To get a better understanding of Millennials, we need to separate the myth from the reality. So, let’s confront a number of pervasive myths. Firstly, Millennials are not kids … and are broadly classified as people born between 1981 and 1996 … that’s 37 to 22 year olds. That’s people with bonds, boeps and baldness.
A group that comprises 70% of the South African workforce.
A myth that exists is that Millennials are needy … in a world of work that has never been faster, never been more demanding and complex, most new employees need coaching and mentoring in order to get up to speed. It’s not a generation thing. It’s an issue of acclimatisation and maturity, which only happens with time irrespective of when you were born.
Another myth is that Millennials are job hoppers – the US Bureau of Labour Statistics forecasts that the typical Millennial will have between 12-15 jobs in their working lifetimes – not as a function of hopping for hopping sake but due to the rapidly evolving and changing nature of the job market. And, these jobs are not necessarily at different employers but simply working in different contexts. A heightened ability to adapt and comfort with technology means that Millennials are in demand for emergent opportunities.
Speaking of tech … No, Millennials are not obsessed with technology. It’s simply how they operate in the world. Just as we cannot imagine a world of work without cars, email, Word and Excel. Millennials have grown up with certain tech at their fingertips and cannot imagine functioning without these. These are tools and a means to an end. It’s important to understand this as tech needs to enable and empower else it’s useless.
Another myth is that Millennials don’t care about their finances. Simply, not true. They hustle in different ways to make money and to make their money work for them. Millennials save for specific tangible goals – the holiday, the car, the deposit! Goals that are relevant to them. Keep this in mind for later on.
The paradox of Millennials is that, on average, they are better educated than any previous generation. Yet, have lower real earnings, higher levels of debt, experience more unemployment and have less disposable income. Critically, they are unattached to conventions – for instance, getting married in your 20’s, having 2.5 kids, religiosity, nationalism, retirement, etc. This means that as a generation, they face fresh socioeconomic challenges in a context where appeals to conventional values and approached are ineffective due to changes in their buying behaviour.
Typically, Millennials do not want to be told how to do things but prefer to be guided to how they can begin doing it themselves using the ubiquitous array of online and mobile tools. DIY is the way of the Millennial. We find that Millennials would research any new potential purchase online, seek peer group feedback on the potential purchase, review ratings for items, rely on word of mouth recommendations from trusted sources and then only make the purchase. Think about a Millennial buying the new iPhone. This is the process that is followed. Within a day, they are able to discuss key technical differences between the options available and have developed a vested emotional connection to their purchase. The breadth of information to inform a purchase is incredible. From reviews to blogs to YouTube videos. Millennials are being empowered with the insights to make an informed choice.
When considering the retirement funding context, we find that our industry does not support the buying process of Millennials. Information is available but not in the format that is relatable to most Millennials and not really in the format that they want.
Infographics, snackable content and videos work better. The type of comparisons needed are also not available as this would usually fall into the realm of advice with all of the related implications. There isn’t trusted peer group to test recommendations for a variety of reasons. Product complexity is usually touted as one of the reasons. Yet, Millennials are able to explain and engage on Bitcoin and Blockchain, which are far more complex. The issue lies not in complexity but in relatability. And that’s within our scope of influence.
A key issue for Millennials is whether their purchase aligns with their values. We find that Millennials prefer products from companies that help people, communities and the environment. In the investment context, approx ¾ want to know that their investment is doing social good, do not want to invest in companies known to be doing social or environmental harm and will only invest in companies that align with their personal values. This speaks directly to the application of CRISA and ESG principles to investment decisions. It speaks even more directly to the need to engage Millennials so that they understand and appreciate that their institutional investments are being directed towards assets that have a positive impact on society. Currently, there is a vacuum as Millennials do not know what and how their money is being used to help develop our nation. And it’s not their fault. It’s ours. We need to join the dots for Millennials. Doing so would help to emotionally vest the role that they are playing in such development through their investment. This would influence future decisions as to whether to withdraw such investments going forward as they are emotionally invested not just financially invested. And this takes communication.
Millennials tend to respond differently to communication channels and content than other generations. They have grown up in a context where information is being flung their way constantly and pervasively. It’s everything and the only thing that they know. So, while they will actively pull information when they need to. They are resistant to information being pushed to them. This is a subtle but important difference as our industry tends to rely on push, push, push. Which only results in push back. Our research has shown that Millennials would favour face to face interventions and are most likely to respond positively to word of mouth recommendations from a trusted peer. Despite the best intentions, member sessions re retirement funding are available but are about as attractive to Millennials as dental surgery. Creating the forum to engage Millennials at the workplace takes a different approach. And it is necessary to do so as Millennials are the Most At Risk generation of achieving poor retirement outcomes.
