What should a Gen Y financial priority be? 

That would depend on what the individual wants…what his/her goals in life are. If he/she would like to settle down and have a family eventually, they should look into saving enough to come up with the downpayment to own their first home. However, if the individual prefers to remain single, they can look into starting a retirement plan.

Although majority in their 20s will not be thinking about saving for retirement, it is still good to start young as the power of compound interest works in their favour. A 20 year old can attain RM 1.4 million by just starting an investment of RM 1,000 and saving RM 400 monthly by the time he/she reaches 60 years of age. (assuming an 8% rate of return). His/her investment costs will only be (RM 400 x 12 months x 40 years) + RM 1,000 = RM 193,000!

One way to loosen up their cash flow and start saving is to consider getting around by Grabshare or Uber, instead of owning a car, if they are single and have not started a family. You will be surprised how much we spend on our car if we list down all the costs. There’s the yearly car insurance (RM 2,000)  road tax (RM 90), car maintenance (RM 1,500), petrol (Rm 500 x 12), toll (Rm 100 x 12), parking (Rm 200 x 12) , repairs (Rm 1000) and the car instalment payments. (RM 800 x 12). These estimated costs are based on a person owning a 1.5cc car, living in a urban area.

Life insurance would be essential for those who have already started a family. However for those in their early 20s, unmarried with no kids, insurance is low priority.

What can they invest in, with a limited amount of capital?

They can start off by investing in the Private Retirement Scheme (PRS) which is a voluntary long term investment scheme regulated by the Securities Commission. Pursuant to the Budget 2017, government is giving an incentive of RM1,000 (to youths age between 20 and 30 only) if they invest a minimum of RM1,000 into the PRS.

So why not? Grab this opportunity! It’s practically getting a 100% gain immediately.

To read more about the PRS, click here.

(Some approved funds allow the youths to start with as low as RM100, but the RM1,000 incentive will only be credited in to their account once their contribution reaches RM 1,000 before year 2018)

This scheme does not allow one to withdraw their savings before attaining 55 years of age, as doing so would defeat the purpose of a planning for retirement.

Furthermore, the PRS can give them up to RM 3,000 tax relief if they have already started paying taxes.

Would an investment-linked insurance product be beneficial for them at this stage?

Investment-linked insurance is basically a 2 in 1 package, ie. insurance protection coupled with an investment plan. I prefer individuals to do their own package ie. purchase protection (term life insurance)  and invest in stocks or unit trusts separately as it allows more flexibility in payments.

Unit Trusts
If an individual invests in unit trusts regularly on a monthly basis, there is no risk to the individual if they default on their payment. Should there be a time when cash flow is tight, they may skip a payment or two without risk of their cash value being lost. 

Term Life Insurance
Buying term life insurance is more value for money, as their premiums are cheaper, and the coverage/sum assured is higher.

For those individuals who have already started a family, it is important that the bread winner buys a term life insurance policy (to protect himself/herself if death occurs and they have financial dependants)  and start a savings investment plan (to start up an education fund for their kids).

Being young and full of energy, should they take on more jobs or seek more avenue to build their income so that they can invest more?

I would definitely encourage that! What better time is there than the budding 20s, (when they have the time and not much financial obligations) to not only build their income but to also gain more knowledge, skills and experience? 

With that extra income that they have earned and invested, they can leverage on their youth to get their money working through the power of compound interest.

Do you know that if a youth invests just RM 50,000 lump sum, their money can grow to RM 1,086,226* in 40 years, and if they add on just RM 400 monthly to that investment for 480 months (40 years) it can reach to RM 2,619,381* when they are in their 60s. They can use this fund to create a consistent passive income for themselves during retirement. 

However, if a person has already reached their 30s and starts then, their Rm 50,000 future value would only reach RM 503,132* in 30 years, and if they add on RM 400 monthly to that investment, their future value would only be RM 1,142,930* in 30 years. 

*based on an estimated return of 8% p.a.

That’s a loss of (RM 2,619,381 - RM 1,142,930 =) RM 1,476,451 just because one procrastinated by 10 years.

Once a person reaches their 30s and 40s, most would already be married and having kids. It would be challenging to earn extra income during this time as they will be juggling time with their...
career, 
spouse, 
kids, 
parents, 
in-laws, 
holidays
etc…..

However, having said that, one in their 20s need to remember to have a work-life balance too. Not recommended to push theirselves so much till they get burnt out. Everyone needs to look into, not just their financial well being but also their physical, mental, emotional and spiritual wellbeing.