To gather insight into how younger generations are saving for retirement, we conducted interviews with millennials who work at Janus Henderson. In our latest “Marching to a Million” podcast, Retirement Director Ben Rizzuto spoke with millennial colleagues about how they choose to spend their discretionary income, what longer-term goals they’re working toward, and their views on financial advice.
Marching to a Million: How Younger Generations View Spending, Saving and Financial Advice - Ben Rizzuto, CRPS®
- Most of our millennial colleagues prefer to spend money on experiences or events versus physical items.
- More millennials are putting off purchasing a home, mainly due to increased housing prices, student loan debt and stagnant wages. Some choose to live with their parents until they can save enough money to buy their own home.
- The common perception of financial advisors is that they are too expensive or only available to people with large amounts of money – a sentiment that highlights the importance of educating younger investors on the value and accessibility of financial advice.
Ben Rizzuto: I’m Ben Rizzuto, and you’re listening to part two of “March to a Million,” a Janus Henderson Knowledge. Shared podcast, taking an in-depth look at the way millennials are, and aren’t, saving for retirement.
In our last episode, you heard from five millennials who discussed the ways they save, how they’re preparing for retirement and how their families have influenced their behaviors.
In this episode, we’re going to look at how they spend, their financial goals in life – including homebuying – and we’ll also get their views on financial advisors.
Lifestyle, Spending, Discretionary Income and Values
Rizzuto: We know that part of a successful retirement plan is to understand not only your inflows but also your outflows. You can make all the money in the world, but if you follow that up with bad spending habits... well, you’re not going to make any progress.
So what are millennials spending their money on? Sure, we heard things like shopping and going out to eat and traveling in order to fill up their Instagram feeds with exotic photos. But along with that, as I listened to these young adults, I never really got the sense that they were spending excessively; it all seemed to be in moderation. In fact, I heard a couple of people say that spending more than $20 on something felt excessive or that they’d rather spend $8 for a national parks pass versus going to a concert. So, overall, they seem to be spending their money wisely.
When they do spend money, it is definitely going to be for an experience rather than on a physical item. Hadley, for example, very nicely expressed the idea of self-care.
Hadley: One of the most important things of my day-to-day life is self-care. And I would say if that is sushi on a Friday night or my gym membership, which I pay a little bit more for the Pilates, or for more classes … if I get a little bit more joy out of that to thoroughly enjoy my week versus being exhausted because I didn’t eat well enough or I didn’t get the right amount of workouts that my body needs, then I definitely feel more glum. So it definitely helps for me to know that I can spend a little bit more and treat myself a little bit more to those opportunities.
Rizzuto: Or take, for example, Jerry’s ideas on experiences versus stuff.
Jerry: I mean, one of those stereotypes you hear about millennials are, “Oh, they are really aware of the Earth and they have got to save the Earth,” and all that. I think that does have something to do with it, because they are more apt go out and enjoy it as opposed to buying a Porsche or something like that. So I think that does have something to do with it, their consciousness, if you will.”
Rizzuto: Something that I think is important to remember with this generation when it comes to how they use and view money is that paper money really isn’t something that they have dealt with as much as some of us. I can remember when I was growing up and had a summer job, I got paid in cash or I received a physical check that I would have to go to the bank to deposit. And if I needed a few bucks to spend on pizza or going out with friends, I had to withdraw that cash and then carry it around in my wallet.
Millennials have grown up in an era where direct deposit, debit cards and apps like Venmo, Google Wallet or Apple Pay are used on a daily basis to conduct most financial transactions. And because of this, millennials have had a very different relationship with money. This has led many to simply have a running budget in their heads, since they don’t have to balance a check book.
This way of budgeting really highlights how greater time and education is needed when it comes to budgeting. In fact, a Northwestern Mutual study showed that only 40% of millennials have good clarity on how much they can afford to spend now versus how much they should save for the future.
This also highlights how important apps like Mint and Acorns – two apps that our millennials use – can be in tracking spending, [to help] develop a budget and in some cases save for their retirement.
These apps and others allow millennials to have a virtual relationship with their money. But since they can link to bank and checking accounts, they can help ensure that some sort of budget is created simply by tracking the spending habits of the user. Along with that, they can help with savings. They serve as a virtual piggy bank by rounding up purchases to the nearest dollar and saving those amounts for the future.
The idea of saving in small chunks is one that really helps to make the very big, very far-off issue of retirement much more approachable for younger people.
Along with discretionary spending, we know debt is an issue. Most of those I spoke to were lucky enough to have had school paid for or were able to quickly pay off debt. But for those that were dealing with student loan debt, it took up to 20% of their monthly income.
Even though 20% of monthly income is a significant amount, it may be worse for other millennials. That same Northwestern Mutual survey I mentioned also estimated that millennials have around $36,000 in debt, and they spend about one-third of their monthly income to pay it down.
Here again, I think that idea of steadily chipping away at the issue of debt is the way that we can help millennials balance all of their inflows and outflows in a way that allows them to live their lives but also save for the future.
