The Millennial Approach - REALlife Magazine

Article below as it appeared on pg 82 of REALlife Spring 2018

The poor millennial generation: they get a bad name.  They are the ‘selfie generation’ – lazy, entitled and selfish are just some of the words used to describe them.  By 2025, they will represent 75% of the US workforce, so whatever the older generations think of them, they are going to be a force to be reckoned with.  The millennial attitude to money, savings and investments, is going to shape the future of many financial services companies and perhaps the stock market itself.

But maybe millennials are unfairly receiving a bad rap.  Their attitude to money is often surprising – and inspiring.  They place great emphasis on purpose and mission, they are much more interested in spending money on experiences than on acquiring ‘things’, they realise that it’s relationships not money that makes them happy and they are disciplined, diligent savers focused on the long-term.

There are plenty of professionals in their late twenties and early-thirties who have saved up very large sums of money.  Financial freedom really means something to them – they don’t want to wait until they retire to live their dream.

The research and data on this cohort’s attitude to money is revealing.  A 2017 study by Nerd Wallet found that 38% of employed millennial parents contribute more than 15% of their annual income to retirement funds, compared with 24% of Gen X and 23% of Boomers.

A Bank of America survey reported than one in six millennials had at least $100k in total savings, which suggests a strong sense of financial responsibility at a fairly young age.  Another study that surveyed over 1,000 affluent Americans revealed that almost 40% of respondents between the ages of 18 and 34 said they save upwards of half their paychecks.

These are amazing statistics that would make many Gen X’ers and Baby Boomers envious.  The explanation may be that millennials have watched their parents rely on pension funds and housing wealth, they have witnessed a general lack of preparation for retirement and they are concerned that they may have to support their parents later in life.  This would give millennials a totally different mindset around money.  Baby boomers ‘had it easy’. For millennials, accumulating wealth is not going to be so straightforward - and they know it.

Although they might be the most frugal generation since the Great Depression, millennials have only recently become interested in the stock market.  Many came of age right around the financial crisis.  Watching the market fall a cool 50% in your formative years shapes your view of the stock market for life.

According to a WellsFargo report 70% of respondents were skeptical of ‘stock market experts’ following the crash.  As a result, many millennials have missed out on the four-fold increase in the markets since the bottom of the financial crisis.

Baby Boomers, on the other hand, experienced the greatest bull market of all time in the 80's and 90's. During that period they saw the S&P 500 go from around 100 to 1500.  There were a few crashes along the way (1987, 1990-91, 1998), but they were short and the market recovered quickly.  The boomers know the mantra ‘stay the course’ but the millennials haven’t had a chance to learn that yet.

However, the millennials have a lot on their side.  Due to the explosion of ETFs (exchange traded funds), investing today is cheaper and easier than it has ever been.  Millennials are the first generation to be able to easily invest in line with their values - something that is important to them.  Socially responsible investing is more accessible today than it was a decade ago and you don’t have to sacrifice returns in order to include environmental, social and governance factors.

But most importantly, millennials have time!  They have decades ahead of them in which to watch the power of compounding work its magic.

The key challenge for millennials is going to be navigating the endless investment options and finding a way to ignore the constant ‘noise’ from the internet (and well-meaning older generations).  Education around personal finance has not improved and millennials, perhaps more than any other generation, need to understand that over the long-term, cash is risky and stocks are safe.

The millennial generation gives us cause to feel optimistic about the future.  They genuinely care about the greater good, they want to leave the world a better place and they have a huge amount of economic power.  If they have financial security they will have the freedom not just to dream, but to take action to change the world.