Stocks, MFs, commodity investments are on the rise, while investment in real estate has taken a relative back-seat
Millennials have gone through a couple of recessions, a few data security breaches, digital revolution-driven information overload and last but not the least, an in-person interaction halting global pandemic. Consequently, they are a bit wary about what the future holds, still unsure about how institutions use their data, disillusioned by a plethora of choices but a lot keener on doing things differently and digitally.
Millennials have experienced an unprecedented pace of disruptions and subsequent innovations across all fields, with personal financial management being no exception. In the last five years alone, for example, the volume of digital transactions has quintupled. They have embraced the digital way of doing things end-to-end. With about 84 per cent of millennials having access to mobile internet and spending an average of 17 hours per week on the phone screen, app-based interactions are preferred.
The fintech industry in India is responding to cater to these millennial customers. There are apps that make it easy to fulfil tasks like budgeting and planning, investing, insurance and even filing tax returns. Various personal finance management apps let a customer set a budget and track their income and expenditure. In case of a loan requirement, the customer is only a few clicks away from getting cash in a bank account, with an all-online process.
Multiple studies have pointed out the declining savings rate of millennials, with prior generations saving about 35 per cent of their income, while the millennials’ savings rate stood at 10 per cent. Recent studies, however, have pointed out that higher earning (>75,000 per month) millennials save more (20 per cent savings). Disposable income seems to be an important driver of the savings rate and as the millennials’ income rises with career growth, the rate of savings is expected to increase as well.
Millennials’ investment preferences also show a significant shift as compared to those of their predecessors. Stocks, mutual funds, and commodity investments are on the rise, while investment in real estate has taken a relative back-seat. The recent post-pandemic surge in online trading was driven by an easier enrolment process, as much as it was driven by the extra time consumers had at hand. Lower minimum subscription amounts and competitive brokerage charges have also aided the surge. Real estate investment, on the other hand, is still unaffordable and cumbersome for most. Although the advent of REITs has given millennials some convenience to take a share in the pie, the industry is still ripe for further innovations.
Millennials are driving innovation in the personal financial management industry by constantly pushing the envelope on expectations from service providers, and also by being early adopters of these innovations. While the emergence of a seamless one-stop-shop personal finance service seems inevitable, a few key elements remain to be refined. First and foremost, simplicity in design - allowing consumers to plan and fulfil their financial needs in a few intuitive steps. This customer-facing simplicity will require sophisticated algorithms at the back-end which screen through the clutter of available options, match them with customer preference and prioritize the few ideal options for the customer to choose from. This is required to solve for the millennials’ scarcity of time and help mitigate the ubiquitous choice paralysis.
Secondly, building trust with the customer by ensuring air-tight data security, data control, and transparency of the process. Consumer protection regulations will also contribute toward building customer trust. Thirdly, a seamless customer support mechanism, which proactively identifies and even solves issues for the customer – an algorithm, for example, which analyses customers’ transaction statements to identify double charges or fraud, alerts the user, and then raises a dispute ticket automatically. Last but not the least, fintech will need to invest in increasing the financial and digital literacy of its target market, as informed users are more likely to make smart choices.
Indian millennials’ income is already contributing to more than 70 per cent of total household incomes even though they account for less than 50 per cent of the workforce. This disproportionate contribution will only increase in the coming years and they will continue to be the prime target market for most fintech.
The author is Head-Consumer Risk, Capital Float
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