The Pew Charitable Trusts brought out their Survey of American Family Finances last week. One of its key findings was that millennials are the generation least prepared for any kind of financial shock.
“Many households are one expense away from financial hardship,” says Clinton Key, a research officer with Pew. “There can be no doubt this is a strain and stressful for families. People really struggle after financial shocks.”
The survey found that 70% of people in their 20s and 30s are susceptible to financial shocks primarily because they have too much debt and not enough savings. While there’s not much that can be done about this given most millennials join the work force with significant university loans, advisors can help them implement a financial plan that works to resolve those issues while building a growing investment portfolio.
Advisors can win big points with their younger clients by reassuring them that when setbacks happen everything will be alright by simply following their financial plan.
Communication with millennials especially when things are going badly in the markets, for instance, is key to keeping them prepared for the inevitable financial shocks. Millennials use technology to keep informed; it’s important that advisors stay on top of this.
“If there is a horrible day in the markets or an important announcement that affects their investments, they are talking about it,” Richardson GMP advisor Rosemary Horewood recently wrote. “Keeping them up-to-date on the current news and market trends is important.”
But it’s also important to keep them confident about their investment plan and that starts by minimizing the risk in their portfolio. Millennials don’t like risk nearly as much as you would think.
“Most of the millennial clients I have worked with score a 2/5 or 3/5 in their risk profiles, and only a small percentage are willing to take on more risk,” says Horewood. “They have seen the effects of a crash in the stock market on their parents’ finances and are still scarred from the experience.”