Millennials and Money

Integrating investment, risk & volatility

by Laura Varas and Chris J. Brown

Ms. Varas and Mr. Brown are partners and co-founders of Hearts & Wallets LLC, a financial research resource for understanding savings and investing needs and behaviors of American households. They publish the Investor Quant (IQ) database engine platform, with data on 30,000 U.S. households over five years. Their studies and conferences are must-have resources for retirement industry strategists, product managers and marketing and sales executives. Visit

Younger Americans are recognizing that safe but snail-paced savings accounts won’t achieve their long-term financial goals. Having now experienced two bull markets in their adult lifetime, Millennials are increasingly more comfortable “taking risks with investments by accepting volatility in the hope of getting a higher return.”

Our research tracks distinct population segments, tapping into a database engine of more than 30,000 U.S. households as well as qualitative research. Over the past five years, we’ve seen a dramatic change in consumers in their 20s and 30s. Volatility is no longer a bad word, as shown in our 2014 Investor Mindset study of more than 5,000 U.S. households.

That’s good news for young Americans who need to think of themselves as investors if they want to take control of their lives and achieve their financial goals. Our research reveals that there are more than 25 million American households under the age of 35. More than 1.6 million households age 35 and younger possess between $100,000 and $1 million of investable assets. All told, younger consumers control nearly $1.2 trillion in investable assets.

Millennials More Confident

Investors In addition to being more open to risk, Millennials are also more confident of their ability as investors. 14 percent of Emerging consumers (ages 21 to 27) describe themselves as experienced (“very” or “somewhat experienced”) at investing in 2014, up from 10 percent in 2013. Among Early Career (ages 28 – 39), 23 percent say they are experienced, a big jump up from 14 percent in 2013.

Conversely, Emerging consumers who described themselves as inexperienced (“very” or “somewhat inexperienced”) dipped significantly to 38 percent in 2014, down from 49 percent in 2013. Early Career consumers saw similar decreases, now at 31 percent versus 40 percent in 2013. Nationally, 24 percent of all households believed they were experienced, jumping up after being at 18 percent in 2013, 2012 and 2011.

Despite being more confident investors, most Americans feel worse overall about their financial situation in 2014 than in 2013, but the exception was younger consumers. One in three Americans (29 percent) feels anxiety (“high” or “moderate”), up from 26 percent last year. The youngest consumers, ages 21 to 27, were the only segment to feel better about their financial situation, with 27 percent feeling anxiety in 2014, decreasing two points from 29 percent in 2013. Early Career consumers are steady, coming in at 26 percent in 2014 – the same level as 2013

Difficulty with Financial Tasks

Even though their sense of optimism has increased, younger Americans continue to have the most difficulty with financial tasks. More than 60 percent of Emerging, Early Career and Mid-Career (ages 40 to 52) consumers have difficulty with “choosing appropriate investment vehicles.”

Many of these young households may not yet meet asset minimums, so financial services firms must find profitable ways to serve those in need, such as fee-based service models. Our consumer and competitive research leads us to be ever more certain that, over the next five-to-10 years, flat fees – as opposed to percentages of accounts – will gain traction, just as account percentages have basically supplanted commissions.

Saving for college education is especially challenging for Emerging and Early Career households (more than half), who are most likely are raising young children. Firms should address the specific needs of this and other lifestages in marketing communications. Overall, Americans struggle with the task of retirement planning, with three in five U.S. households saying retirement planning is hard in 2014 – marking a new high and a 10 percentage point jump from 2012. This was a concern for 71 percent of Emerging and 66 percent of Early Career consumers.

Younger investors are the heaviest financial information and advice users and are at the stage of sampling different financial services professionals

There’s a need for professional advice, even among more sophisticated investors. More than 50 percent of U.S. households currently aren’t getting they help to be prepared for whatever the future brings. Nationally, the biggest advice gaps are “knowing how to find the right resources” for retirement planning (40 percent), “handling market volatility” (38 percent), “choosing appropriate investments” (37 percent), and “determining appropriate insurance levels” (36 percent). Consumers may be unaware how powerful life events are in financial actions.

Emerging and Early Career lead the pack for two key events: marriage and the birth of a child. Three out of four Americans who married or had a child averaged two actions within 12 to 18 months. Hearts & Wallets finds new parents more likely than newlyweds to make an immediate investment in a college savings plan. Newlyweds are more likely to take quick steps to change their investment mix, purchase insurance and increase retirement savings. Although life events influence action in specific ways, financial professionals and friends and family are more common action drivers. The better financial services firms and advisors understand these factors, and how they combine to drive action, the better they can serve clients. The influence of a financial professional is more important when an investor purchases an annuity or rolls over money from an employer-sponsored plan to an IRA.

Financial Services Opportunities

Financial services professionals have a terrific opportunity to develop relationships with Millennials. Younger investors are the heaviest financial information and advice users and are at the stage of sampling different financial services professionals.

Emerging (21 to 27 years) and Early Career (28 to 39 years) lifestages use more than 8.0 sources of information and advice, blending financial professionals and other sources. In this way, young investors are more like consumers with over $500,000 – who also use more than 8.0 sources – than consumers with less than $100,000, who use an average of 6.4.

Investors adding the most advice and information sources over the last two years are “Emerging” investors (ages 21 to 27) and Mid-Career (ages 40 to 52). About 38 percent of all households use both financial professionals and technology as sources of investment information and advice, busting the myth that consumers want just technology or just a human advisor. It’s important to empower investors by providing access to both, ideally in an integrated way. This is especially true for younger investors, of which one in three use mobile for financial purposes.

Not all sources are equal in influence over consumers; some are rising while others are waning. For example, financial professionals are increasing in influence with Early Careers. In 2012, 60 percent of Early Careers consulted financial professionals, either paid or unpaid, to some degree. In 2014, financial professionals have more influence over Early Careers, increasing to 70 percent with 17 percent considering them their “primary” source, 36 percent “usually” and 17 percent “sometimes.”

Sources can lose relevance, too. In 2014, 23 percent of Emerging investors considered family as their “primary” source, falling from 27 percent in 2012. Financial services firms and advisors should anticipate the changing advice needs of investors as they age by offering tailored solutions. This strategy will vault a provider from a ‘sometimes’ source to the ‘primary’ source. The earlier this occurs, the better. Focus on relationships with younger investors, since older investors have already chosen their primary sources.

The consumer is more empowered than ever before. From purchasing a car, health plan or toothbrush, consumers select combinations of product attributes and services dimensions that are right for them at prices that suit their wallets. The better financial services firms understand consumers, the better they can shape products and services that will meet the evolving needs of their clients, including Millennials and their growing financial clout.