As the lockdown due to the COVID-19 pandemic gets extended, the economic impact is now being felt across the board. News stories of salary reductions and job cuts have started pouring in across industries that are most affected, such as airlines, hotels, tourism and even media. As traumatic as it is for those affected, for the roughly 22,000 employees of the erstwhile Jet Airways that folded in April 2019, it’s a sense of deja vu. Many among Jet’s employees were young and ambitious professionals earning well and leading comfortable lives. All that changed overnight. With just seven (other) scheduled airlines flying in India at the time and only Air India among them with a full-fledged international schedule, and only half-a-dozen regional airlines with scant routes, job opportunities were few and far between.
What made matters worse was that most of them didn’t have a financial plan.
Esha had just joined Jet Airways in early 2018, right after her finishing her finance course, in the customer services department. It was her first job. Coming from a family that had migrated to Mumbai from Himachal Pradesh, Esha lives with her parents and her younger sister whose college fees she pays. “I just wanted to buy a home in Mumbai. My parents couldn’t afford it,” she says. But neither did she build an emergency corpus for herself to tide over financial uncertainties such as a job loss, nor did she have her own health insurance policy. Jet Airways, of course, provided health insurance to all its employees, like many other firms do.
Esha paid a heavy price, quite literally, for not having a health policy of her own. During her six-month probation after joining Jet Airways, her dad suffered a heart attack and underwent an angioplasty. Although Jet Airways’ employee insurance covered dependent parents as well, Esha and her family weren’t covered because she was still in probation. She paid Rs 3 lakh from her own pocket to cover her father’s hospitalisation costs.
Return on investments can come later, say planners. First, have an emergency corpus and a health insurance policy ready. “In case of job loss, your company-provided insurance cover can go away overnight. That’s not a very good situation to be in,” says Gaurav Mashruwala, a Mumbai-based financial planner. He says it’s also important to check with your human resources department about what sort of an insurance the company provides, who apart from you in your family are covered, who isn’t, whether pre-existing illnesses are covered or not.
Saving for contingencies
Meanwhile an emergency corpus takes care of your monthly expenses if there is a sudden job loss. Most financial planners recommend having a corpus equivalent to at least six months’ living expenses. It must be safely invested in an easy to tap instrument such as a liquid fund or even a bank recurring deposit. The problem is many of us aren’t even aware of what an emergency corpus is.
Natalie, a cabin crew member at Jet Airways, didn’t have one when Jet Airways collapsed. She had joined Jet Airways in 2014 and it was her first job. After Jet’s collapse, Natalie waited for about two months, after which she decided to move on when she was certain that things weren’t going to turn around. She was lucky to get a job at another airline, but she had to settle for a 30 percent pay cut. In the interim, she had to depend on her parents. Elsewhere, Esha had to take up tuitions to sustain herself as well as to continue paying the college fees for her younger sister.
“Your emergency corpus should consist of your regular monthly expenses: groceries and daily eating expenses, any equated monthly installments (EMI) on loans you still service, any other possible major expenses that could come up. Keep room for some entertainment expenses as well; you don’t want to feel bad during this time that because of a job loss you couldn’t do the things you otherwise did,” says Lovaii Navlakhi, a financial planner.
Mrin Agarwal, Founder, Finsafe India has an important observation: “You need to stop thinking that this (job loss) won’t happen to you. I don’t think anybody is indispensable. Youngsters need to be prepared for the worse, at least financially.”
“When things are fine, we develop this confirmation bias. Nothing can go wrong, we feel. Top management personnel will always present a rosy picture; they’ll say things are great and we will all tide over the crisis. But these are forces beyond our control and we need to be prepared. That’s the biggest lesson we can learn from this pandemic,” says Varun Girilal, Co-founder and executive director, Mitraz Investment Advisors.
Reining in expenditure
Keeping your expenses in check is another advice most financial planners give. Natalie’s frequent shopping and habit of eating out with friends had to stop after the events at Jet.
According to a February 2018 report prepared by Deloitte, the Indian millennial spends 29 percent of his/her salary on monthly necessities, 12.4 percent on grooming, 10.7 percent on discretionary and lifestyle expenses. He/she saves just 11.2 per cent. From their incremental income, millennials would first spend on entertainment and eating out (32.7 percent), apparel and accessories (21.4 percent), mobile and computer (11.2 percent) before carving out for their savings (10.5 percent).
Financial planning is rarely at the top of millennials’ agenda.
Gaurav reached out to Jet Airways’ stranded employees through his clients and friends who knew some of them, to offer free financial counselling. Apparently, none got back!
Considering the impact that COVID-19 will have on the economy and businesses, including on start-ups (that have a large and young workforce), Varun has an ominous warning. “There are job cuts and salary cuts (15-70 percent) coming because of COVID-19, especially in some of these Venture Capital funded hyper-growth companies. We have to get into cash conservation mode,” he says.
A bit of planning can help you on a rainy day though.
When Ankit, 44, a senior Jet Airways customer service executive finally decided to move on after Vinay Dube, the last Jet Airways’ chief executive, resigned in mid-May, he wasn’t stranded as such. Armed with a three-month emergency corpus, Ankit used his time to search for a job. In bad times though, even a lot of work experience may not help. Ankit got a job offer at a rival airline with a 30 percent pay cut. He refused and joined a financial firm instead. “Although my wife, kid and I have a family floater insurance policy of our own, my mother was dependent on Jet’s insurance cover. But Jet Airways then helped me port the plan to me at a personal level; the insurance plan continues and now I pay the premium,” he says.
The writing is on the wall. What happened at Jet Airways a year ago may very well happen in many other companies across India this year.
A job loss can be devastating. But if our finances are in order, at least it allows us mental peace to make the most of the lean phase till we find ourselves an alternative.(Names of Jet Airways’ employees have been changed)