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. 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.
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 from the more fundamental difference between us: We grew up on two sides of the world – she in Maryland, in the US; 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 US, Canada and the UK. That means possessing a basic understanding of concepts like interest rates, compounding, diversifying risk, and inflation to make decisions about personal savings. Money management behaviour is tightly linked to such knowledge.
Some of this comes down to cultural investing priorities. In Asia, hard assets such as property and gold 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 per cent of assets were tied up in real estate. About 70 per cent of liabilities were mortgages. The portion of financial assets was low.
In India, the average household has 77 per cent of total assets in real estate and 11 per cent in gold, according to a Reserve Bank of India report. The total is 44 per cent in the US. About 5 per cent is held in financial assets like savings accounts, mutual funds and publicly traded shares, compared with 17 per cent in the US, a Goldman Sachs 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. Jackie’s family had a slightly different approach. Her allowance was split into four jars: taxes, savings, charity and spending money. “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 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 jewellery 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.
Online finance makes growing sense. More people in China are buying wealth management products, or thinking about how to maximise 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. That behaviour will come with smarter ways to put their money to work instead of stashing it away in vanilla bank deposits.
There might be a whole new class of savvier savers, but the need for financial literacy will remain paramount. 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.