Millennials have grown up, and it turns out they are the financially disciplined, focused and responsible adults in the room, according to new US survey findings published by Natixis Investment Managers (Natixis IM).
The oldest members of the generation born between 1981 and 1996 are now in their 40s, and they are entering their peak earning years with financial means and maturity that should bode well for them and an unexpected ally in their success, the firm says: Financial advisers.
Natixis IM surveyed nearly 2,500 Millennials around the world, including 275 in North America with minimum investable assets of USD100,000. The North American findings presented here are a subset of the larger survey and closely mirror global trends presented in Natixis IM’s report Five Financial Truths about Millennials at 40.
In contrast to the stereotype of Millennials as entitled beneficiaries of their parents’ wealth and poorly prepared idealists with trust issues, Natixis IM found:
72 per cent of Millennials surveyed in North America have a professional financial advisor – a higher percentage than either Generation X (66 per cent) or Baby Boomers (70 per cent).
Financial planning is the professional advice they are most interested in, no doubt to help them reach what 83 per cent of Millennials say are clear financial goals, including retiring at age 59.
They are diligent savers, putting aside 19 per cent of their income for retirement, on average.
They have worked to accumulate considerable wealth so far, the source of which 36 per cent attribute to business ownership or self-employment income and 42 per cent say comes from investing. Just 12 per cent cite receipt of an inheritance or family money as a source of their wealth.
“Millennials have high expectations, but they also are proactive when it comes to planning,” says Dave Goodsell, Executive Director of the Natixis Center for Investor Insight. “This generation has enjoyed a long bull market with low interest rates and little inflation for much of their adult lives. They also saw how 9/11, the tech bubble, and the global financial crisis crushed many in their parents’ generation. They’ve known what loss looks like and want to protect their interests as they see risks rise and their finances grow more complex. The good news is that Millennials not only recognise the value of advice, but they trust their financial advisers almost as much as they trust themselves.”
Natixis IM’s research findings reveals these five truths about Millennials at 40:
1. Algorithms can’t answer every financial question
The majority (66 per cent) of Millennials work with a traditional adviser, or person, either solely (40 per cent) or in combination with automated advice such as a robo-adviser (26 per cent). Just 5 per cent solely rely on automated advice. While 53 per cent prefer to receive financial advice through digital or online channels, Millennials want to know a person is on the other end. When it comes to making investment decisions:
46 per cent of Millennials don’t trust algorithms or artificial intelligence, including 50 per cent of younger Millennials (those between the ages of 25 and 32) and 44 per cent of those who are older.
92 per cent say they trust their financial adviser.
Seventy-nine percent of Millennials consider time spent with an adviser important to their long-term financial success. They cite the three most important facets of the relationship as: (1) helping manage volatility; (2) discussing financial planning with family; and (3) having someone who listens. Their three top financial fears now are: market volatility, tax increases, and slow economic recovery.
2. Risk is real when there’s more on the line
Nearly half of Millennials (48 per cent) say that risk management is the most important factor they consider when selecting investments. They assess risk in a variety of ways, but most commonly define it as market volatility. Volatility also ranks highest on their list of investment concerns. While 75 per cent understand that sudden market swings of 10 per cent are a normal occurrence, 57 per cent think volatility undermines their ability to reach financial goals and 70 per cent also see it as an opportunity to grow their wealth.
Just 12 per cent of Millennials define risk as not meeting their financial goals, in contrast to financial advisors who say this is the primary way they talk about risk with their clients, according to previously published Natixis IM research. Another 15 per cent of Millennials think of risk as losing money. At the same time, many Millennials see risk as missing out, such as underperforming the market (16 per cent), having too much money in cash positions (10 per cent) and missing out on potential investment returns (10 per cent).
“The way Millennials understand risk matters because it guides investment decisions and return expectations,” says Dave Goodsell. “Despite high annual return expectations of 18.2 per cent above inflation, Millennials may be more risk-averse than they let on and more exposed than they know.”
The survey found:
Even though 69 per cent of Millennials say they are comfortable taking risks to get ahead, 75 per cent would choose preservation over outperformance as an investment objective.
While 82 per cent understand that passively managed index funds will deliver market returns, about three-quarters are under the impression that index funds are less risky (74 per cent) and will help minimise losses (77 per cent), despite the fact that there is no inherent risk management built in.
3. Millennials understand they don’t have to sell out to be a capitalist
Millennials view wealth as an extension of their values, and 76 per cent think of investing as a way to make a positive impact in the world. After risk, the second most important consideration Millennials make when selecting investments is whether investments match their values.
Four in 10 (40 per cent) of Millennials currently have investments that incorporate environmental, social or governance (ESG) factors. Another 46 per cent don’t, but they are interested. The biggest barrier is not knowing enough about them.
The survey found that Millennials are primed to do well while doing good, yet they also are pragmatic:
They invest in ESG because they want to help make a better world (41 per cent). They are as likely to say their motivation is to open up new investment opportunities (40 per cent) and because they just think it’s a better way to invest (39 per cent).
59 per cent recognise that investing in index funds exposes them to companies that don’t always match their values.
While 72 per cent of Millennials feel a personal responsibility to address big issues in the world, even more believe the responsibility also belongs to companies (79 per cent) and governments (81 per cent).
4. Retirement feels a lot closer at 40
Millennials hope to retire by the age of 59, on average. It’s an ambitious goal and they are aware of the risks, which may explain the importance they place on planning and advice.
The survey found:
67 per cent expect inflation to be one of the biggest risks to their financial security.
61 per cent accept that they may need to keep working longer than they anticipated.
56 per cent worry the cost of healthcare will severely affect their financial security in retirement.
50 per cent accept that may never have enough money to retire.
46 per cent say that their financial security in retirement is going to take a miracle.
5. The pandemic served as a reminder of financial basics
Nearly half (47 per cent) of Millennials say they felt stressed about their financial security during the pandemic. The experience may have further reinforced for them the value of professional advice. They say the greatest value advisers provided was by helping them better understand their whole financial picture and preventing them from making emotional investment decisions.
In retrospect, they say the pandemic served as a reminder of basic financial lessons, including the importance of having an emergency savings account (49 per cent), keeping their spending in check (49 per cent) and having a will and estate plan (32 per cent).