Save For Future Or Spend For Present?

Today’s youth is focused more on spending rather than saving. Kanika Nayar dives into the issue, providing insights and the way forward.

HOW HAVE WE CHANGED?

Our previous generations believed in saving more to ensure a better future for the coming generations. They built up assets to ensure that we have a more comfortable lifestyle. However, the youth of today do not have the same mindset. Today’s youth are spending more time on increasing the size of their wallets. The pay packages are much higher than those of our previous generations. Young Indians are travelling all over the world to secure elite postgraduate degrees to build up their resumes and secure higher pay packages. Indians are learning the art of spending, however, are we judiciously saving and prudently investing as well? Are we saving before spending or spending before saving?

WHAT ARE SPENDING TRENDS?

Consumer spending has exploded in India. As an example, consumer items like vehicles and mobile phones which were luxuries until a few years ago are now available in many households.

• Food contributes the highest to consumer spending.
• Housing and consumer durable spend are powered by the young consumer who is purchasing newer homes and new appliances and equipment along with them. Every individual wants to own a property that he can call his own, whether it is possible within his means or not.
• There is a revolution of telecommunications in India with smartphones, tablets, portable music devices and televisions constantly being purchased. The market is flooded with these devices and young consumers are lining up to procure them. The new generation consumers are influenced by these new technologies to a large extent and are willing to spend half of their pay package to buy a new device.

SPENDING ON LUXURY GOODS

Despite the downturn of the economy, India’s ultra-rich continue to spend on apparels, luxury watches, electronics and overseas travel holidays. Increase in the disposable income of these ultra-rich households has caused luxury spending to stay in fashion. For most, this lifestyle of luxury spending is a status symbol, to signify belonging to an elite club in society. Apparel and accessories dominated the luxury goods spend at more than 50%. Are we causing our savings to dwindle by spending on these luxury items which will become obsolete in the near future?

ARE WE SAVING?

Domestic savings are decreasing due to the fall of financial savings in households. High inflation, excessive spending, low level of investments in productive instruments are some of the main causes for this fall. It is not foreign capital that will come to the economy’s rescue; that role has to be performed by domestic investment. Indians are putting their money in short term instruments and not in investments that are long term and will be able to hedge inflation.  More than 40% of Indians consider jewellery as a good mode of savings and investments.

WHAT SHOULD WE DO?

• Save a certain percentage of our salary/earnings every month
• Invest in the right and correct places to ensure increasing returns
• Do not take impulsive purchase decisions
• Reduce spending on luxury products

WHERE SHOULD YOU INVEST IN?

Good, safe investment areas that the youth can consider if they want to ensure a stable return and do not want to take a risk:

• Mutual funds
• Fixed deposits – tax saving options are also available
• Government bonds
• Gold bonds
• Public provident fund
• National saving certificates