Empowering Gen Z with 360-degree approach in financial planning
20 Oct 2022
From the safety of insurance to extremely risky crypto currencies, the new generation investors want to explore all the investment vistas in a planned way.
Unlike their previous generation, the new generation investors aren’t afraid of taking calculated risks. From the safety of insurance to extremely risky crypto currencies, the new generation investors want to explore all the investment vistas in a planned way.
“The Generation Z has a reputation to boot! They are hustlers, unconventional thinkers, risk takers and hands-on financial investors. Compared to the previous generations, they have shown higher inclination in being actively involved in money management. But an ecosystem that has increasingly become about real-time resolutions has shaped their purchase decisions. Quite naturally, they want quick and instant money multiplication methods. What is perhaps lost on the crypto generation, is the golden rule of financial planning – Diversifying your financial portfolio,” said Anup Seth, Chief Distribution Officer, Edelweiss Tokio Life Insurance.
“While each asset class has its own pros and cons, it is critical to balance your portfolio so as to make use of both more longer-term instruments which can give you the benefit of compounding and also some riskier assets that can offer higher return in the shorter term,” Seth added.
“Creating a sustainable and holistic financial plan is critical as it enables you to enjoy life events without worrying about money. A few factors to be considered are buying a house, children’s education, retirement, contingency planning, critical illnesses, and more. An informed, balanced, and diversified approach in financial planning, can help pave the way for a happier, content life,” he further said.
Seth lists a few thumb rules that can help you plan better:
Goal-linked planning is paramount
The first step in financial planning is identifying your goals. They can be divided into short-term, mid-term, and long-term based on your aspirations. For example, a short-term goal can be studying in a specific university or buying a vehicle, a mid-term can be getting married, buying a home, taking a break from career, travelling, etc. and long-term can be securing the family’s future in case of death, retirement, etc.
Align your priorities
The next step once your goals are identified is to set them in priorities so that you can invest in the right tools for each stage of life. This will help you to give an idea of tentative money requirements at each stage of your life. While you certainly can’t plan for everything in life, the most important priority is to have a contingency plan for your loved ones in case something happens to you.
Having a life insurance product is a must to cope with such situations. An added benefit of buying young is that the premiums are lower.
Don’t put all your eggs in one basket. It can lead to huge losses if that financial instrument fails to deliver in the long term. When one invests for the long term, the period is typically 30 years or longer. During such a timeline, economies and financial markets undergo a noteworthy transition. Investing only in high-risk options is therefore not an ideal strategy. Diversifying your portfolio is the best way to reduce risk and increase healthy returns by parking your money in multiple financial instruments.
Back-up and flexibility to meet emergencies
Unforeseen circumstances such as job loss, medical emergencies etc. can knock at your door any given day and hence having an emergency fund is important.
The bottom line is that Generation Z is aware of their finances, but they need to take a moment to step back and not get a ‘FOMO’ mindset about their financial purchases. Unless the financial products you buy link to a specific goal, you are unlikely to persist with those purchases for a long term. Because multiplying money for the sake of money is never a goal in itself!
“I would advise opting for financial products that give you the flexibility to access funds during emergencies. Emergencies can land you in debt traps and if you let debt accrue parallelly to wealth, then your returns will not be what you planned for. For instance, our recently launched Flexi Savings Plan offers you the flexibility to determine when you would like to cash out the benefit payouts offered by the product,” said Seth.