If you are between 25 to 35 years old, you will want to read this.

Over the past two years, Millennials have been an essential contributor to the local economy, start-ups, businesses, and consequently the global economy. However, Millennials are facing financial woes and the future looks bleak for this demographic. Here is a look at the harsh reality.

Statistics show there is an unprecedented level of debt among Malaysia’s Millennials or Gen Ys. These young people are experiencing significant financial stress early in their life, with many living beyond their means and trapped in emotional spending, according to a study by the Asian Institute of Finance (AIF).

The survey showed a majority of Gen Ys were relying on high-cost borrowing, with 38% reported to be taking personal loans and 47% engaged in expensive credit card borrowings, while only 28% felt confident in their financial literacy.

Here are some of the financial troubles we should be working on fixing today.

Financial Issues Millennials are Facing Today

An Unhealthy Obsession with Technology and Online Shopping

There is a good reason Apple and Samsung are thriving in the emerging economies today. 65% of Malaysians now own a smartphone and 88% of them are millennials, according to Pew Research Center’s Spring 2015 Global Attitude Survey. In fact, just last year Malaysians had spent RM6.8 billion on smartphones alone! This was an increase from RM5.4 billion in 2015, according to a report by GfK.

This was a significant increase from 2015, which rang in RM5.4 billion. The biggest contributor to the spending is mid-range model smartphones priced between RM900 and RM1,050, said GfK’s South-East Asia managing director Stanley Kee.

Ask yourself this, do you really need to buy the latest iPhone at RM4,000 or could you buy an older model or a different brand with similar features for half the price?

Find Out What Can You Buy for the Price of an iPhone 7 or Samsung S8 in Malaysia.

Apart from smartphones, Millenials are shopping online more than ever and our lack of discipline and control is causing us piles of debts. A survey on the spending habits of millennials (Generation Y) by United Overseas Bank Limited (UOB) Malaysia found there was a 38% growth in online spending in the first six months of last year, with Gen-Y spending 1.4 times more than other age groups.

Grab, Lazada, Zalora, Expedia and 11Street have been increasing their presence in our lives faster than expected, making services, travel, transportation, shopping for almost anything much faster and easier.  But, this comes at a price with many of us unrealistic about our financial appetite. Instead, we spend recklessly with credit and loans and zero savings to take care of more important expenses.

Gen Y tend to place a big premium on lifestyle brands – be it getting the latest high-tech gear or the latest fashion. About 40% of AIF’s survey correspondents admit that they spend more than they could afford.

For those that have recently graduated from university or college, we can’t emphasise enough the importance to sustain your expenses on a moderate level. We get it, you are excited, you are earning money on your own and you want to celebrate a little. There is nothing wrong with that, but overdoing it just might land you in a place you do not want to be in. Here are some financial advice for fresh graduates.

Takeaway:

• Spend within your means. Do not treat your credit card as cash. Your credit card is a short-term 30-day loan.
• Understand debt and know the potential damage it can cause long-term if not controlled.

Addicted To Life In Debt

Millennials are living in debt and the worst part is, they are used to it.

Alarmingly, 70% of AIF’s respondents that have credit card debt tend to pay the minimum monthly payment only and 45% did not pay their debt on time. This shows theirs towards the dangers of interest rates.

It is common to find Malaysians who are living on the edge of their credit limits these days, just to spend their next ten years clearing their credit card debt. By paying the minimum 5% on their outstanding amount, it is only enough to cover the monthly interest charges but barely clears your credit card debt. For those who do not pay on time, your credit score will be severely damaged will affect your future approval of banking products.

“Gen Y’s debt woes have been the result of impulse-buying behaviour coupled with easy access to personal loans and credit card financing. “ – AIF Report on Briding the Knowledge Gap of Malaysia’s Millennials

Some ambitious Millennials are also willing to take up a personal loan to start their business without proper research and planning, resulting in a mountain of debt and left with no other choice but to return to the workforce to repay those debts.

“Our study reveals that 75% of Gen Ys have at least one source of long-term debt (anything longer than a year) and 37% have more than one long-term debt obligation,” – AIF report. Hire-purchase is the highest loan (56%), owned by Gen Ys while credit card and education come next (47% and 40%).

This comes down to one simple conclusion, Millennials are living beyond their means. Without considering their financial appetite every time they make a decision, they act impulsively to receive immediate satisfaction even if it means paying a higher price.

Takeaway:

• Stop thinking you have all the time in the world to repay those debts. Cumulative interest rate is your worst enemy.
• Learn to use debt repayment tools such as balance transfer plans to clear debt as soon as possible. Find out more here.

A poor investment appetite

According to the same study by AIF, less than half (41%) of their 1,000 respondents said that they diversify their investments. On top of that,

investments are proved not to be a priority for Millennials with only 23% who invest more than 20% of their monthly income and 40% say they invest less than 10%.

