Educating Indians on saving as culture of youth is changing

In the early days, when the current generation of youngsters were toddlers, pension was the norm and it was used to supplement the incomes of their parents on retirement. But, times have changed.

The concept of a secure employment where pensions played a large role, such as a government organisation or a public sector undertaking in the yesteryears, has shifted to employment where a person working today has to depend on the savings made from his salary. This has been the case in the public sector too. The main reason for this shift is the abundance of jobs. Slowly, the government will start outsourcing its functions and will act merely as a facilitator and not as an enforcer of administration. For instance, at a passport office, 80% of the verification is done by a third party organisation. Therefore, the government is not looking to hire constantly and this will diminish the security of jobs that prevailed earlier.

Now, people are not so seriously worried because their earnings today, is significantly higher than what their parents used to make. Therefore, the comfort they have in the early earnings period is higher than what their parents would have thought of in terms of buying a house at the age of 45, versus buying one at the age of 30. These earnings certainly lead to the concept of consumerism. So, while our parents were focused on the necessities of life in terms of asset creation, usage and application of funds, it is now directed at enjoying luxuries and higher living standards which has changed the concept of life. This view of consumerism has brought in the trend of being very lavish in their spending and not being able to save.

The pension is an elusive phenomenon notwithstanding the social security of Provident Fund which is not a significant portion of the earning to go by. That being the case, an employee has to decide to set aside a certain amount of money as a retirement future fund. This is mostly encouraged through savings, mutual funds, bank savings etc. Small savings have taken a backseat now. The government is not encouraging small savings and as a result, urbanites have fallen prey to consumerism. During the transition between jobs, the urbanites often struggle for want of a source of income. This is an ideal case for educating youngsters to save depending on their earnings, living conditions, and so on.
How do we bring this about?

Developed countries like the US, have systems which take care of emergency needs in case of healthcare or the unemployment period. While the intent of the current government is moving towards a similar stage including the concept of Universal Basic Income, target segment is below poverty line as of now. Given the population and the diversity of Indian economic conditions across all states, this is a long shot and is not expected at least in a decade to cover a significant portion of the population. The investments made through PF is being rightly positioned for retirement/pension only, and hence, an average income-earner cannot expect any money which can tide over the crisis in his early life even when he is religious in contribution to the PF/pension schemes of the government.

The recent amendments to the PF rules allowing withdrawal of PF money without much documentation, and adding that the aspect of unemployment period as a reason is a welcome move, but is still very early to comment whether the twin needs of healthcare and unemployment period spend can be taken care of for an individual. In addition, the growing consumerism and not just the urban phenomenon of nuclear families leave very less in the hands of the bread winner. Raising costs of housing and child education are another cause of concern for an average earner.

The change in lifestyle is also a contributor. For example, the life of a person from Tumakuru is different from that in Bengaluru compared with his life back in Tumakuru. An aspirational life story calls for more spend, and must also be kept in mind that to maintain the same quality he has to save for the same.

The concept is not recognised by youngsters until they are faced with financial difficulties. Once you set a standard of living, it has to be maintained. Choose a moderate lifestyle and moderate savings for it. Savings are not just for emergency needs, savings for significant expenditure like marriage, education, housing, moderate maintenance of lifestyle, crisis management and so on. Given these four paradigms, employees will have to save accordingly as once a standard is set, to maintain that requires saving.

(The writer is CEO of Ascent HR)