Have a look at the NRR map of a typical employer. The younger employees are seemingly on track for a good retirement outcome. So, where does it go wrong?
No clever investment strategy, magical asset manager, sophisticated administration system, transparent costs or anything else matters if members don’t preserve. If there’s one thing that our industry needs to get right, it is preservation.
And it is the most relevant issue to Millennials as they will change jobs more so than any previous generation and are therefore exposed to the temptation of withdrawing their savings more so than ever before. Exacerbating the problem are FIVE distinct characteristics of Millennials.
Firstly, they do not relate to retirement as a goal. The word cloud depicts their views on retirement with key associations to aging, planning and taxes. This is not an emotionally resonant set of triggers to engage Millennials. Or anyone apart from the actuaries. Millennials’ pain points with our industry are that there is very limited face to face engagement, they are not empowered to be in control of their choices, they feel very isolated during tax season, they are unclear as to what they are paying and what they are actually paying for and that the annual feedback cycle is too long. 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. With the blame being placed on our shoulders, rightfully and wrongfully. Furthermore, jargon, hidden fees and a severe lack of diversity act as barriers for South African Millennials to relate to our industry. Please remember, this is a generation that entered the workforce around the time of the 2008 great financial crisis. They saw savings being decimated. They have experienced the first part of their careers during the economic slump of the Zuma years. The recent corporate failures are also influencing and shaping their views on who can and cannot be trusted with their money. And any google search for positive news results in ads and company website hits. A search for cautions and failures leads to press articles. The net result is that they are highly sceptical.
The third issue is that Millennials are both highly confident in their own abilities and highly optimistic about their futures. They expect that 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 advisor also indicated that they are well equipped to craft their own financial plan.
Number four, 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 assets accumulated to be of economic interest to financial advisers and wealth managers. As such, they may be left to their own to make critical decisions especially relating to the preservation of seemingly small amounts initially.
So – Millennials cannot relate with the concept of retirement, they are overconfident in their own abilities, untrusting 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 up over 40% of our respective membership bases.
How do we change this?
The research points to a multi-prong 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 makes 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 to common queries. Tech can also be used to communicate and educate. According to Google, 70% of Millennials watched YouTube to learn how to do something new or learn more about something that they are interested in. In fact, their findings show that Millennials were 2.7x as likely to prefer watching a YouTube video over reading content to learn something new. If you want to be engaging your Millennial members, you need to be on YouTube. And in a manner that is relevant if we as consultants, administrators and funds wish to be relevant.
Touching on relevance, representation is required in order for Funds to make decisions that are relevant to their constituents. While Millennials account for over 40% of fund member bases, they account for approx. 5% of Board of Trustees of SA funds or Management Committees of Participating Employers in Umbrella Funds. The voice of this generation is not being heard in such forums to the extent required so it is little surprise that our actions are not resonating with this constituency. Transformation now includes generational transformation.
We must also critically re-evaluate how member sessions are structured and facilitated. Even including the word retirement in the invitation or agenda will immediately disengage Millennial invitees due to the strong negative emotions invoked. An alternative would be to focus on very specific issues to be able to educate in an influential manner. Also, the individuals conducting sessions need to be relatable and credible. Millennials don’t want to be told what to do or be spoken down to. Such sessions should be conducted by experts who are Millennials themselves so that they are better able to relate with the challenges faced by their peers.
Retirement benefit counselling presents an incredible opportunity to engage Millennials proactively. Engaging such members at pre-set events can demonstrate the level of personal care and recognition that they appreciate. For instance, a focus group member cited in a research paper indicated that their fund contacted her to indicate that she was in the inappropriate asset class for a person of her age. She was engaged, educated and influenced to change her asset strategy. She felt that she was being cared for. Consequently, the others in the focus group requested the details of the provider as that is the type of positive experience they want and also demonstrates the impact of word of mouth. The counselling can do this and more by engaging Millennials and influencing them to stay preserved. It’s not a silver bullet but it is a bullet that can lead to better outcomes. From our initial analysis, we find that the average fund value for Millennial members of the Sanlam Umbrella Fund is below R50,000. Typically, not enough for the average advisor to consult on. And this is where counselling makes a difference in reality as such members now have a better opportunity to receive the type of insights needed to make better decisions at a compelling time in order to address preservation.
Rather than trying 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 suggest that we build their confidence authentically by influencing them towards better financial decisions. Millennials want to be at the center 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 the ability to make better decisions.