Brent Williams, Research Analyst
Millennials are described as potentially the next “Great Generation” by William Strauss and Neil Howe, the authors who originally coined the term. But up to this point, all the millennial tweeting, snapping, posting, swiping, and selfie taking hasn’t been accompanied by much in the way of investing.
The average millennial, defined by Strauss and Howe as born between 1982 and 2004, was 15 years old during the heart of the Great Recession in 2008, which marked the worst downturn in nearly 80 years. While most millennials might not have been immediately impacted by the drop in the economy, many witnessed its impact on parents and relatives through layoffs, large declines in home prices, and depleted savings accounts. From a psychological standpoint, the Great Recession might have contributed to millennials’ generally low investment risk tolerance compared to prior generations, and might have damaged their trust in the investment industry. The negative portrayal of the industry in pop culture and mainstream media could have further compounded millennials’ distrust. Yet for every bad story, there is a positive one that unfortunately does not get the same amount of air time.
The Great Recession also led to clear financial consequences still felt today through elevated levels of millennial unemployment and “underemployment.” Millennials are more educated than previous generations, but it has come at the expense of rapidly increasing student debt levels. While overall U.S. consumer debt has risen just 1.5% since 2010, total student debt has grown a shocking 77% to $1.28 trillion and continues to rise (as of 9/30/16, New York Fed). Most of this debt is saddled on millennials. This toxic combination of meager employment, slow wage growth, and high debt levels is proving to be a major roadblock for the financial health of millennials. In fact, in 2015, 39.5% of Americans ages 18-34 lived with their parents or other relatives, marking the highest level in 75 years, Trulia reported. This points to the growing delay in the formation of new households (think: spouse and children) that has, for some millennials, put off the need to set aside money for major events later in life including a child’s college fund or personal retirement.
Millennials face obvious financial hurdles, and in the age of expiring messages on Snapchat and hot takes on Twitter, millennials generally live in the moment. However, their future selves will be thankful for a little more consideration of the future. Many major employers, including ones that millennials might not consider to offer “career jobs” in retail and food service, provide 401(k) investment plans that make it easy to automatically set aside money for retirement from each paycheck. Even better, some more progressive employers will “match” contributions of their employees, normally up to 3-6% of wages, which effectively doubles the investment impact.
Technology has also lowered the bar on many investment fees, and investment options like target-date retirement funds and robo-advisors offer convenient investment services to millennials that require little maintenance. But even with these new tools and a wealth of information available through online resources like blogs, forums, and YouTube (just to name a few), financial literacy among most millennials is very low. Beyond choosing the proper stocks and bonds, many millennials lack adequate knowledge of budgeting, saving, borrowing, and planning. A trusted financial advisor can help fill many of these gaps, even if a millennial is just beginning to consider building an investment portfolio. An advisor educates and helps give realistic expectations for investment risk and return, lends a steady hand in difficult times in the financial markets, and provides a source of trusted advice in helping achieve financial or personal goals.
Most millennials are more comfortable behind a screen, but getting face to face with a good financial advisor can be the first step in developing a solid financial future.
Information contained herein has been obtained by sources we consider reliable, but is not guaranteed and we are not soliciting any action based upon it. Any opinions expressed are based on our interpretation of the data available to us at the time of the original publication of the report. These opinions are subject to change at any time without notice. Investors must bear in mind that inherent in investments are the risks of fluctuating prices and the uncertainties of dividends, rates of return, and yield. Investors should also remember that past performance is not necessarily an indicator of future performance and D.A. Davidson & Co. makes no guarantee, expressed or implied to future performance. Investors should consult their financial and/or tax advisor before implementing any investment plan.