Financial Services and Financial Advice
Rizzuto: Another question I wanted to explore was if family members worked with a financial advisor and if millennials had met that advisor. This has been of particular interest over the past few years, since the idea of the great wealth transfer has prevailed in our industry. The stats say that an estimated $59 trillion dollars will transfer among 93.6 million estates between 2007 and 2061. I’m sure we have all heard some variation of this stat of late, but what some may not realize is that once money is passed on to the next generation, many times the parents’ advisor loses those assets because they didn’t build a relationship with the children.
Those of us in financial services – and specifically, financial advisors – have spent a lot of time thinking about how to engage with millennials. Many have complained that millennials are difficult to communicate with, are too focused on their phones and social media and have a DIY attitude about many things, especially their investments.
While that may be the case, other studies have shown that millennials are open to advice, are excited about putting a plan together and, as witnessed by some of the things we’ve heard, [are] quite engaged with their retirement and savings.
More specifically, 29% said they were excited about creating a financial plan, and 36% in that same Northwestern Mutual study I referenced earlier said that while it might not be their favorite thing to do, they know that planning for the future was important.
So we have these two contradicting ideas at play, but what I found interesting was the lack of understanding that may exist. For example, listen to Nadia’s response when I asked her this:
Rizzuto: Just generally speaking, what’s your thought of financial services, financial advisors and the like?
Nadia: That they’re expensive. And you only really go to them if you have a big chunk of money is kind of how I’ve always thought of it.
Rizzuto: What’s a big chunk of money?
Nadia: Like over $100,000 or something. At least that’s what I have in my mind. And I don’t think I’m really well versed on what a financial advisor does for you. So I think, you know, more information about that would be helpful. I mean, yeah, that’s where I’m at with it.
Rizzuto: Nadia’s answer wasn’t unique. Those two ideas of: “I don’t have enough money” and “They are expensive” came up again and again. And because of this, I would submit that it’s not an issue of millennials being closed to working with an advisor, it’s more a matter of misunderstanding. So first we need to do a better job of explaining how we can help but also making sure we are communicating this in a relatable way.
How can you do this? Well, yes, you need to have a presence online. These days, that goes for prospective clients of all ages. But along with that, you need to provide “bit-sized” bits of information that can be consumed easily. So yes, lose the jargon, put it in a blog post or a two-minute video or maybe even in your own podcast.
Along with that, I think this idea goes back to the idea of family. I mentioned what a huge role family members played in educating these millennials about saving, spending and retirement. You need to leverage those existing relationships with parents to ensure that you meet their children, so you become familiar with them and they get familiar with you and what you do.
It turns out [that] those who had a favorable opinion of financial advisors had been introduced to their parents’ financial advisor at a very early age. Kilian says he was about 7 or 8 when his parents started taking him along to meetings with their advisor.
Kilian: He was able to connect with both my younger sister and I at a young age. And even though I think I could manage my own money probably for a lower fee, less expenses, I haven’t just because he was able to build that trust. And he’s been there when I’ve reached out about other things, too. Just having someone to go to with the experience has been really nice.
Rizzuto: When it comes to developing relationships with younger adults, we can leverage our current clients – their parents – [and] we can market ourselves in more relatable ways. Or, as Jerry pointed to, we can simply shine a light on the hubris that sometimes comes with youth.
Jerry: I think it is getting the message across that you don’t really know what you are doing if you are trading your own stocks and doing all that, because I mean you are young and invincible, you think you can do anything. But when you get down to it, you are kind of just leaving it up to luck, unless you actually do the research behind it all and make it your priority.
Financial Goals/Moving Back Home/Future
Rizzuto: Not only was it important to see how these millennials were making it work today, but I also wanted to see how they viewed their futures. What sort of goals did they have over the next several years, but also what did they think their retirements were going to look like?
This is a group that has grown up during a financial crisis and has heard the constant refrain that the Social Security system is broke and future retirees won’t get what’s theirs. Given that environment, I can see how phrases like “You Only Live Once” can make sense, and because of this, it seems that the American dream of home ownership has changed and that retirement will not be retiring at 65, taking Social Security and playing golf.
First, let’s look at some more near-term goals. As I mentioned, many Americans are delaying or putting off indefinitely the idea of buying a home.
According to the U.S. Census Bureau, approximately one in three millennials under the age of 35 owned a house at the end of 2018. That’s 8 to 9 percentage points lower than previous generations’ homeownership rate at ages 25 to 34.
The reasons for this delay include rental prices increasing significantly, student debt payments and stagnant wages. Because of this, we are seeing more and more millennials move back in with their parents after college. The percentage now stands at 22%!
Jerry is one of these millennials.
Jerry: Then in terms of rent, more and more people I know are ditching the idea of, “Okay, I’m out of college, and I have got to move out now.” They actually go back home with their parents. Free rent, free food, free laundry... It definitely is helpful for saving money, not throwing away money on rent that you don’t get back when you move out.
Rizzuto: It almost seems to me that the new financial goal for millennials may be moving out of their parents’ house and being able to do so at a point when they can buy their own home. Here’s how Jerry’s planning to move out of his parents’ home:
Jerry: I have given myself a timeline where ideally I would be out within a few years when I can have enough money to put a down payment on, like, a townhome or something not super big, but, like, get my own place.
