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Uncertain Futures: 7 Myths About Millennials and Investing

retirement planning for millennials
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Many millennials do not invest, which can hinder their ability to achieve important goals, like purchasing a home or retiring comfortably. Beyond income constraints, what barriers, perceived or real, prevent millennials from owning investment accounts? Do millennials’ views on investing differ from Gen Xers and baby boomers? Within the millennial generation, are there significant demographic differences in investing behaviors and attitudes? How do millennials view the financial services industry and financial professionals? And what do millennials think about emerging financial technologies, like robo-advisors?

These and other questions are addressed by a new research study published by the FINRA Investor Education Foundation and CFA Institute titled, Uncertain Futures: 7 Myths About Millennials and Investing.

This study explores the financial behavior and attitudes of three millennial groups—those with no investment accounts, those with only retirement accounts, and those with taxable investment accounts (most of whom also have retirement accounts). It also compares millennials with taxable accounts to Gen Xers and baby boomers with taxable accounts to determine how the investing behavior of these three generations differs. Last, this study examines the pathways that millennials follow to investing, and why some have no investment accounts. 

Myth 1: Millennials have lofty financial goals.

Reality:

  • Non-investing millennials’ top three financial goals are modest—not living paycheck to paycheck, being able to pay monthly bills and having savings for unexpected expenses.
  • Millennial investors and non-investors expect to retire at 65, the traditional retirement age. Of non-investing millennials, 17% report that they will never retire because they cannot afford it.
  • Buying a home is only a priority for about a quarter of millennials (24%), though nearly half of Gen X investors (45%) and baby boomer investors (46%) said it was a priority when they were younger (at age 27).

Implications for industry:

  • Retirement is not necessarily the primary financial goal for millennials, and may never be. Financial professionals can prove their value to millennials by helping them achieve smaller, more immediate goals, while building knowledge and habits that bring longer-term goals within reach as their income grows over time.

Myth 2: Income and debt are the key barriers to investing.

Reality:

  • While debt and income are major barriers to investing, 39% of millennials without taxable investment accounts state that not having enough knowledge about investing is also a critical barrier.
  • Millennials are more likely than Gen Xers or baby boomers to report their parents talking to them about investing before 18 years old (42% versus 29% and 21%, respectively).  This may reflect the democratization of investing and parents’ roles in mediating it.

Implications for the industry:

  • The image of the financial professional needs a refresh. When millennials describe the attributes they want, it is more about having a teacher than a friend. More often than not, millennials prefer a holistic approach to financial advising—one that encompasses assistance with a range of financial management issues, such as budgeting and debt, in addition to investing.

Myth 3: Millennials are overconfident in general, so they are probably overconfident about investing.

Reality:

  • 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, which means that more than half of millennials with taxable investment accounts are not fully confident making investment decisions.

Implication for the industry:

  • Although performance results cannot be guaranteed, financial professionals can boost millennial investor confidence and help give them a sense of control. Millennials are not generally “do-it-yourselfers.” They view the ideal advising relationship as a partnership in which they share responsibility for making financial decisions with their financial professionals.

Myth 4:  Millennials are skeptical of the financial services industry and by extension, financial professionals.

Reality:

  • Nearly three quarters (72%) of millennials working with a financial professional are very or extremely satisfied with them.
  • Only 15% of millennials not working with a financial professional cite lack of trust as a reason.

Implications for the industry:

  • Distrust stemming from the global financial crisis is not front of mind with millennials. They acknowledge and respect the expertise that financial professionals can share. Financial professionals who take time to educate millennials and demonstrate that client interests are paramount can expect to earn the trust of millennial clients.

Myth 5: Millennials overestimate the investable assets needed to work with a financial professional.

Reality:

  • 20% of millennials believe there is no minimum amount needed to work with a financial professional; about 6 in 10 believe a financial professional would work with them if they had $10k or less.
  • 42% of millennials do not know what financial professionals charge for their services. When asked to estimate, they guess high: 77% believe financial professionals charge 5% or more of assets under management.

Implications for the industry:

  • Given the margin pressures in the investment industry, business models are under review. Firms wishing to capture more of the millennial market may wish to consider lower-fee advisory options for new investors or other innovative fee structures. Financial professionals may find that better communication about their fees would be received positively by millennials.

Myth 6: Millennials gravitate toward electronic communication and robo-advisors.

Reality:

  • Despite coming of age in a digital world, 58% of millennials prefer to work face to face with a financial professional, on par with baby boomers (60%) and Gen Xers (58%).
  • Nearly half (46%) of millennials have little interest in using robo-advisors.

Implications for the industry:

  • Growth in the robo-advisor area may be slow to develop, even in this market segment, which is often viewed as a primary target. Firms may wish to integrate user-friendly platforms alongside human advice in a cost-effective and customized way.

Myth 7: Millennials are all the same and have similar investing attitudes and behaviors.

Reality:

  • Urban millennials are 50% more likely than rural millennials to own taxable investment accounts.
  • 33% of male millennials are extremely or very confident in their financial decision-making, compared to only 23% of female millennials.
  • 28% of white millennials have taxable accounts compared with 20% of African-American millennials.

Implications for the industry:

  • A one-size-fits-all approach will not serve millennial clients well. Developing models that meet the needs of “an average investor” will not be a winning strategy, especially as technology enables greater customization.

RESEARCH METHODOLOGY

The study used a sample of 2,828 responses obtained from Research Now, a proprietary, nonprobability-based online panel of individuals. Of the responses, 1,814 were millennials, 505 were Gen Xers, and 509 were baby boomers. A pure probability sample of 1,800 would have a margin of error at a 95% confidence level of plus or minus two percentage points. A pure probability sample of 500 would have a margin of error at a 95% confidence level of plus or minus four percentage points. The margin of error would increase somewhat for sub-groupings of the samples. Within generation, results were weighted on age, region, race/ethnicity, and gender (based on the American Community Survey’s 5-year rolling average). In addition, results among millennials were weighted on income. The study was funded by the FINRA Foundation and CFA Institute and conducted by Zeldis Research. As in all survey research, there are possible sources of error, such as coverage, nonresponse, and measurement error that could affect the results. More information about the study, including the survey instrument and additional details about the methodology, can be found at www.finrafoundation.org or www.cfainstitute.org.

MEDIA INFORMATION

For media inquiries, contact the FINRA Foundation’s Director of Media Relations, Angelita Williams at 202-728-8988 or angelita.williams@finra.org or the CFA Institute Communications Director, Americas, J.D. McCartney, at 212-418-6889 or JD.McCartney@cfainstitute.org.

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Stephen Rhodes

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