Millennials are not just spending on their caramel macchiatos—they’re making their money work for them.
Millennials have always gotten a bad rap about their supposed indiscriminate spending and propagating the work-life balance philosophy so eschewed by their parents and elders, who believe in the value of going the extra mile and putting money away for the future.
But Rafael G. Ayuste Jr., senior vice president of BDO Unibank, and head of its Trust and Investments Group, says while millennials (those born between 1981 and 1996) may not be setting aside sizeable sums for their retirement just yet, they are a growing market for banks.
“The millennial age group accounts for 34% of our total retail client base with 11% of the total retail assets under management coming from them,” he says.
Since millennials are between 27 and 42 years old, they have the benefit of time on their hands. Equity and bond funds allow them to grow their capital and invest for their long-term goals, whether it is for their children’s college education or for their eventual retirement.”
Compared to baby boomers (born between 1946 and 1964) and those from Generation X (born between 1965 and 1980), millennials still don’t have as much disposable income, as they continue to grapple with stagnating incomes from their employment and the continued sharp rise in the prices of consumer goods and services.
“Older generations, such as those in the baby boomer generation, tend to have higher income and relatively lower expenses,” explains Ayuste. As such, “millennials on average invest only about one-fifth of what boomers invest. Gen X sits in the middle investing about half of what Boomers invest, but three times higher than the average investment of millennials,” he adds. Despite the wide disparity in the amounts, the average investment of BDO’s Millennial clients is not something to sniff at…it’s about P2 million each.
In truth, when I was at the age of what millennials are today, I was mostly invested in initial public offerings of companies, which I unloaded even before these came to market. Or in special deposit accounts (SDA) placements of banks with the Bangko Sentral ng Pilipinas, with interest rates as high as 8% on a monthly term. But there was a reason those SDA rates were high; the Philippine economy wasn’t doing so well that the BSP had to offer an investment outlet to sop up excess money in the system that was driving inflation rates sky high.
Those interest rates have since come down—the SDA has been replaced by term deposit facilities—as the economy has recovered and inflation appears to be on a downtrend. However, the Philippine stock market continues to remain weak as investors wait on the sidelines, hungry for any bit of encouraging news.
Analysts have said the war between Ukraine and Russia has created shortfalls in the supply of goods all over the world, hiked the cost of fuel, which have forced the hand of many central banks to raise their key rates sharply to control inflation.
So the trust departments of most banks offer a safer haven for millennials who want a dependable source of investment with less risk. “Millennials invest mainly to augment their income and make their money work harder for them,” according to Ayuste. “They see value in investing versus leaving it all in traditional savings accounts. Millennials with young families invest for the financial security of their family, including for the future educational needs of their children,” he explains.
With interest rates projected to remain high until the first half of 2024, placing funds in the money market make for a wise investment, at least in the short term, he says. Money market placements include time deposits, government debt paper like Treasury Bills, or a pool of funds invested money market placements.
“Since millennials are between 27 and 42 years old, they have the benefit of time on their hands,” says Ayuste. “Investing for the long term is highly recommended to maximize their investment opportunities. Equity and bond funds allow them to grow their capital and invest for their long-term goals, whether it is for their children’s college education or for their eventual retirement.”
For instance, if one invested in a bank’s Peso Money Market Fund five years ago, he would have already earned 10.51% on his placement by September 29, 2023. If he had invested in a Peso Bond Fund (retail) within the same time frame, he would have already earned 17.92% on their placement.
In comparison, an investment in the local stock market within the same period would have lost an investor 13.13% on their money. Even in the short term, from January 1 to September 29 this year, the yield on the Peso Money Market Fund was 2.8%, and the Peso Bond Fund 1.88%, versus a negative yield of 3.73% from an investment in the Philippine Stock Exchange index.
Ayuste also recommends millennials to “diversify their investments to manage their risks while maximizing opportunities. In addition to their Philippine investment holdings, they should also look into other currencies such as US dollars to fully maximize their investments to take advantage of growth in other parts of the world. Investment in other currencies such as Unit Investment Trust Funds (UITFs) can start as low as $500.”
UITFs are ready-made investments that allow the pooling of funds from different investors with similar investment objectives. The pooled funds are managed by professionals who carefully select financial instruments like money market securities, bonds, and equities.
This same diversification will allow investors to weather market downturns and enable their investment to work regardless of the state of the economy, especially with the current global outlook having turned dim. Also, “investing for the long- term helps smooth out short-term market volatility and maximize investment potential of your portfolio, thus helping you achieve your investment goals.”
So while Millennials may still be buying their tall, iced Caramel Macchiato with oat milk on their daily merienda break, or going on their thrice-a-year family vacations to Boracay or El Nido for that valuable work-life balance, they’ve earned it. They’ve more money to spend thanks to their wise investments in the money market.