March 18, 2021
The first wave of millennials is turning 40. While this group has tended to skew toward being financially risk-averse1 because of experiences with the global financial crisis and crushing student debt, this milestone birthday may present a good opportunity to reignite conversations with your millennial clients. As they age, these millennials may be taking another look at their financial future – including retirement – and reassessing their penchant for risk.
Rocky relationships with finance
Millennials may have had a shaky start to their relationship with finances. Many graduated during the recession following the 2008 onset of the global financial crisis. Along with receiving their diplomas, they were met with a struggling economy and massive student debt, which made finding meaningful employment and building equity a challenge. In recent years, just as their financial outlook seemed finally starting to improve, COVID-19 struck.
These kinds of experiences have led to survey results like Legg Mason’s, which found 85% of millennials consider themselves conservative in risk tolerance. This 2019 survey also showed that only 15% of millennial portfolios on average were invested in equities, compared with 24% for baby boomers. But recently, in spite of the pandemic, data have shown that some millennials’ attitudes may be changing. An August 2020 E*TRADE Financial StreetWise survey, for example, found that 34% of those under age 34 were moving out of cash and into new positions, and 51% were trading equities more frequently since the pandemic started.
This kind of shift may mean millennials are developing increasingly open minds as they move further away from the global financial crisis. Or it may reflect varying experiences in the current economic recovery, or the fact that some millennials are taking a bigger-picture view as they face the long-term prospect of retirement. Advisors should be open to these changing attitudes, and keep in mind that some characteristics generally promoted about millennials may be more stereotype than truth.
Culture can be complicated
Popular culture may have created a narrative of some sweeping generalizations about millennials, including portrayals that they can be somewhat frivolous in their finances and mega-spenders. Contrary to the myths, millennials have exhibited many positive money-spending habits. A 2019 study from The Ascent found that millennials have the lowest amount of credit card debt among all generations. Only 56.7% of millennials carry a credit card balance, compared with 65.6% of baby boomers.2 And according to the 2020 Bank of America Millennial Report, 90% of millennials are willing to make sacrifices to meet financial goals.
Looking for financial help
This generation – the same one criticized as self-absorbed and attached to their mobile phones – may be more inclined to recognize they need financial help than was previously thought by many who dismissed them as being uninterested in building wealth. Instead, a 2017 Natixis Investment Managers survey of global investors found that 45% of millennials had significant investable assets ($100,000 to $400,000, excluding home values).
As millennials are nearing 40, raising kids, and buying homes, they also may be moving more readily to accepting help with their financial and investment plans. And they may be more trusting of people than you think. Contrary to the myth that millennials prefer only digital services or would look to their peers for recommendations, in the Natixis survey, 86% of millennials said they trust financial professionals as much as themselves in the investment decision-making process.
One size does not fit all
As a group that is far from homogenous, millennials recognize that one size does not fit all in investing and finance – which may be a good way for advisors to approach them. Many of the assumptions previously assigned to millennials are merely myths, but the experiences of this generation can still shape their thinking. Here are some key points to consider in discussions with millennial clients:
- Understand that millennials’ risk tolerance may continue to be relatively low for their age. Remind them of their long time horizon, but also be sensitive to their mindset. That can better establish you as a trusted advisor, and let you help them set and work toward financial goals.
- As you discuss employment and other financial issues, you may think a client is ready for the next “logical” life step. Don’t be surprised if their plans are different. Starting a business, uprooting to move out of state, taking a year off to travel, or even switching careers might be the next step in their journey. Your relationship with millennials will most likely look very different from your relationship with their baby-boomer parents.
- Millennials may surprise you by being more financially savvy than you expect. At the same time, some of their misperceptions may be opportunities to communicate the value of active management. For instance, the Natixis survey showed that millennials understand some of the value proposition of index investments (such as market returns), but also see nonexistent advantages (for example, 65% think index funds are less risky). You can solidify your relationship with well-placed financial education.
As an advisor, understanding the complicated mindset millennials have with financial planning, while also recognizing the current market landscape is vital. Earning their trust and understanding is the first step toward making an impact.
1 Source: Legg Mason Global Investment Survey, 2019, and Natixis Investment Managers’ Core Data Research, 2017.
2 Source: The Ascent, a Motley Fool service.