Generations Ahead

Millennials, Money & The ‘Fear Of Missing Out’

Perhaps more than any other generation, they need – and want – your financial guidance

by Paul Kelash

Mr. Kelash is vice president of Consumer Insights, responsible for research related to consumer trends and financial planning, for Allianz Life. Visit www.allianz.com

As the youngest adult generation, millennials have been subjected to more than their share of generational stereotyping. In their approach to money management, they are often portrayed as impulsive, short-sighted and prone to unwise spending.

However, survey data presents a more positive picture of millennials’ spending and saving habits, and also their willingness to seek professional guidance.

Millennials, the 18 to 34 year olds who make up more than a quarter of the U.S. population, are actually positioning themselves to be in better financial shape than other generations, according to the Generations Ahead Study* from Allianz Life Insurance Company of North America (Allianz Life®). The study found that 77% of millennials feel financially confident (compared to only 64% of Gen Xers) and 48% of those with a 401(k) contribute 10% or more on a monthly basis – which is the highest percentage of any other generation (only 36% of Gen Xers and 44% of boomers reported the same).

Supporting that finding, 41% of millennials reported they always set aside money each month for saving (compared to only 36% of Gen Xers) and 58% believe saving for retirement is a basic necessity, like food or housing. Many millennials (71%) also use “tricks” to make saving money easier. For example, the majority of them use several different accounts to automatically save their money for specific purposes (one for everyday expenses, one for a particular loan, one for a special trip, etc.). Millennials also reported a median retirement savings of $35,000, which is equal to Gen Xers, who have less time to save for retirement.

The influence of FOMO

As their financial strength grows, however, millennials’ 24-7 exposure to social media has become an area of vulnerability for many. More than half (55%) reported experiencing a fear of missing out (FOMO) and 57% spent money they hadn’t planned to because of what they saw on their social media feeds. The vast majority (88%) of millennial respondents also believe social media makes them more prone to compare their wealth/lifestyle with others’ (versus 71% of Gen Xers and 54% of boomers). Sixty-one percent feel inadequate about their own life and what they have, because of social media.

And, perhaps due to this FOMO, half also claim they spend more money going out than they do on rent or mortgage payments. According to our study, more than half (57%) spent money they hadn’t planned to because of what they saw on their social media feeds. The majority (71%) even admit, “If I’m being completely honest, when I have a fun experience and post it online, I’m doing it at least partly to show my friends that I have a great life too.”

Recent financial setbacks witnessed by millennials have also had an effect. Nearly a quarter (24%) of millennials saw their parents suffer a major financial loss during the recession of 2008-2009 and, possibly because of this, 57% said they are unlikely to ever invest in the stock market. Additionally, 65% are uncomfortable with too much debt because they saw their parents struggle with it.

While an aversion to debt is healthy, a reluctance to invest in the stock market could significantly hamper millennials’ ability to build their nest eggs long-term. As a financial professional, you can help them understand the long-term benefits of investing in the market and assist them in finding the right level of risk as well as the best balance between spending and saving.

millennials have immediate access to more information than any previous generation. How much of that free-flowing information is accurate is another question

On a positive note, the study also found that America’s largest generation is the most open to getting help. While the vast majority of millennials (70%) use online apps or tools to help them manage their money, they still place a high value on human support. In fact, 40% of millennials said they have a financial professional and work closely with them (compared to only 25% of Gen Xers).

The human touch

Millennials also prefer to communicate in person with a financial professional (42% ranked it as their first choice, with phone communication coming in second at 19%). Many believe having a financial professional would help them shoulder the responsibility of planning for their family’s future; 70% feel overwhelmed by the thought of providing for themselves and their family, long term.

Because of their enthusiastic embrace of digital technology, millennials have immediate access to more information than any previous generation. How much of that free-flowing information is accurate is another question. As an advisor, you can help them sort through the online clutter and distinguish between fact and fiction. You can play a vital role in helping your millennial clients gain a realistic perspective, set goals, and develop positive spending and saving habits. Consider these tips when working with millennial clients:

  • Honesty is the best policy – More than half of millennials in our study claimed they buy organic foods or spend $12 on lunch. Have them make an honest assessment of their spending priorities to determine if they can trade-off these types of purchases to achieve longer-term goals
  • Stay on track – Tracking spending gives a clear view of where money goes. This may seem obvious, but it is so often overlooked. By tracking every time they spend money, millennials will quickly understand how “extra” expenses add up.
  • Work the plan – Planning out their ideal life can help establish easily managed goals. Having a visual plan of upcoming life events like a new job or home purchase can help create short-, mid- and long-term goals to look forward to.
  • Become goal oriented – Once millennials set goals, they should revisit them regularly. Life isn’t stagnant, so they shouldn’t let financial goals be either. Adjust them if pitfalls come along, or change them if life takes a new turn.
  • Take advantage of tools – Living in a digital world has spurred change and innovation and brought financial tools to the masses. These tools allow users to manage money at their fingertips and can make saving automatic.

To many millennials, the prospect of retirement may seem a long way off. But you can help them grasp the importance of saving now, and how even a few thousand dollars saved or invested each year can make a major difference in their futures. As a result of demographic, economic and political trends, many millennials may face a less comfortable retirement than their parents and their grandparents. As they enter their peak earning years, your millennial clients need your expertise and guidance to deal with the financial challenges they will face in the years ahead.

 

Please note that in order to provide a recommendation to a client about the liquidation or purchase of a securities product, including those within an IRA, 401(k), or other retirement plan, you must hold the proper securities registration and be currently affiliated with a broker/dealer or registered investment advisor.

 

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