With a huge percentage of millennials living in debt, it is no surprise that investment is low on their priority list. But the lack of investment knowledge and low-risk appetite due to the bumpy economy in the past is a concern.

In spite of these stats, it is comforting to know that the majority of Gen Ys surveyed in AIF’s survey owned unit trusts and insurance policies (52% and 51%), while only 9% invest in the stock market. However, consistency is key when it comes to investments.

Though we are happy to see that Millennials make up 27% of the Private Retirement Scheme contributors as of 30 June this year, it was largely due to an incentive program of RM1,000 introduced by the government.

We can’t help but wonder, do they consistently contribute into the fund or do they stop right after obtaining the incentive?

According to The Star’s report, the numbers of millennial invested in PRS have increased by 71% from 27,263 PRS members in March 2015 to 46,692 in March this year.

“Last month, the number reached to about 67,000, or almost 27% of the total 248,325 PRS contributors nationwide, said the Private Pension Administrator Malaysia (PPA), which is the central administrator for PRS. These youths have a total of RM99.2mil in net asset value under such schemes as of March this year.” – The Star

On the other hand, it is rather shocking to see that only 9% of the correspondents are investing in the stock market despite how easy and cheap it is to buy shares in Malaysia. To be fair, AIF pointed out that their cautious investing habits reflect the challenging economic conditions they may have seen during the dot-com bubble in the 1990s and gloomy global economy over the past two years.

Also, it does not help that millennial tend to only seek advices from friends, family and colleagues (65% to be precise in AIF’s report) which may lead to the narrow information they can get when it comes to investment.

“This is a reflection of the DIY world they grew up with.” – AIF.

Takeaway:

• Learn how to invest in stock, unit trust and other investment products. Find out how you can start investing with as low as RM100.
• Consult ‘qualified’ financial advisors to get the confidence you need to make informed investment decisions. This is in addition to the advice you receive from your friends and family.
• Find out these five simple steps to invest in stocks.
• Learn to speak the language of business and investment here.

Millennial Are Saving Money, But Is It Enough?

We’ve heard that Millennials don’t save enough but that isn’t entirely true. We do save money, in fact 64% of working Gen Ys save a portion of their income every month. But all the money saved will have no value if we carry huge debts. One of the common mistakes that not only Millennials make, but Malaysians in general too, is continuing to save money while their debts are piling up.

They do not realise that the interest rates charged on their debts will only wipe out the accrued interest they earned from their savings and fixed deposit accounts. Credit card interest rates are usually higher than the interest rates on savings accounts. With our inflation rate at 2-4% a month, you are actually losing money from your debt even though you have savings.

This is why financial planners and professional advisors need to up their game in terms of engaging with millennial considering the low confidence level, with only 37% sought financial advice from financial planner and 26% are convinced with the service.

“Despite their (Gen Y’s) spendthrift behaviour, which is reflected by their credit card debt burden, Gen Ys’ positive saving habit suggest that they are conscious of the value of money, but may not currently have the necessary knowledge to manage it effectively” – AIF.

Millennials also tend to save when they have extra money at the end of the month which makes their savings very vulnerable. By setting aside RM100 or RM200, you can save up for your short term goals such as travel or buying a laptop. But is it really enough? Take a look at how much you should have in your savings by the age of 30 here.

Takeaway:

• You need to save at least 40% of your income in order to prepare for an emergency, short term goals (if any) and long-term goals such as buying property or retirement.

Instant Gratification Causes Millennials More Financial Trouble

It’s all about fast and easy results in this era, whether it’s at work, while shopping, travelling, or even booking rides. However, this fast-moving economy might be the cause behind this instant-gratification culture.

“Instant gratification is the desire to experience pleasure or fulfilment without delay or deferment. Basically, it’s when you want it; and you want it now.” – Neil Patel

First of all, this is how entrepreneurs and businesses are preying on their biggest consumer market almost everywhere around the world. By giving Millennials what they want in an instant, it is so easy for consumers to spend their salaries within an hour.

The same applies to the way Millennials consume information on social media and the Internet, which can cause Malaysians to fall for Internet scams and make really bad financial decisions. Malaysians are most vulnerable to online scams compared to Thailand, Singapore and India with 6-out-of-10 suffering financial losses of up to RM7,000. Read more here and link to the work from home scam article.

This could explain the lack of interest in investments and proper saving habits. Millennials expect the greatest financial return in a short span of time. They want quick wins but investing and saving are long-term financial goals.

Takeaway:

• It takes time to build wealth whether you save or invest your money.
• There is no easy way out in building your career or business except for hard work, determination, and education.
• Take plenty of time to conduct research and ask for help if you are going to make any financial decisions.
• Patience is a dying virtue. Take your time and plan your schedule well.

Millennials may have their challenges but it does not mean we are doomed. We make mistakes, but we learn and we improve. Share this article if you found it useful and leave a comment if you have more thoughts on this topic!

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