In 2008, Jackie and I arrived at our investment banking jobs on Wall Street. Fresh out of college, we were now among the top earners in our peer group. Twenty-hours-plus daily, most days of the week, working hard on pitchbooks, models and deals. We saw eye-to-eye on most things: people, what we were going to eat that night off of seamlessweb.com, and, more or less, life.
We were both so-called Millennials, defined as those born between 1981 and 1996. There were a couple of big differences. One was that she thought about savings and investing her earnings. I was more basic, just thinking about spending less than I made. The day Jackie had to run out to set up her Charles Schwab Corp. account, I barely understood what she was doing. She came back with flyers and talked about Pacific Investment Management Co., or Pimco, bond funds.
I was bemused. While I could go through companies’ financial statements and run accretion-dilution and discounted cash flow models, I could just about keep track of my personal income. I was basically financially illiterate when it came to my own accounts. That stemmed, as I now see it, from the more fundamental difference between us: We grew up on two sides of the world — she in Maryland, me in Indore, India.
Our micro-example is reflected in several surveys showing that financial literacy rates in Asia are far lower than in the U.S., Canada and the U.K.That means possessing a basic understanding of concepts like interest rates, compounding, diversifying risk, and inflation to make decisions about personal savings. Money management behavior is tightly linked to such knowledge.
Some of this comes down to cultural investing priorities. In Asia, property and gold – hard assets – have always taken precedence over speculative stocks and bonds. Capital markets haven’t been deep enough for previous generations to participate with confidence. Nor were retail investing products mainstream. A recent survey by China’s central bank that covered more than 30,000 urban households in 30 provinces showed that almost 60% of assets were tied up in real estate. About 70% of liabilities were mortgages. The portion of financial assets was low.
To be sure, the privileges of investing and even holding financial assets are often impossible for many people in wealthy countries who are just trying to make ends meet. That’s even more true in emerging economies.
In India, the average household has 77% of total assets in real estate and 11% in gold, according to a Reserve Bank of India report. The total is 44% in the U.S. About 5% is held in financial assets like savings accounts, mutual funds and publicly traded shares, compared to 17% in the U.S., a Goldman Sachs Group Inc. report says.
Generational attitudes get passed along. My parents didn’t really talk about money at the table or otherwise; it was only ever mentioned in terms of being prudent. (That’s a whole different topic I’ll save for another column.) Jackie’s family had a slightly different approach. Her allowance (and that of her younger brother) was split into four jars: taxes, savings, charity and spending money. They got to choose the charity. That helped create a sense of where money goes. “My dad was always (like) dollars and cents, spend wisely and make good choices,” she told me recently. “But not miserly.”
For Millennials, choices are constantly changing. In the U.S., gurus like @MrsDowJones drop knowledge on their hundreds of thousands of Instagram and Twitter followers. Millennial investing podcasts laud putting money where you spend your time, thinking about your own price per hour when setting out for a new purchase. Gaming is big; experiences are more valuable than things. Millennials tend to think more about wellness and what’s good for the environment (greener packaging, no plastics). Fashion choices are sustainable — vegan leather, you name it.
In Asia, the tech-enabled generation is beginning to take charge of its finances. Millennials have increasingly become a bigger part of the Asian consumer class that has driven travel and spending across the world. In India, savings in physical and financial assets as a portion of gross domestic product has been dropping, while net financial savings as a share of the gross national disposable income has also come down.
To this cohort, property and jewelry increasingly look old-school. The permanence of such holdings is a turn-off. These assets are plagued with issues parents faced buying property (especially in India — a pre-sale gone bad, an incomplete project that took their cash) and the shifting relative value of gold. There are also questions of taste and practicality. Will I pull out bling and unfashionable traditional jewelry to go to the office? Unlikely.
Online finance makes growing sense. More people in China are buying wealth management products, or thinking about how to maximize their balance sheets and taking out consumer loans. In India, investing apps such as Groww are all the rage. Backed by the likes of Sequoia India, it has 8 million users for mutual fund offerings and a couple of hundred thousand have bought stocks on it. Zerodha, ETMoney and others are increasingly popular.
Economic insecurity from Covid-19 will likely accelerate the change. Millennials will be less quick to splash out on soy lattes and yoga pants, especially in Asia, as they become savers again. What they buy will be higher up the quality ladder – “premiumization.” That behavior will come with smarter ways to put their money to work instead of stashing it away in vanilla bank deposits. Risk profiles should change.
There might be a whole new class of savvier savers, but the need for financial literacy will remain paramount. A YouGov-Mint Millennial Survey in India recently found that post-Millennials, born after 1996, “are much more likely to keep their savings as cash and least likely to invest in mutual funds.” But, this crowd was more prone to invest in cryptocurrencies and alternative investments.
I’m still behind the curve on investing my retirement savings, but I’m going to start by setting up four jars for my kids today.-Bloomberg