Millennials – a new investor group with new needs

September 28, 2017

Millennials are emerging as a distinct demographic to the investing community. Typically, they are in the 25-35 age range, as opposed to Generation X (36-51 years old) and baby boomers (52-70 years old). A 2016 study by Fidelity Investments shows that 60 percent of millennials interviewed had investment accounts and had started saving for retirement or an emergency fund. The study shows that 46 percent saw themselves as savers as compared to only nine percent who saw themselves as investors. Finally, 40 percent of those interviewed worried about the state of their finances.

A panel of market experts at the 2017 U.S. Options Industry Conference estimated that millennials will take part in the largest transfer of wealth ever as previous generations hand down their wealth. To hear more about these insights, the panel audio is available on the Options Insider Radio website.

Millennials are now the largest living generation in the U.S. (see chart below). A 2015 LinkedIn and Ipsos research paper estimated that millennials would receive at least a $59 trillion transfer in personal wealth by 2022, and a 2016 report by Standard & Poor's estimated that in the U.S. by 2020 they could account for 30 percent of retail sales.

The Options Industry Conference panel also noted that millennials may have a short attention span, so information needs to be concise and visually appealing. As the first generation of 'Internet natives', millennials are skilled at using social media to acquire knowledge and validate what they learn.

Options are a complicated financial product, but option knowledge can be made digestible and accessible. Millennials tend to be under-invested and have limited collateral, so options can be attractive as an income generation tool, as a strategic risk management tool, and as a leveraged investment.

Millennial attitudes

Research by Forbes found that millennials are more like their grandparents in the so-called 'Greatest Generation' (born approximately 1900 – 1925) than their baby-boomer parents, being more cautious, questioning and wary of debt. This may be because many of them experienced first-hand the financial challenges stemming from the 2008 financial crisis, mirroring those of their grandparents following the 1929 crash. In the U.S. and the UK, millennials are carrying more student debt. In general, they have had a more challenging environment in which to start their careers.

A 2017 Deloitte study of 8,000 millennials in 30 countries found that they were concerned about global uncertainty and were cautious, even pessimistic, about the future. The 2016 Standard & Poor's report cited above also found that millennials were fiscally conservative, with 50 percent of their assets in cash, 30 percent in equities and 15 percent in fixed income.

A study on Facebook IQ, Millennials + Money: The Unfiltered Journey, stresses millennials' responsible debt management and credit card usage, as well as their desire for financial advice delivered in a new way, more akin to a social media partnership. Fifty-seven percent of millennials prefer to pay by cash rather than credit card, more than twice the proportion for Generation X. Eighty-six percent of millennials are saving. Twenty-four percent of millennials do not feel that they know enough about investing. Only 32 percent of them feel that their bank understands them.

Financial education valued

Millennials understand the importance of financial education. A study by Bank of America Merrill Lynch found that millennials were more appreciative of financial education offered by their companies than the previous generations, at 92 percent (for baby boomers, only 76 percent valued similar education).

As the CFA Institute noted in a March 2017 comment, millennials are tech-savvy and prefer virtual communication. They actively use social media for decision validation. This is a double-edged sword, amplifying both good and bad experiences, so millennials are likely to be attracted by robo-advisers who can offer products tailored to their needs.

Those interviewed by the CFA Institute felt that the investment industry needed to better articulate the value of investment management. The study also found that the traditional view of retirement was morphing into that of managing lifetime wealth. Finally, it found that millennials were more socially conscious and thus more receptive to products focusing on environmental or social improvements.

With the growing importance of millennials in mind, The Options Industry Council (OIC) has launched a series of short videos focusing on educating investors, including millennials, on the responsible use of options. Check them out on OIC's YouTube channel.

Where do we go from here? 

How should financial firms react to the opportunity of attracting millennials to become investors? I believe that the following avenues should be considered:

  • Millennials are Internet natives who actively use social media for discovering knowledge and validating it.
  • They are interested in entrusting their money to 'partner' organizations. Education is valued. Keep it short, concise, easily accessible and visually attractive.
  • Millennials are often fiscally conservative. This means, for example, keeping option strategies simple, and explaining the pros and cons.

In conclusion, a combination of demographics, internet delivery and a challenging economic climate has given millennials many shared beliefs, which today's financial services companies need to successfully address in order to attract this key market segment.

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