Top 5 career & finance planning mistakes usually made by younger generation of India

Due to lack of financial education, young people of India make various mistakes which affect their financial health in the long run. In this article, five such mistakes have been mentioned. The article has discussed how to avoid these mistakes and develop a healthy financial life.

In the Indian education system up to university level, there is no scope of developing financial prudence. Indian students do not get the opportunity to know anything about investing. Throughout their academic life, they do not get the opportunity to differentiate between saving and investment. They do not get any opportunity to know about different types of investment vehicles. On the other hand, most of the students in India do not know anything about career opportunities. They do not know about the wide scope available to students of science stream, commerce stream or humanities stream. As a result most of the students try for engineering, medical, related fields or for various Government jobs. They are blissfully ignorant about varied career opportunities available in India. When the students cannot qualify in various competitive examinations, they are forced to look for alternative opportunities, but by that time they lose valuable two to three years.

In this article we will discuss the major mistakes committed by younger generation of India.

Mistake number #1: Not planning career path effectively

It is a bitter truth that in more than 90% schools of India, there is no concept of career counseling. Students do not know about varied opportunities and scope for different streams of study. Students do not know anything about inter-disciplinary subjects. As a result most of the students up to XIIth standard follow the guidance provided by their teachers, parents and relatives, who are themselves not fully conversant with various career opportunities available in modern India. So quite naturally, the students only try for engineering, medical, select para-medical, chartered-accountancy and Government jobs. They try their best to clear the entrance examinations or appear in various competitive examinations, where the scope is extremely limited. When the students cannot clear such competitive examinations, they explore various other options available. Unfortunately, they lose two to three (or even more) valuable years during their prime youth in this process. Many a time we can hear that many young people commit suicide or take the downhill path of illegal activities. It is very unfortunate. Every student as well as his/her guardians must be aware of various career opportunities from Xth standard onwards, and plan accordingly. Government must also explore the possibility of career counseling in every school. If this step is taken, it would be extremely helpful for younger generation of the country and the young people will be more useful and productive for the society.

Mistake number #2: Not knowing how to make budget

Generally when the young people start earning, they start purchasing fancy items. Nowadays, younger people have tremendous affinity towards electronic gadgets, two-wheelers and cars. Whenever these young people start earning, they start purchasing electronic gadgets like mobile phones, I-Pad, I-Pod, music system and various other costly items. Within a few months, they lose interest in these items and start planning to purchase subsequent models of these items. After working for some time, they start planning to purchase two-wheelers and then graduate to four-wheelers. Even if the two-wheelers or four-wheelers are not necessary for their daily commuting, they purchase these items, more often than not by taking loan and that too at a very high rate of interest. In this way they fall in a debt trap entirely of their own creation. Sometime they come out of this trap with the help of family members and friends and sometime they cannot come out of this debt trap. Ultimately, this debt trap affects their career also. The younger generation must resist the temptation of purchasing fancy items. They must learn to avoid so-called 'herd' mentality. They must assess their actual requirements and purchase accordingly. And more importantly, the young working people must make effort to purchase necessary items gradually and not at one go. For this purpose, they are required to make expenditure budget. A new employee must find out some time on holidays and note down his/her essential expenditure and make budget accordingly. Without budgeting, a person cannot save and purchase necessary items without taking loan. So budgeting is the most important aspect for purchasing essential items, for saving and for investing for future.

Mistake # 3: Not understanding the difference between savings and investments

This mistake generally emanates from not having proper financial education during student days. Many people in India still do not understand the difference between saving and investment. Not only young people, but many mature people also equate investment with monthly contributions to provident fund and putting money in savings bank account. Very recently, the bank account of an eminent journalist has been hacked and it has been found that Rs. seven crore is lying in the journalist's bank account. We can safely assume that even the senior journalist does not understand the difference between saving and investment, otherwise such huge amount would not be available in the journalist's savings account. All of us including the young people must understand that saving and investment are not same. We must keep some money in savings bank account or in liquid mutual fund which can take care of immediate requirements or in case of emergencies. However, to fulfill our long-term goals and comfortable post-retirement life in future, we have to put money in various investment vehicles depending upon our time horizon and risk-taking abilities.

Mistake #4: Not understanding time-horizon and risk-taking ability

It is highly unfortunate that most of the young people do not understand time-horizon and individual risk-taking ability. They follow one another blindly. They are engaged in needless competition. These bad habits harm their decision-making ability and they can't invest properly.

Every working man or woman must understand that his/her situation is different from the situation of others, even if their salary is similar. A person must consider his pay, age, liabilities, responsibilities, parental circumstances and various other factors to define his/her own time horizon and risk-taking abilities. A simple example in this regard is necessary for better understanding. Two employees in the same rank and pay aged 25 years and 28 years, respectively, have different time-horizon for marriage and starting a family. So, the investment vehicles chosen by them for this purpose should be different. Every young man/woman must understand his/her own time-horizon and risk-taking ability and take investment decisions accordingly. The 'herd' mentality must be avoided at all costs.

Mistake #5: Not investing in equities

Without proper financial education, young men/women have a tendency to avoid equities, because they thin equities aree inherently risky. Although directly investing in equities may not be everybody's cup of tea, it is really unfortunate that young people don't consider equity mutual funds for wealth creation. Everyone must understand that equity may be very volatile if we consider 1-day, 1-week or 1-month or even 1-year perspective, but the volatility comes down over a longer time-period. Not only that, equity mutual funds are extremely profitable over longer time-period and are essential for wealth-creation from 10 to 20 years perspective. Every young man/woman should start a long-term SIP in suitable equity fund(s) to meet long-term financial goals and for a comfortable life after retirement.

Concluding comments

So, every working young man/woman must try to avoid the mistakes stated above. A student must have some preliminary ideas about saving and investment. A young person should chose a profession according to individual inclination and interest, start expenditure budgeting immediately after joining service; start saving for emergencies and start investing for fulfilling long-term goals. For chosing appropriate investment vehicles, a person must understand his/her own time-horizon and risk-taking ability. Furthermore, diversifying investment into various types of investment vehicles would minimize the possibility of loss.

Article by Partha K.
“Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves.” - George Gordon Byron

Follow Partha K. or read 272 articles authored by Partha K.

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