Millennials urged to build their financial futures on solid foundations

02 July 2020 Gareth Stokes

Young professionals emerging from the coronavirus pandemic should view the crisis as an opportunity to improve their life / work balance and reset their financial plans. A 23 June 2020 media roundtable discussion titled ‘COVID-19: Impact on the financial goals of millennials’, hosted by radio personality, Leanne Manas, set out to address the financial concerns of an increasingly important sub-set of the South African population. Millennials, who make up around 14 million of the country’s 57 million citizens, are among the hardest hit by job losses and cuts in benefits and salary consequent to coronavirus and lockdown.

Momentum invited educational psychologist and life coach, Dr Tshepiso Matentjie, to consider the impact of pandemic on millennials. Her starting observation was that young professionals should acknowledge the multiple challenges they face. “If you do not know what your current reality is, then it will limit your ability to deal with the stresses and challenges in a more effective way, and it will retard your progress in keeping up your momentum,” she said. Millennials were encouraged to understand what was causing their distress and to recognise and prioritise the most important among these factors. Once this is done, they can set about reformulating their financial goals. 

Basic building blocks

Andiswa Gqwaru, client success lead at Velocity Club by Momentum, was on hand to offer advice about rebuilding shattered financial aspirations. “The impact of pandemic has been more strenuous on millennials than other generations,” she said. Individuals in this consumer segment were not only affected by reductions in income due to pay cuts, reduced working hours, and retrenchment; but also had fewer assets and higher levels of debt than those in preceding generations. Gqwaru set out explaining how millennials could best achieve their financial objectives under four headings: A strong foundation, the right materials, reducing the structural load, and avoiding basic mistakes. 

A strong foundation is essential to prevent a crisis from derailing your financial plan. Gqwaru suggested that young professionals focus on protecting their assets, reducing ‘bad’ debt, and bolstering savings as core components of this foundation level. Asset protection is achieved by purchasing insurance against damage or loss to items such as homes, household contents, and motor vehicles. “One of the considerations when taking out insurance for an asset is whether or not you have the cash to replace it following a loss event,” she said. Young professionals were encouraged to save 20% of their gross income, with 15% of this directed towards formal retirement funding and the balance to build up a ‘peace of mind’ fund for emergencies. 

Striving for zero bad debt

A recent survey conducted by Momentum showed that millennials were struggling to pay off their credit cards and personal loans. These are considered ‘bad’ debts because they typically carry high interest rate charges and encourage spending on non-essentials. “A strong financial foundation hinges on keeping ‘bad’ debt under control,” said Gqwaru. She encouraged millennials to budget carefully to prevent overstressing the financial foundation they had just put in place: Your budget should be 65% towards necessities; 15% to the ‘nice-to-haves’; and 20% to savings; structuring it in this way makes it easier to adjust to sudden shocks to your income. 

There is a long list of mistakes that those starting out on their financial journey should avoid, including the accumulation of unnecessary debt; ill-considered cancellation of insurance policies; and being lured into ‘get rich quick’ schemes. Gqwaru recommended that young professionals consider renegotiating the terms of their insurance rather than simply cancelling the cover. She also warned millennials against the countless pyramid schemes that emerged during times of economic crisis. Your best advice is to treat any financial instrument that offers unrealistic returns with disdain; steer clear, or you will come to regret it. 

Gqwaru’s parting word of advice to millennials was that doing nothing about their financial plan was just as bad as doing the wrong thing. “You should review your budget, restate your goals, and adjust your game plan,” she said. And you should not be afraid to realign your goals with your new reality. For example, the goal of purchasing a new car, set during the last quarter of 2019, may not be as much of a priority as it was before. 

Keeping emotional perspective

The ability to build resilience is a lifelong skill that enables individuals to deal with change, challenges, and strife in all facets of their lives, including their finances. Dr Matentjie observed that mindfulness, relationship currency, and wellness and self-care were essential components of a life / work balance. “Mindfulness is about increasing your ability to focus on your present moment, whatever that moment might be, and to recognise, acknowledge, and accept your feelings and thoughts,” she said. Individuals who understand where they stand emotionally are better able to identify and address any misalignments. Millennials were encouraged to consider coaching and mentorship or networking to help them cultivate new habits and overcome existing limitations! 

Individuals in the millennial or Generation Z groupings must adopt the “I am my greatest asset” mantra. “You are your greatest asset and you must know how to take care of yourself,” concluded Dr Matentjie. “You must consider your quality of life and think about how to achieve a better life / work balance”. And always remember: It is okay to say: “I am overwhelmed, I need help, I need a coach or mentor”. 

Writer’s thoughts:
One of the shortcomings in the current financial advice model is that more time and effort is expended at and during retirement, rather than in guiding individuals during their early working years. Are IFAs missing a trick? And do you think financial advice practices are doing enough to offer financial coaching and mentorship to young professionals and those who are just starting out in their careers? Please comment below, interact with us on Twitter at @fanews_online or email me us your thoughts [email protected].


Added by Gareth Stokes, 08 Jul 2020
An early introduction of financial coaching is a great idea, Carol. I also agree that the way we ‘live’ is changing, making it more important than ever to strike a work / life / finance balance. We should move away from compartmentalising retirement as an event that happens when we turn 60 or 65; and focus on living life within a financial overlay, that is ever present.
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Added by Gareth Stokes, 08 Jul 2020
Thank you for your comments "Old Timer". You raise an interesting point with regards current youth attitudes towards long term saving... Their apathy may well have existed in previous generations. Practical financial education with an emphasis on 'time in the market' and compounding would probably work best. But how do we get the message to sink in?
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Added by old timer, 02 Jul 2020
Personally I see a detachment from reality with the younger generation. An ideal cyber world where you are entitled to hedonistic pursuits. Retirement and life cover are for old people and why invest for the future when you are only young once and want a good time now?
Maybe we were all the same when we were young. I don't see psychological or financial coaching being taken seriously or making much difference. A step towards preventing teenage pregnancies would be a more practical solution.
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Added by Carol Lenzi, 02 Jul 2020
So true regarding the focus on retirement, Gareth. You can 'retire' at 40, if you wanted to, and what is 'retirement' nowadays? I prefer to use the words 'living life on your terms' rather than the word retirement, and this can be done at any stage of life. One should try live a fulfilled life during life, and not wait until one is 60 or 65 to now live. I am seeing pockets of professionals coming through who value financial coaching from the word GO. I have a great passion for this myself.
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