One of the first concepts about finances that we usually receive when we are children is that we cannot spend all the money we have on sweets, but that it is necessary to save. A basic idea, but one that can help us develop a healthy attitude towards money as we age and life becomes more and more complex. Finance experts have no doubts that the ideal is to start saving as soon as possible, since time is the best fertilizer to make money grow.
However, in order to do so, it is necessary to have an income that allows us to do more than make ends meet with the water up to our necks. An image that, in these times, does not seem easy to achieve and less so for young people. However, even taking these circumstances into account, saving is still a magnificent habit that cannot be renounced. Quite the contrary.
Why is saving so important? How can young people save? What mistakes should be avoided? These are some of the issues addressed in the session “Saving cycle for young people” at Encuentros La Vanguardia, which was held on the Ciutadella Barcelona campus of the Universitat Pompeu Fabra (UPF) before an audience made up basically of young students.
Óscar Elvira, associate professor of economics and director of the Master's Degree in Finance and Banking at the UPF-Barcelona School of Management; Rafael Faus, Lecturer in Financial Management at IESE and financial planner; Eva Hernández, responsible for Sustainable Finance at the Institute of Financial Studies (IEF), and Alejandro de Mollinedo, responsible for Large Accounts at Bestinver, discussed the way in which young people, and also those who are not so young anymore, should approach saving and investment.
From the outset, it would seem that this generation has it especially difficult when thinking about financial stability. Experts relativize this situation. Breaking through has never been easy and the future is always, by definition, uncertain. For De Mollinedo, this uncertainty "makes it more important that young people, who have the most time ahead of them, plan, save and invest thinking about their own future."
Eva Hernández stressed that, although each generation has its challenges, "we are experiencing a true transformation as a society and that produces some fear." For the expert in sustainable finance "in 20 years we are going to live in a different world in which new professions and new challenges will arise, but also opportunities". Hernández considers that this is a time to save and invest, which in the case of young people also means allocating resources to their education.
Óscar Elvira emphasizes that today's young people are "the most educated generation in history", who certainly face a "quite hostile labor market". For the UPF professor, “the most significant thing is that they have many more opportunities in terms of mobility”. That can be an option that, in addition to broadening your horizons, can provide you with a real possibility of improvement "that you should not be closed to".
For his part, Rafael Faus, when comparing the situation of young people and that of previous generations, pointed out that it is clear that they are losing out on expectations about the public pension system. The IESE finance professor explained that "they will not receive the same as their parents and grandparents and they will have to compensate on their own."
The truth is that the data reveals that the idea that you have to provision what you can for the future, marked by an ever-increasing life expectancy, is not at all alien to millennials. De Mollinedo referred to the conclusions of the Savings Observatory that Bestinver develops every year together with IESE and which asks, among other questions, about the future of pensions. The executive revealed that "71% believe that the pensions will not be enough to live on and 23% believe that they will not have any type of public pension."
The antidote to face any uncertainty about the future is necessarily to encourage savings and investment, experts say. How to do it? Eva Hernández stressed that "we must have discipline and a strategy that must be in accordance with the vital objectives that we have." The expert in sustainable finance considers that young people today have a vision of life in which "their personal values and the things that really matter to them are considered more".
De Mollinedo is committed to "systematic and constant savings". The director of Bestinver lamented the erroneous tendency that leads us "to save in bad times when the ideal is to take advantage of the good times to increase savings and thus have resources for bad times." This expert warns about the mistaken idea that “the difference between what I earn minus what I spend is what I have left to save, when we must turn it around and think that what I earn minus what I want to save is the amount I have to spend. to spend".
Elvira introduced into the debate the role of taxes and inflation when planning both savings and investment, especially in a context "in which everything goes so fast that it is even difficult to prepare a class." In any case, the UPF professor is clear that the answer to the question when should I invest is “now”, and as for where, “well, an important part in equities”. By way of orientation, Elvira referred to "the rule of 100 minus the age of the investor can give us an orientation on the amount".
Faus also provided a practical view of the percentage of income that young people should allocate to savings. The financial planner considers that "those who live at home should be saving between 30% and 40%, while those who have become independent should save a minimum of 10%". The priority, in an initial phase, is "to create an emergency cushion to deal with unforeseen events". In this sense, the IESE professor assures that the minimum amount that must be available for possible contingencies is the equivalent of "six months of expenses for young people who become independent and three for those who remain in the family home."
Another point of convergence revolved around the fact of relativizing the importance of economic cycles when investing. Alejandro de Mollinedo assured that “great businesses arise in bad times just as great investments are also made”. Another issue is the need to make investment conditions as flexible as possible during difficult times. In this regard, he explained that "at Bestinver, to facilitate systematic savings, last year we reduced the minimum investment to 100 euros."
Hernández stressed the importance of “knowing where I am”, in addition to taking into account where we want to go. "With financial decisions we are often very unconscious because we act automatically without the necessary reflection and knowledge," he said. Along the same lines, “for the objectives to be challenging, they also have to be achievable and we must set a time period for it”.
To save and invest, Professor Elvira stated that "the most important thing is to learn self-control." In the opinion of the UPF professor “we all have a kid gene that makes us buy things we don't need” and that conditions our finances. "Many people don't understand it, but when you have savings you also have peace of mind and, therefore, in the face of an unforeseen event you are able to react better," he explained. "For that alone it is worth saving," concluded Óscar Elvira.
Psychology plays an important role in the saving process. Rafael Faus affirmed that “you save at the beginning of the month and not at the end”. Another tip from the financial planner is to forget about the credit card. For his part, Alejandro de Mollinedo referred to the mortgage receipt “as a good example of how you should save, since you don't look at the short term, but rather the long term”. As an example, he explained that “if we put 200 euros a month in a financial product that gives a 7% return and we start with 20 years at 40 we will have 110,000 euros”.
Eva Hernández stressed that the best investment "is to fulfill our dreams." For this IEF expert, "to achieve these goals a lot of discipline is necessary and saving is a way of learning that discipline". For Óscar Elvira "that self-discipline in favor of saving must be encouraged at home, because whoever starts saving first always has an advantage".
Rafael Faus is of the opinion that before starting to invest "it is necessary to learn about this process". De Mollinedo highlighted that one of the most important mistakes made by young people when investing is "following trends". The Bestinver manager also cited the danger of "not diversifying" and the need to "rely on experts." At the end of the day, "investing has to be something that is pleasant, that keeps us alert, but that does not prevent us from sleeping at night," he concluded.
For his part, Óscar Elvira highlighted that the three most common mistakes are “the herd effect, that is, not questioning where we invest because everyone does it; the second, not accepting that we have made a mistake and abandoning positions that do not make sense; and, finally, changing funds or assets without taking into account the tax repercussions”. Financial culture also plays a determining role. The four experts agree in pointing out that the situation in Spain has improved on this point, but that there is still a long way to go. De Mollinedo cited a recent survey that shows that "more than half of the participants did not know or could not properly identify the concept of diversification and compound interest."
The very relationship we have with money is important. Óscar Elvira assured that "we give it a lot of importance and when you think only about money you make very bad decisions." For his part, Rafael Faus advised: “Dedicate yourself to being with your people; make a plan to not just live for one day, and to live for four days.” And Eva Hernández joined that reflection, adding that we must "make sense because money gives us the power to do many things."
