking and technology will have the complete package. So, how about exploring your investment options? After all, the right time to bring in a change is NOW!