How youth can cope with their finances

Our twenty-somethings may have a tough time ahead. There are a few things they can do right, though.

The Economist newspaper ran a rather scathing piece dated May 11, 2013 on how Indian youth were faced with tough challenges ahead. The story stated that the country has not yet harnessed the power of its youth or progressed towards building an environment conducive to their growth and employment. Economic reforms, which generate jobs and build gainful employment for the millions of youth who are entering the workforce, have not been forthcoming. To top it all, the youth lack employable skills that arise from education and basic training. This places an additional burden on them.

In numerous ways, the younger ones are faced with hurdles of economic ills that weren't part and parcel of our parents’ or grandparents’ lives. For those about to embark on a career, a life and a family, matters have decidedly gotten tougher over the last decade. Housing was cheaper in our parents’ days. With a lower income one could purchase a house. The cost of food was lower. Now, the youth are faced with the prospect of lower incomes but higher living costs.

But are they getting a raw deal? If so, what can be done about it? A look back in time shows that jobs, especially in growing economies such as India, were always scarce. Our parents and grandparents found it tough to find high-paying jobs. In European countries, youth unemployment is now quite high – at around 35 per cent. So there's no real cause for alarm.

One key for the twenty-somethings lies in acquiring the right skill-sets. Every era has the sort of jobs and employment that are in demand and that can pay well. While it was mechanical engineering about two decades ago, it was software programming a decade ago. Likewise, app developers have now moved to the front. The key lies in acquiring skills in areas that have a bright future.

Another important factor to consider: acquire skills at a very low cost or try to keep your costs low. Unless, your future job prospect is sure to pay you a fat cheque, keep costs down. Thousands of students have taken huge loans and have landed jobs that do not even cover their monthly loan installments, let alone buy food or accessories. Student loans allow you to postpone repayment once you embark on a career. However, because you postpone your payments, the interest that you have to pay accumulates and your future monthly costs go higher.

But what about housing? House prices have soared five-fold in the last six years, while incomes have not expanded as fast. Low financing costs have driven the price of housing upward. That means that, for most, housing is still a dream. However, youngsters should focus on saving a little more for their dream home. House prices will, at some point or another, become affordable, in comparison with incomes. House prices should be around 3 to 4 times one’s annual income. If it's within that range, go ahead and buy. But if not, look for ways to raise your income.

On the good side, youth have access to far better systems and tools to manage their careers and money. Much information is available on the Net and modern applications put these at your finger tips. Our fathers and grandfathers didn't have all these so they struggled with productivity, while our youth can manage many of their affairs in a jiffy.

Productivity of our youth can improve tremendously. All in all, The  Economist  may have pointed out how bad things are at a macro-level, but at your (micro)-level, the future offers tremendous opportunities to grow and build wealth and careers.