To be the right advisor for younger family members, begin by understanding issues unique to their generation.
This is the second of installment in a series of three articles that delve into the topic of working with families. we explored the unique characteristics from the Greatest, Silent, and Baby Boomer generations who are transferring wealth. In part two, our focus will shift towards the recipients of this inheritance, namely Generation X and Generation Y – the Millennials.
Generation X 1965-1979
The 65.2 million Americans born between 1965 and 1980 are known as Gen X. The children of the baby boomer generation, the Gen Xers are often referred to as the “latch-key generation”, because as children they returned from school, and opened the door empty homes as both parents typically worked. Their ability to fend for themselves is the reason they are independent, flexible, and adaptable. It also explains the distrust Gen Xers have for institutions, the government, and authority figures like their parents.
From a financial standpoint, members of the Gen X generation are a study in contrasts. Last year, they held about $100,000 more in wealth per capita of any generation, 18% more than baby boomers at the same life stage, while also carrying the most debt of any generation.
According to a recent Bankrate survey, 60% of Gen Xers are sensitive to financial issues and believe that money has a negative impact on their mental well-being. While Baby Boomers were considered a “sandwich generation” because they were caught caring for their aging parents while financially supporting their own children, Gen Xers could be called the first double-decker sandwich generation. This is because Gen Xers may find themselves not only financially supporting their children but may also be providing financial or emotional assistance to their parents and grandparents. This additional layer of responsibility, which involves balancing the needs of multiple generations, further compounds the challenges already faced by this generation.
Working with Generation X Clients
To assist Gen X clients, financial advisors should begin with a comprehensive financial plan that outlines their goals, financial resources, and the potential risks they may encounter along the way. Given that this generation often carries a significant amount of debt, implementing a strategy to pay off that debt can help alleviate financial stress and pave the way towards achieving their financial goals. This may involve creating a budget to allocate funds towards debt repayment that focuses first on paying off the highest interest debt using strategies such as debt consolidation or refinancing, then tackling the lower interest items. By addressing and reducing their debt, Gen-X clients can enhance their overall financial well-being and significantly increase their chances of achieving long-term financial security.
Generation Y/Millennial 1980-1994
On July 1, 2019, Generation Y (Millennial generation), with an estimated population of 72.24 million, surpassed Baby Boomers as the nation’s largest generation. This shift in population demographics reflects the aging of the Baby Boomer generation and the rise of the Millennial generation, which encompasses individuals born between 1981 and 1996.
Millennials are often labeled as the “helmet generation” due to their perception of being pampered and privileged because their parent’s overprotectiveness and safety concerns involved the use of helmets for every activity. This heightened awareness of risks extends to the financial realm as well. Millennials witnessed the impact of events like the collapse of the dot-com bubble in the early 2000s and the 2008 financial crisis, which directly affected their parents’ finances and careers. Additionally, the burden of high student debt has further contributed to their skepticism and lack of trust in the financial services industry.
Not content to stand in the background, the Millennials are becoming more and more comfortable flexing their collective muscles and making their voices heard. This generation is looking for a way to make a difference in the world, quickly, and as digital natives, it’s likely that they will continue using computers and social media to influence others and effect change. This carries over into the investment realm too, as the Millennial generation is the leading the demand for environmental, social, and corporate governance (ESG) investments.
Working with Generation Y/Millennial Clients
Millennials, being digital natives, have grown up with technology and have high standards for website quality and content. To attract Millennials, make sure you have a user-friendly website that’s tailored to their needs and interests. Optimizing the website for mobile devices is also essential, as Millennials rely heavily on their smartphones for information. Providing comprehensive information about financial planning, investment strategies and retirement planning is key to capturing Millennials’ attention. They appreciate educational resources like videos, webinars and interactive tools that enable them to model different financial scenarios and assess the potential outcomes of their decisions. Like Gen Xers, Millennials have a significant debt problem, amounting to almost $4 trillion. Financial advisors need to be sensitive to the debt burden carried by this generation and offer solutions that help them manage and pay off the debt while making progress toward their financial goals.
One could argue that non-Millennial advisor can effectively connect with Millennials through their relationship with their parents and grandparents. Millennials hold a strong affection for their family elders, recognizing their efforts to ensure their safety and provide them with the best opportunities available.
In the third part of our Managing Legacy Wealth series, we will explore the rewards and challenges of simultaneously working with multiple generations within a family. Additionally, we will examine various tools that can enhance your success in adopting this strategy.
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