The New Faces of Advisory

Income Across the Generations

Millennials and their grandparents share a common experience: Coming of age during a deep financial crisis

By Tania Slade

Ms. Slade is National Head of Wealth Planning for U.S. Wealth Management with BMO Private Bank and is responsible for strategic development and delivery of customized wealth planning services to high net worth individuals and families. Connect with her by e-mail:

As we move through different stages in our lives, we prioritize different financial goals and allocate our resources accordingly. A recent BMO Wealth Management report based on a survey of more than 1,000 Americans, “Generational Perspectives: How Millennials, Gen-Xers and Baby Boomers Save and Invest,” reveals the similarities and differences between each generation’s attitudes and behavior towards investing.

A Slow Start is Better Than No Start

One key finding is that all generations appear to share a top financial priority: saving for retirement. Of the three generations surveyed, 64% of boomers, 66% of gen-Xers, and 47% of millennials cited retirement as their top financial priority. (For the purposes of the report, baby boomers are defined as people ages 54-72, gen-Xers as ages 38–53, and millennials as ages 21-37.)

For some, the thought of beginning to save for retirement is daunting. It can be a long road, with few guarantees and great uncertainty. Younger generations may find that there are other financial goals that take priority over saving for retirement because it is a long way off. Millennials were found to prioritize short-term goals such as saving for a vacation (21%) or buying a new home (26%), over long-term goals such as saving for retirement.

However, the report found that as people age, their priorities begin to shift towards important financial commitments such as starting a family or buying a house. Spending more as you earn more can be difficult to avoid but can be aided by a sound financial plan. The sooner you create a game plan and start to save, the more committed you’ll be to your goals. Monitoring your spending for a few months in search of savings opportunities and deciphering your basic needs from your wants can be a helpful first step. What we’ve learned about retirement planning from previous generations is to start early so that you can manage changes and uncertainty that can impact your future financial goals.

A smart way to save for retirement is through a 401(k) account, a Roth IRA account, or both. If you contribute to a 401(k) plan, take advantage of your employer’s matching contribution, if that’s an option. Start by contributing enough money to maximize your company match, which could be the first 3% of your salary contributed to your 401(k).

Generational Differences in Financial Goals

When it comes to financial goals, people have a choice to make short-term or long-term investments. The report found that the top saving and investing preference among generations was to buy and hold for the long term (43% of boomers, 40% of gen-Xers, and 32% of millennials). Evidently, millennials are inclined to be short-term in their approach, reflecting less of a desire to buy and hold for the long-term compared to other generations. Millennials prefer to put the money aside and then decide later (23% of millennials) compared to 21% of boomers and 22% of gen-Xers.

Millennials also differ from their generational counterparts when it comes to investing. The majority of boomers (36%) and gen-Xers (37%) report managed portfolios of investments as their top choice when it comes to investing, compared to only 28% of millennials. However, millennials did favor the use of mutual funds and exchange traded funds, and managed portfolios, over investing in individual stocks.

Although the majority of the generations surveyed choose to work with the assistance of a financial professional, how they do so varies. Millennials were found to not only work with an advisor at a financial institution, but also work with an independent advisor. Boomers and gen-Xers cited working with an advisor at a financial institution more so than any other option (28% of boomers and 32% of gen-Xers). Millennials also stood out among the generations with their preference to use robo-advisors (10%), compared to only 5% of boomers and 9% of gen-Xers.

Most of the people surveyed had positive feelings about their investing experiences. When asked how they felt about their investments, being “comfortable,” “satisfied,” and “confident” topped the list. Negative feelings were cited much less frequently overall.

millennials did favor the use of mutual funds and exchange traded funds, and managed portfolios, over investing in individual stocks

However, the survey findings revealed that millennials feel less positively and more apprehensive towards investing than more mature, experienced investors. One of the main reasons cited by millennials for not saving or investing was that these disciplines were too complicated. Almost one in five millennials (17%) cited this reason – more than double the frequency among baby boomers (at just 8%). Some of the reasons millennials cited about why they find investing too complicated included a lack of understanding of investment terminology, not understanding the markets, and not knowing about available investment options. The most effective way to reduce worries and improve your confidence in financial decisions is to research, take courses, and/or work with a financial professional.

Your ability to live comfortably in retirement depends in large part on whether you’re implementing the right strategies outlined in a carefully laid out financial plan. There are a number of different ways to make your money work for you. You can start by understanding your cash flow and building in mechanisms to cover your basic lifestyle needs with fixed sources of income once you retire (such as Social Security, pension, or annuities). If you’re involved in taxable investment accounts, ask if they provide automated savings options. You may want to consider putting a system in place to do this regularly or automatically. For example, you may determine to take gains in any stock or mutual fund position that rises by 20%. This will help you stay on top of active stocks, as well as take some of the emotion out of any decisions to sell.

Whether you’ve just begun to save, or you’re well on your way, retirement is an investment you’re not going to want to forget. Retirement is inevitable. Millennials can start by coming up with short-term goals to invest, or thinking about ways in which their money can work for them. Baby boomers and gen-Xers can maximize their returns from their 401(k)/IRA accounts with smart investments. For instance, paying off debts as soon as possible will save on interest costs, and saving earlier rather than later will have tremendous compounding effects to enhance one’s net worth into retirement.

Psychological Bias Can Have an Impact

The ways in which we spend our money change as we age. Looking at the psychology behind what drives people to invest, and our actions around those investments (savings rates, invest products, fear, greed, etc.), is an important part of understanding long-term financial success. Our biases are shaped and reinforced by our experiences. People who have similar characteristics (such as age, gender, or economic background) tend to demonstrate similar biases. This helps to explain why groups such as boomers, millennials, and gen-Xers have distinct outlooks and tendencies when it comes to investing and saving.

The financial crisis of 2007-2008 left millennials feeling less secure and more cautious than previous generations. This has made millennials more fiscally conservative, and as a group they have a strong preference for saving, just like their grandparents and great-grandparents who lived through the Great Depression.

Baby boomers, on the other hand, have had greater confidence in their investments over time. Historically strong average returns have helped them prepare for retirement and ride out the ups and downs of the market.

Each generation’s investors are subject to behavioral biases that can lead to flawed decision-making and financial choices. Being aware of these biases – and understanding how they arise from your background and life experience – can help you make better investing decisions that can positively impact your retirement and financial goals.

Building a Solid Foundation for the Future

The development of a wealth plan that takes into account an individual’s age, priorities, life experience, and personal biases can give focus and discipline to both saving and investing. This can improve your financial confidence and put you on track earlier to meet your long-term goals. While goals such as retirement may be a long way off, a thorough financial plan can help balance long-term goals with short-term goals.

To view the full wealth report and learn more, visit here. ◊.