Millennials need planning too
Younger Canadians may operate differently from their boomer parents, but they’re a savvy demographic that shouldn’t be ignored.
By: ASHLEY REDMOND
Date: August 17,2015
A lot has been made about millennials – they do what they want when they want, they’re immersed in digital technology and more – but whatever people think of this cohort of Canadians born between the early 1980s and the early 2000s, they’re becoming a far more powerful demographic as they age.
There are more than 12 million millennials in Canada – the largest age group since the baby boomers – and they currently make up 31 per cent of the workforce. That percentage will continue to grow as more of them graduate from school and join the labour pool.
“Millennials are rivalling the size of the baby boomers, and their economic situation is expected to be just as powerful,” says Peter Bowen, Fidelity Investments Canada’s vice-president of tax research and solutions.
For many advisors, millennials are an intimidating bunch, mostly because they are accustomed to working with their baby boomer clientele. They don’t know how to deal with a generation that is associated with a more do-it-yourself attitude.
While this group may have different ways of doing things, the reality is that many will still need financial help. Millennials are the most highly educated generation ever in Canada according to Statistics Canada, with more of them having post-secondary degrees than any other age group.
Many people also think that this group couldn’t care less about money, but that’s not true. A recent Fidelity focus group found that they’re deeply concerned about their finances and that they’re also quite thrifty, likely a result of the financial crisis, where many saw their parents lose their jobs and their savings.
Overall, advisors should be excited about forming relationships with millennial clientele. But they should also keep certain things in mind when working with this group.
What’s a pension plan?
Many millennials will not have access to a pension plan like their parents did. Workplace pension plans are on a steady decline – in 1992, 42 per cent of Canadians had one; in 2013, that number dropped to 35 per cent.
In other words, it’s crucial for millennials to save for retirement, because they likely won’t have a pension. That is, however, easier said than done, especially since retirement often feels like another world to someone in their twenties.
One strategy used by Cory Papineau, a senior financial advisor at Assiniboine Credit Union in Winnipeg, is to first focus on short-term goals such as travel and home repair.
“As advisors, we need to hit those smaller milestones to show them that they are moving toward a positive outcome,” he says.
From there, he focuses on long-term goals such as retirement. If the client has had short-term wins, the longer-term goals feel less daunting.
Find emergency savings
“Emergency savings used to be for a lost job or a broken furnace, things along that line,” says Mr. Bowen. “But that has changed.”
Today, 91 per cent of millennials expect to stay in a job for less than three years. On average, millennials will have between 15 to 20 jobs in their lifetime, which means they will likely have periods of time without income.
Millennials should save up enough cash to cover expenses for at least two or three months when in between jobs, says Mr. Papineau. “The advisor needs to plan accordingly,” adds Mr. Bowen. “For instance, this may be a great opportunity for millennials to start utilizing TFSAs.”
Many millennials were greatly impacted by the recession. They may not have seen investment losses, since many wouldn’t have been investing back then. But many certainly found it difficult to find a job. They also saw how the downturn impacted their parents’ savings.
The result of that? You now have a risk-averse group of people, says Mr. Bowen. Many are worried about another crisis and are, therefore, afraid to invest in the stock market.
It’s important for advisors to ask about risk tolerance and keep in mind this group’s tendencies toward risk aversion when discussing investment vehicles, he says.
Social responsible savings
Millennials also want to know that their money is making a difference in what they consume and how they invest, adds Mr. Papineau. “So, socially responsible investments are a particularly important conversation,” he says.
As well, advisors should be aware that millennials’ feelings toward social responsibility are not confined to their immediate community. They grew up with the Internet, therefore many of them have friends around the world and feel like they are part of a global community.
This generation is going to play an integral role in Canada’s economy in the coming years, so although their nuances can seem intimidating, now’s the time for advisors to build those long-lasting relationships.