Younger employees tend to be overly optimistic about their financial goals. Retirement expert Ben Rizzuto explains how to turn misunderstanding into confidence.
The further participants are from retirement, the less likely they are to start preparing for it. Each subsequent generation seems to have more trouble appreciating the importance of starting early, even as they pile up student debt and grapple with financial literacy. But against all odds, the outlook of today’s young adults – millennials – is surprisingly optimistic. According to a 2018 Charles Schwab study1 highlighted in a recent Defined Contribution in Review, millennials fully expect an improving financial situation that steadily marches toward wealth and early retirement.
Their optimism is exemplified by many millennials planning to retire at age 60, seven years prior to full retirement age as considered by Social Security, and the idea that 53% believe they’ll receive an inheritance, even though only 21% of people received an inheritance of any kind between 1989 and 2007.
This overly optimistic, yet underprepared group of millennials and younger Gen Xers presents an opportunity for advisors to highlight misunderstandings, offer education and implement financial wellness programs.
Ask the Experts
As the concept of expertise becomes broader and more complicated, younger consumers are looking to different sources for financial advice. In fact, young people tend to trust their parents for advice more than banks, online resources and friends.
This shift may indicate that this group is increasingly cautious about putting their trust in institutions, including advisors, preferring instead to gather their own information. Maybe they go to their parents because they’re seeking reassurance and support, or maybe sitting down with a financial professional seems out of reach. Whatever the reason, education and advice designed to act in loco parentis are worth exploring.
Good Debt vs. Bad Debt
Financial matters, especially student loans and job hunting, occupy a central position in millennials’ pantheon of concerns. Thanks to the high cost of earning a college degree, many are familiar with debt, even without a mortgage to manage. But there is room for improvement when it comes to understanding the difference between good debt and bad debt. And remember, it never hurts to get creative when addressing this audience.
Innovation: Not Just for Tech Anymore
Debt, saving, home ownership and the far-off dream of retirement are just some of the topics Prudential tackled at Fast Company’s latest Innovation Festival. The company created an “escape room” to get attendees thinking about financial wellness while dancing and solving puzzles. While the idea of turning your conference room into an interactive arcade is admittedly impractical, there’s more than one way to get innovative with your approach.
You can find inspiration to connect with millennials from employer-sponsored retirement plans and recent Private Letter Rulings (PLR) issued by the IRS.
In a recent PLR, the IRS has allowed a company to help graduates manage their student debt load. This specific plan sponsor can now make contributions to employee 401(k) accounts if the employee is repaying student loans.
Remember that although the PLR applies only to the company that received it, this development presents a great opportunity for advisors to reach out to plan sponsors to discover whether student loan debt is something that affects a high percentage of participants. Being able to help this specific group of employees and prospective employees can be an alluring benefit.
Millennials are much like any other demographic in at least one way: They’re not all the same. Top goals of young adults include owning a home, having money to travel and being financially independent, but not every participant will check all the expected boxes.
Personalization is a theme we’ve seen again and again in the last few years, and plans with a higher percentage of younger participants require an even greater amount of flexibility and creativity. Some millennials may have employer-sponsored retirement accounts, but others may utilize brokerage accounts, IRAs or a combination of all three. As they earn their first bonuses or receive other unexpected rewards, they may be unsure of how and where to invest this income.
Millennials are an optimistic generation that prioritizes living life in the “now.” With a little innovation and, in some cases, working with their parents, you can help them become savvy savers for the future while still setting aside money for the near-term, travel and experiences.
1Charles Schwab, “Young Adult Financial Literacy Study,” August 2018.
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