Why do so many Millennials ignore Tax Savings?
Millennials are brilliant when it comes to using technology and handling their finances. Despite this, there is growing evidence that millennials are poor tax savers or, at the very least, poor tax planners who scramble at the last moment to invest in tax-saving instruments.
There are many reasons why this happens. Some of these are outlined below:
1. Increasing Lifestyle Inflation
Millennials live a much more consumer-driven and demanding life than any other generation of the past. Impulsive shopping, maintaining the status quo and living beyond their means often contributes to lifestyle inflation which is not commensurate with their earnings. As a result, they have lesser disposable income to invest. This is often disadvantageous when it comes to tax because if they could redirect some of their money towards tax savers, they would be able to have more money to meet their lifestyle expenses.
when it comes to investments and tax planning millennials are poor tax savers or, at the very least, poor tax planners who scramble at the last moment to invest in tax-saving instruments.
Additional read: The right steps to investments for Millennials and Gen Z
2. Growing Debt
Millennials have a lot more debt than their previous generations. This is mainly in the form of education loans and credit card bills. In pursuit of a better life, millennials find themselves allocating a majority of their earnings towards paying off their debt. This means other financial obligations such as tax planning are out of reach. It would be a good idea to limit debt and enhance income, tax saving instruments can support them in this mission. Better Investment Avenues
It's not that millennials are not aware of tax saving instruments. In fact, millennials are pretty financially informed. Therefore, unlike their older counterparts, they prefer to invest whatever they can in instruments that will generate wealth for them, such as stocks and mutual funds. As per a survey* 64% of Indian millennials invest in mutual funds while 28% invest in equities. While these do not give tax benefits, they definitely help with millennials' other priorities in terms of meeting their financial obligations.
How Can Millennials Be Better Tax-Savers?
In order to save more on taxes, millennials need to consciously invest in tax-saving strategies. In order to make an informed choice, it is necessary to be familiar with the options on the market. For instance, investing in health insurance can help with saving taxes and so can life insurance investments. These are available at nominal premiums. Not only are these great tax saving avenues, they also secure financial futures.
Interest paid on education loans are eligible for tax deductions.
For millennials looking to benefit from mutual fund investments, Equity Linked Savings Schemes may be a good tax saving option. For a lock-in period of three years, they are eligible for tax deductions of up to Rs. 1,50,000 under Section 80C of the Income Tax Act if they opt for the old tax regime. Moreover, contributions to ELSS can also be made through regular investments instead of a lumpsum.
Planning tax savings smartly and consciously can help millennials save tax without it pinching their pockets.
Additional read: Tax Saving options beyond Section 80C
The key to making smart tax savings investments is to be knowledgeable about the different options available. Millennials can get better at tax savings if they spend some time to understand how it can fit into their existing lifestyles.
- *Paytm report 64% millennials invest in mutual funds while 28% invest in equities (Source – The Hindu Business Line as of August 2, 2021)
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