International Youth Day, celebrated on 12 August, recognises the vital role of young people in society. Financial planning is another important area for young people, as the habits they build early can shape their long-term financial future.
Here’s what experts have to say about why the 20s can be an ideal time to start building wealth and the steps Gen Z can take this International Youth Day.
Siddharth Maurya, Managing Director, Vibhavangal Anukulkara Pvt Ltd, said the biggest advantage for people in their 20s is not a high income but time.
“Most early-career professionals have fewer financial obligations, so the investment amount at this stage doesn’t have to be very high for the investment to grow,” Maurya added.
Akshay Rao, Head – Product and Strategy, Tata Asset Management, also noted that “people in their 20s have an advantage when building financial independence, as they have both time and, in many cases, fewer financial responsibilities.”
“Investing early allows you to have a larger amount at the end, but the cost of waiting to invest can also be large,” Maurya said.
He illustrated this with an example showing the impact of an additional 10 years of compounding.
The difference is because the first investor’s money gets 10 additional years to grow.
Maurya recommended SIP step-ups to increase investments as earnings grow. A ₹10,000 monthly SIP could become ₹11,000 the next year and ₹12,100 the year after with a 10% annual increase.
Rao said those seeking financial independence should increase savings and investments as income rises rather than allowing higher earnings to be entirely absorbed by lifestyle upgrades. He added that the broader journey can involve building a corpus of around 25 times annual expenses over time.
Maurya said Gen Z should focus on developing an investing habit while controlling lifestyle inflation. As a broad guide, he suggested:
Rao noted that young investors can begin by building an emergency fund covering 6-12 months of essential expenses through relatively low-risk avenues such as savings accounts, fixed deposits or liquid mutual funds.
“At the same time, they should prioritise repayment of high-interest debt such as credit cards and education loans. Once this foundation is in place, starting SIPs in mutual funds, aligned with their risk appetite, can help develop consistency,” Rao added.
Maurya cautioned against chasing stocks, crypto and other high-risk investments promoted on social media. Such behaviour can turn long-term investing into speculation.
“Instead, young investors should build a diversified portfolio, let equity markets work over the long term and avoid trying to time the market,” he added.