Rizzuto: We can see how the conversation among millennials has changed from, “I have got to save up for retirement,” to “Wow, I really need to get my own place.”
Looking further forward, I wanted to get an idea of when these folks thought they would be retiring and how they might fund their retirement. In many cases, people said that they would like to retire anywhere from 50 years old to 65 years old. Part of that thinking stems from the idea that millennials may not see value in working their whole lives. A long career capped off with a gold watch from your employer was how many people gauged their self-worth a couple decades ago. Not for this group. Along with that, I think the growth of the gig economy and authors like Tim Ferris have shown younger Americans that you can work for yourself, do so wherever you want, and you don’t have to sit in an office 40 hours a week in order to make that living and be happy. In fact, you might be able to do all this during a four-hour work week!
So yes, the retirement experience will certainly change for millennials. None of the people we spoke to see Social Security as a sure thing or the foundation of their retirement income. In some cases, for those who are engaged with their retirements, it has pushed them to focus more on saving for the future.
For others, it is something that they don’t think about. Overall, we would all hope that the Social Security system is around for all of us in the future, but what I think these ideas really highlight is how important it is to educate younger people about how the system works, the honest issues it faces and how they can help protect themselves for the future through greater savings in their 401(k) or other retirement accounts.
Advice for Other Millennials
Rizzuto: As I mentioned in the beginning, these millennials are making it work. They are starting their careers, navigating a number of changes and still actively saving for their retirements. So the last question I asked them is what advice they might have for other millennials.
Kilian: I think understanding the importance of saving and preparing for your future. I think a lot of people my age might take the approach of, “I want to live in the here and now, and go do things, then I’ll think of kicking the can down the line and then figuring it out later.” So, yeah, just informing people a little more about that.
Jerry: I think it is a matter of that self-control and saying, “Don’t spend money you don’t have.”
Nadia: I think they should just kind of think about, you know, what they’re doing now, and maybe how they can cut back just a little bit, just because if you’re able to save that little chunk of money now, it’s going to expand into a lot more when you’re mid-50s, 60 years old.
Rizzuto: Along with those bits of advice, there were a few other things that I took away from all of these conversations that I think can be helpful for those of us who may be working to help millennials or for those millennials that may be listening to this podcast.
First, education is key. We saw how financial education started early for a number of the millennials we spoke to. We must make financial literacy a focus in our homes, in our schools and in our practices. The more we talk about finances and money, the more we educate young people on compounding interest or debt or delaying gratification, the more commonplace these conversations will be. The more commonplace they are, the more comfortable they become and the better off our country’s young people will be.
Along with that, and specifically if we look at this issue from the standpoint of the workplace, I think plan sponsors and business owners need to create cultures where talking about finances is part of everyday life as an employee. More and more employers – 58%, in fact – feel their organization has a responsibility to improve their employees’ financial wellness. The more education and conversation that occurs around these subjects, the better able they will be to meet that responsibility.
Second, while student loan debt didn’t affect many of our millennials, we know that it is a huge issue for a lot of our people. [There is] $1.4 trillion currently outstanding, and unfortunately, many feel that paying off their student loan debt and saving for retirement is an either/or proposition. It doesn’t have to be that way. People can do both, but we need to help them understand all of the options that are available to them. Some companies, within their retirement plans, offer programs that provide matching dollars for student loan payments, after-tax bonuses or access to services that help with budgeting. Outside of that, I think it’s important for financial advisors to be able to provide help in this area. The Department of Education provides a number of resources, but again, this gets back to providing guidance and advice and doing so in an easy to understand way.
Finally, we started with the idea that millennials are thought to be unengaged and they don’t care about saving for retirement. The conversations I had showed me that that is not the case. In fact, millennials, just like other people (and maybe even more so), see a retirement plan as an important tool to help them save for retirement. Remember that stat from earlier: 29% of millennials were “excited” to put together a financial plan and another 36% knew that it was an important thing to do. So, I would encourage you to find tools that make the planning process easy. Maybe it’s a checklist or an online form, or it’s a video of another young person describing how they are planning for the future. Telling a story and highlighting how easy it is to create a financial plan is so important with this group.
Plus, if you are an employer, make sure you’re talking up your retirement plan benefits and how they are valuable not only today but for the future. Sure, millennials may be a generally determined and stubborn group. They may want to make their own way in this world. But just like all of us, they want to be valued and they want guidance.
Just like that march to a million-dollar nest egg starts with one step, remember that this is the first step we’ll be taking on the subject of millennials and retirement, so be sure to subscribe to the Janus Henderson Radio channel on iTunes or Spotify, as we’ll be providing other podcasts on this subject. Along with that, be sure to visit the Janus Henderson website, where we’ll be publishing a number of other tools that can be used to help millennials reach their retirement goals.
Until next time, this is Ben Rizzuto, and you’ve been listening to a Janus Henderson Knowledge. Shared podcast.