4 MAY, 2022
By Constanza Ramos
Natixis IM today launches its Five Financial Truths about Millennials at 40 report, as the first of the millennial generation reaches 40 years old and enter their peak earning years. The report exposes five truths about millennials and their financial habits, dispelling stereotypes that this cohort are frivolous spenders and poor financial planners, who expect to rely on the ‘bank of mum and dad’.
The global survey of nearly 2,500 individual investors between the ages of 25 and 40, with minimum investable assets of $100,000, found that:
Natixis IM’s research findings reveals five truths about millennials at 40:
Algorithms can’t answer every financial question
It is easy to assume that millennials manage all of their finances from their phones, especially as so many of them rely on mobile banking apps. However, the digital wave hasn’t translated to a desire for automated investment advice as millennials are more likely to place their trust in people than in digital solutions. Of those who have a professional adviser, 88% of respondents trust them when making decisions, while less than half (48%) of millennials trust the algorithms that are the engines of automated advice and only around one-quarter (24%) trust social media to do the job.
Six in ten (59%) millennials receive advice from a financial adviser either solely (40%) or in combination with automated advice such as a robo-adviser (19%). Just 7% solely rely on automated advice.
The high number of millennials using a professional adviser could be a result of more complicated finances leading to a need for personalised advice. The older millennials are getting married, buying houses and starting families coupled with diversity in where wealth is earned. Half of those surveyed say they have multiple sources of wealth ranging from employment (78%), business ownership/self-employment (31%), investments (37%) and allowance/inheritance (17%).
Millennials want direct help with managing their assets rather than relying on an algorithm. Four in ten say help with navigating volatility (40%) is an important part of their advisory relationship. The same number also say it is important for their investments to match their personal values, while 37% want their adviser to help them with tax issues.
Risk is real when there’s more on the line
This generation has enjoyed a long bull market with low interest rates and little inflation for much of their adult livesand two-thirds (66%) say they’re comfortable taking risk in order to get ahead, yet they are much more risk-averse than they let on with 72% saying they choose investment safety over performance.
Volatility in response to the Covid-19 pandemic and rising geo-political tensions causing inflation and interest rate hikes means that millennials focus on risk management (48%) when selecting investments, more so than on a fund’s ability to beat the benchmarks (26%). 60% of millennials say market volatility undermines their ability to reach their savings and retirement goals, andfour in ten say that the most important facet of the relationship with their financial adviser is help with managing volatility.
Millennials understand they don’t have to sell out to be a capitalist
Millennials view wealth as an extension of their values. 78% think of investing as a way to make a positive impact in the world and 63% even believe they have a responsibility to help fix societal issues through their investments. As such, after risk, the second most important consideration millennials make when selecting investments is whether investments match their values, but they also want returns while pursuing societal change.
Their pragmatism to ESG investing extends:
Retirement feels a lot closer at 40
Around the world, millennials expect to retire at the age of 60, on average. “Turning 40 can put things in perspective. Retiring at 60 is an ambitious goal, and they are aware of the risks, which may explain the importance they place on planning and advice,” Dave Goodsell commented.
While 70% of millennials are confident they can retire with financial security, the goal is fast approaching, and 66% say they accept that they may need to keep working longer than anticipated.
The pandemic served as a reminder of financial basics
Covid-19 caused 58% of millennials to feel stressed about their financial security. 28% of respondents said they or their household lost income during the pandemic and over a fifth (22%) experienced a significant setback to their financial security. However, during the pandemic, nearly a quarter of millennials (24%) increased trading activity through their financial adviser, perhaps reinforcing the value of professional advice when markets are volatile. 68% said they felt financially resilient, which could be a result of millennials ensuring their have a financial plan in place.
Their top three financial fears now are a large, unexpected expense, job security and taxes. However, in retrospect, they say the pandemic served as a reminder of basic financial lessons, including the importance of keeping spending in check (46%), having an emergency savings account (38%) and avoiding emotions in investment decisions (32%).
By Duncan Lamont
By Gillian Edgeworth