By: Laura Hanichak Gregg
Director of Client Development
FlexShares Exchange Traded Funds
Huge opportunities for growth and profits are overlooked because too many individuals and firms believe the myth that millennials aren't interested in investing and don't have money to invest. To tap into this potential market, it's important to unpack this myth by looking at facts. A 2018 Federal Reserve study, The Demographics of Wealth, indicates that the financial crisis of the prior decade impacted millennials harder than older generations.
However, the study's authors hypothesize that “the income and wealth trajectories of this generation will be steeper than those of earlier generations, allowing many families to achieve their wealth goals in the end." In essence, the analysts believe that while the economic situation may be a bit austere for millennials now, this group has time and education on their side.
Additionally, millennials may expect to work longer than their parents, but they dream of retiring early. Millennials may be looking to leave the workforce as early as age 61, compared to 65 or older for at least half of Baby Boomers. Increasingly, millennials are turning to trends such as the FIRE movement, which stresses frugal living now to amass more wealth for spending during the retirement years. Understanding such trends positions advisors to address and relate to millennial investors' concerns effectively, creating trusting and mutually beneficial advisor-client relationships.
The millennial generation first began to make adult money decisions, such as college costs and first salaries, in the aftermath of a global recession. Would-be investors today may still be grappling with the consequences of prior decisions, such as burdensome debt. It is no surprise that millennials may struggle with investing and portfolio management.
That doesn't mean they're not investing, though. A Harris Poll found that 92% of respondents ages 21-37 have accumulated some assets. Yet they remain an untapped demographic. Only about a third of respondents invest outside of an employee sponsored retirement plan, compared with about 50% for GenX and Baby Boomers. Millennial trepidation with respect to financial markets presents a chance for advisors to do what they do best: offer patient, customized guidance.
Millennials prefer to be shown, not told, how to manage their portfolio, so developing an advisor-client partnership is key. 65% of millennial respondents want to use tech-driven approaches such as gamification to learn more about investing, and keep them more engaged with their portfolio. When they have questions, 63% of millennial participants said they wanted a mobile platform that connects directly to advisors.
Pew Research data reveals another unprecedented opportunity within the millennial customer base. The current workforce participation rate for young millennial women is 71%, compared to only about 66% of young female Baby Boomers at the same age range. Also, “among millennials ages 21 to 36 in 2017, women are 7 percentage points more likely than men to have finished at least a bachelor's degree (36% vs. 29%)". Despite this generational progress, these young investors still face challenges that could impact their earning power, such as wage inequalities and career interruptions for child rearing. Financial advisors can add value by helping customers in this market segment create bespoke, mitigating portfolio strategies.
Catering to the special desires of millennials can be very lucrative and is increasingly becoming a mandate for business. The largest inter-generational transfer of wealth is set to pass $30 trillion in assets to this group. Staff your financial advisor firm with members of this demographic to boost understanding of these customers' approach to money.