Tapping into younger generations’ mindset to help meet their financial goals.
You probably already have a good sense of the financial planning priorities of your (baby) boomer and generation X clients. They’re the mainstay of many of today’s advisory practices. But what about the younger cohorts: millennials (born between 1981 and 1996) and members of generation Z (born between 1997 and 2012)?
According to some studies, they’re more open to receiving financial advice than you might think, and they can absolutely benefit from it. With an advisor’s guidance, they have an opportunity to establish good habits that can help them achieve their most important financial objectives. As with all clients, the key is to listen closely, so you fully understand what they want and can help them plan for it.
Engaged in financial matters
A recent study1 found that nearly six in 10 (59 per cent) of the very youngest Canadian adults (18 to 24) are “very or extremely” engaged in their finances – challenging the assumptions of their parents (and many advisors). In fact, 32 per cent of these young adults are already setting aside money to buy a home. Even more surprising, 19 per cent have started saving for their retirement.
Importantly, high numbers of those who say they are engaged in their finances had confidence in their ability to save (83 per cent) and invest (60 per cent). Many of these engaged young men and women also said they felt financially responsible (82 per cent).
Looking for advice and financial stability
The same study found that this group is looking for guidance. In fact, 44 per cent of those 18- to 24-year-olds seek financial advice from their bank or a financial advisor – putting those professional resources on par with their parents (45 per cent). Perhaps less reliably, they’re also seeking financial information in online articles (26 per cent), from other family members (26 per cent) and friends (27 per cent), and on social media (25 per cent).
Among all survey respondents, there was broad agreement (83 per cent) that financial stability is key to their overall happiness – but 67 per cent often feel stressed about their finances and 58 per cent worry about having too much debt. This finding identifies areas where advisors can highlight their value when offering to work with young clients.
Accumulating assets at a fast pace
U.S. millennials and gen Z reported the fastest wealth gain of any generation in 2021, with their collective financial assets up 24 per cent.2 Part of that increase is likely fuelled by the start of a massive transfer of wealth from their parents, including assets from boomers. One Canadian forecast estimates that boomers, gen X, millennials and gen Z will receive approximately $150 billion in inheritances by 2026,3 making each demographic a viable focus of an advisor’s ongoing attention and support.
That said, recent experience has made younger people very cost sensitive. A study that looked specifically at spending on insurance4 found that 65 per cent of gen Z Americans have already explored, or plan to explore, strategies to save on existing policy premiums. This may leave them more vulnerable to various risks but goes along with their efforts to save by fewer visits to restaurants, driving less and choosing less expensive items when shopping.
Saving priorities include the shorter term
An American study of boomer, gen X, millennial and gen Z workers5 confirmed that a significant number of young people (48 per cent of millennials and 35 per cent of gen Z) include saving for retirement among their financial priorities. In fact, almost as many millennials and gen Z are saving for retirement outside workplace retirement plans as gen X and boomers.
However, as suggested above, they are also concerned about paying off debt (60 per cent of millennials and 54 per cent of gen Z). This concern is important for advisors to target because many people in these groups feel that debt repayment is interfering with their efforts to save for retirement.
Meanwhile, a sizable number also sensibly want to build their emergency savings. But they haven’t accumulated much yet (a median of US$3,000 among millennials and US$2,000 among gen Z), so this is another place where advisors can step in to encourage and motivate.
Retirement expectations vary
Retirement dreams have been evolving for some time, but generational differences are at work, too. The same U.S. cross-generational study found that 44 per cent of millennials and 41 per cent of gen Z plan to stay employed or perform occasional work for pay on some level after they retire – whether that means starting a business, launching an encore career or remaining in their current field. These numbers are much higher than among boomers (21 per cent) and gen X (31 per cent).
Advisors are ideally positioned to help their younger clients bring their vision for retirement into sharper focus – with the understanding that some millennials and gen Z don’t ever plan to leave the workforce. They can also help discourage the temptation to withdraw retirement savings early and work with clients to find the right balance between short-term needs and long-term goals.
Younger investors can benefit from a professional perspective
Among Canadians aged 18 to 34:6
- 23 per cent do not see the point of saving or investing in this economic environment
- 32 per cent worry they will never be able to pay off their debt
- 66 per cent worry they will not be able to leave a financial legacy for their children
- 30 per cent believe they will need to rely on their children for financial support as they age
Many young Canadians need a clearer path forward towards their investing, insurance, retirement and estate-planning goals –and that’s something advisors are best qualified to help them map out.
Offer human insight to balance digital research
Millennials and gen Zs are often assumed to be more interested in robo-advisors than human advisors – and there’s no question they’ve been attracted by the technology and the low account minimums and fees that can go with it.
However, there are also signs that all generations trust advisors over any other advice source, including robo-advisors, when it comes to investing and managing their money. In one study,7 48 per cent of American investors said they trust human financial advisors, while only 11 per cent said they trust robo-advisors.
So, never assume these digital natives, who have never known a world without the internet, aren’t eager for human insight that helps them understand, interpret and fact-check what they’ve learned through their own digital research.