Some studies suggest that Millennials aren’t saving enough and lack confidence making investment decisions, while others suggest Millennials are aggressive, knowledgeable and confident when it comes to investing. So what’s the deal?
It turns out that advisors may be taking the wrong approach in working with Millennials. In “Uncertain Futures: 7 Myths about Millennials and Investing,” the CFA Institute and the FINRA Foundation found that a majority of Millennials apparently lack confidence in financial decision-making and show little interest in robo-advisors. And despite coming of age in a digital world, they prefer to work face-to-face with a financial professional.
“Millennials are expected to inherit more than $40 trillion in the coming decades. By providing insights into investment preferences and concerns, this research can help financial professionals engage and better serve the needs of the next generation of investors,” notes Bjorn Forfang, deputy CEO of the CFA Institute. “Investment professionals who take time to demonstrate that client interests are paramount can expect to earn the trust of Millennial clients.”
To gain a better understanding of the generation’s attitudes and investment behaviors, the researchers examined three Millennial segments – those with no investment accounts, those with retirement accounts only and those with taxable investment accounts (most also owned retirement accounts) – and compared them with their Gen X and Baby Boomer counterparts.
Myth vs. Reality
Whether there is even an underlying “conventional wisdom” regarding Millennial investing habits is far from certain, but the report’s findings try to address a number of these so-called “myths.”
Myth 1: Millennials have lofty financial goals, such as starting a business or retiring at 40. Contrary to conventional wisdom, Millennial investors and non-investors expect to retire at the standard age of 65. Just 3% of Millennials with taxable accounts plan to retire before age 50. What’s more, non-investing Millennials have very modest financial goals and are focused on surviving month-to-month, the report notes. In contrast, the financial goals of Millennials with taxable accounts mirror those of Gen Xers and Baby Boomers, such as “saving enough to retire when I want and live comfortably.”
Myth 2: Income challenges and debt are key barriers to investing. While income and debt are major barriers, nearly 40% of Millennials without taxable investment accounts state that not having enough knowledge about investing is also a major barrier.
Another barrier to investing is lack of access to an employer-sponsored retirement plan. According to the findings, 56% of non-investing Millennials are not employed full-time, reducing access to a retirement plan, while another 16% are employed but their employer does not sponsor a retirement plan. Only 20% are employed and have access to an employer-sponsored plan with a contribution match, the report notes.
Myth 3: Millennials are overconfident in general, so they are probably overconfident about investing. Far from being overconfident, only 21% of non-investing Millennials and Millennials with only retirement accounts are “very or extremely confident” about making investment decisions. This figure increases to 47% for Millennials with taxable accounts.
Myth 4: Millennials are skeptical of the financial services industry and by extension, financial professionals. Millennials acknowledge and respect the expertise that financial professionals can provide, according to the report. Nearly three quarters (72%) of Millennials working with a financial professional are “very or extremely satisfied” with their financial professional. Only 15% of Millennials not working with a financial professional cite lack of trust as a reason. Instead, they mainly point to the “perceived cost” of working with a financial professional and “their insufficient funds.”
To build trust, the report emphasizes that Millennials say they want a financial professional “who will educate them, customize their approach to the client’s needs and demonstrate that they place the client’s interest above their own.”
Myth 5: Millennials overestimate the investable assets needed to work with financial professionals. In fact, Millennials underestimate the investable assets needed to work with a typical financial professional. According to the findings, 20% of Millennials believe there is no minimum amount needed to work with a financial professional. Nearly 6 in 10 believe a financial professional would work with them if they had $10,000 or less to invest. Moreover, the findings shows that 42% of Millennials do not know what financial professionals charge for their services. When asked to estimate, they guess high, with 77% of respondents believing financial professionals charge 5% or more of assets under management.
Myth 6: Millennials gravitate toward electronic communication and robo-advisors. Despite their affinity for technology, 58% of Millennials prefer to work face to face with a financial professional, on par with Baby Boomers (60%) and Gen Xers (58%). Among Millennials who have not used a robo-advisor, only 16% show strong interest in using one. Interest is only slightly higher among Millennials who have taxable accounts (23% very/extremely interested) compared to those with retirement accounts (15%).
Myth 7: Millennials are all the same and have similar investing attitudes and behaviors. This is not a homogenous group, the report emphasizes. For example, urban Millennials are 50% more likely than rural Millennials to own taxable investment accounts. In addition, 33% of male Millennials are extremely or very confident in their financial decisionmaking, compared with only 23% of female Millennials.
The report suggest that education efforts should be targeted to specific subsegments within the Millennial population who may need more support in finding a path to investing, for example, rural Millennials, women, and African-American and Hispanic Millennials.
Conducted in partnership with Zeldis Research Associates, the analysis is based on data from a 2018 online survey of 2,828 Millennials, Gen Xers and Baby Boomers, along with a series of eight consumer focus groups.