The paradox of millennials is that, on average, they are better educated than any previous generation. Yet they have lower real earnings, higher levels of debt, experience more unemployment and have less disposable income. And they are the most at risk generation of achieving poor retirement outcomes.
If there’s one thing that our industry needs to get right for millennials, it is preservation.
And it is the most relevant issue to millennials as they will change jobs more often than any previous generation and are therefore exposed to the temptation of withdrawing their savings more than ever before. Exacerbating the problem are FIVE distinct characteristics of millennials.
Firstly, they do not relate to retirement as a goal. Their views on retirement are associated to aging, planning and taxes. This is not an emotionally resonant set of triggers to engage millennials. This results in cognitive dissonance whereby millennials disassociate with the construct of retirement and consequently the need to plan for retirement.
Secondly, they are more distrusting of financial institutions as they are experiencing the poor outcomes faced by their own parents. Furthermore, jargon, hidden fees and a severe lack of diversity act as barriers for South African millennials to relate to our industry. The net result is that they are highly sceptical.
Thirdly, millennials are both highly confident in their own abilities and highly optimistic about their futures. They expect they will have enough and are self-directed to seek and use information to forge their own path. They don’t know what they don’t know. In fact, 60% of millennials who indicated that they would not use a financial adviser also indicated that they are well equipped to craft their own financial plan.
Fourthly, despite being highly educated, they have low levels of financial education and literacy relating to budgeting, managing debt and the impact of compound interest.
And finally, millennials typically do not have enough accumulated assets to be of economic interest to financial advisers and wealth managers. As such, they may be left to make critical decisions, especially relating to the preservation of seemingly small amounts initially.
So, millennials cannot relate to the concept of retirement, they are overconfident in their own abilities, distrusting of financial services, have low levels of financial literacy and are generally not receiving advice at withdrawal. That’s a perfect storm.
And they make almost 50% of the membership base of South African retirement funds!
How do we change this?
The research points to a multipronged engagement approach aimed at influencing millennials to make better financial decisions. The first strategy is to enhance how we engage millennials using technology as an enabler. Technology needs to hit the psychological triggers of putting millennials in control, providing relatable insights to empower decisions and make users feel safe. In the context of money, technology is mainly used by millennials to speed up mundane transactional processes. Think efiling, banking, transacting, etc. In our specific context, that means benefit statements, fund values, insurance amounts, transacting and getting immediate feedback on common enquiries. Technology can be used to transact, communicate and educate.
Retirement benefits counselling presents an incredible opportunity to engage millennials proactively at certain trigger events. In particular, proper counselling provides the most practical solution to influence preservation. It is not a silver bullet but it is a bullet that can lead to better outcomes. Our initial analysis has shown that the average retirement fund value of millennials is less than R50,000. Typically, not enough for the average adviser to consult on. And this is where retirement benefits counselling makes a difference in reality as such members now have a better opportunity to receive the type of insight needed to make better decisions at a compelling time in order to address preservation.
Rather than try to leverage fear tactics to dampen the confidence of millennials by highlighting their lack of financial literacy or viewing them as unrepentant lost causes, we propose that our industry builds their financial literacy authentically by influencing them towards better financial decisions. Millennials want to be at the centre of their life decisions, and an approach that appreciates this provides the likelihood of better outcomes than the current model of delegated decision-making power. Millennials do not want to be told what they can and cannot do. They want insight that empowers them to self-evaluate what is in their own interest and gives them the ability to make better decisions.
Should you wish to attend the 2018 Sanlam Benchmark Symposium, click on the image below:
About the Sanlam Benchmark Research
The 2018 Sanlam Benchmark research represents the most iteration of a process that began in 1981. It is a process of engaging retirement funding stakeholders to understand the drivers of better financial outcomes. In doing so, Sanlam conducts South Africa’s most comprehensive retirement funding research, which is freely shared with the public in order to empower better decision making by all concerned stakeholders. Sanlam will present insights from the research at the Sanlam Benchmark events to be held during the course of May 2018.