A new year has started and no doubt resolutions are being made and things are being planned. A new year, a new start and way to go! But hold on! Is something being planned for your finances? For that matter, what changed in your finances in 2018?
The assessment from my sessions is that only a small percentage of people have actually made a change in their money habits. Here is what I observed in 2018:
A majority of individuals I met at sessions still shied away from taking a risk with their investments, despite taking bigger risks with their lives by having apps on their phones which track their movements and much more. Even with real estate being stagnant, the propensity to buy a second property is high. This is really to do with their own anchoring and fear of loss bias.
Lack of product knowledge
People failed to take advantage of all the educational campaigns and material put out by manufacturers. While ‘Mutual Funds Sahi hai’ showed people the convenience of investing in mutual funds, it fell short by not addressing their concerns or queries on how to choose a fund or even simple things like how to invest into a fund. I repeatedly get asked about that one site where all information would be available on mutual funds. While the AMFI website has various resources, these need to be further augmented.
Access to the right advice
2018 would be the year which had the highest number of online, easy to use platforms being made available to investors. While these platforms had good traction, the issue of access to the right advice remains. A lot of first-time investors used these portals not only for convenience but also because they provided “free advise” on where to invest. ‘Direct’ was the talk of the town and financial advisors seem to be the bad guys, out there to get you. People forget that technology can help us to an extent but not replace an individual. Even in developed markets, most robots have added plans with human advise simply because they figured that investors need advisors to help create financial plans based on various other factors and not clinical questions alone.
Mis-selling continues unabated and everybody seems to be doling out financial advice. If it was not enough that bank tellers and service personnel try to sell Unit -linked insurance plans (ULIPs), I heard radio jockeys giving advise on markets.
Financial practices by millennials
Of course, lifestyle expenses and loans ruled the financial lives of most millennials and the advent of payday loans or loans based on social profiles makes it worse. Paying for health insurance is considered an expense whereas paying 22 percent per annum for a loan to buy a gadget on an e-commerce company website is acceptable for millennials.
So what can be done better in 2019?
Individuals: Stop making the same mistakes repeatedly. Remember to
a. Save, Save, Save, at least 30 percent of your take home salary.
b. Speak to a financial planner to create a money map for you.
c. Read, Read, Read, it’s the only way to protect yourself against mis-selling or wrong advice. Choosing a wrong fund or not choosing the right instrument for the intended investment horizon can lead to bigger losses than saving money on a direct plan.
d. If you can take a risk in every aspect of your life, take it with your money also – but take it the right way, which is through mutual funds.
e. Take adequate health cover. You are never too young to have a big illness, given the current lifestyles.
f. Finally, rethink about your relationship with money from just giving us material things to something you can use to create time and memories that give you happiness.
Regulators: need to
a. Provide a level playing field for all products. The costs and tax treatment on ULIP and equity mutual fund should be the same. This would take care of the rampant mis-selling of ULIP.
b. Allow only certified advisors to give out views. Operations and service staff cannot be asking customers to invest in insurance products.
Employers: need to
Employers can play an important role in promoting the financial well-being of employees but having a defined strategy for financial wellness like other wellness programs. Further, promotion of these programs like that of marathons can also help in increasing the adoption of savings habits among employees thus benefiting the employee and employer (albeit indirectly) as well.
Cheers to the New Year and another chance for us to get it right!