Helping Millennials plan for Retirement
Have you ever wondered why millennials don't answer their phone and then respond to a message or email two seconds later? The majority of millennials prefer text where they have the opportunity to analyse and edit their response. Secondly, with a text they want a record of what has been said; this stems from a lack of trust in people and text offers flexibility in the 24/7 communication cycle.
Growing up in the 1990’s and early 2000’s with iPhones, internet access and knowledge at their fingertips, millennials have become the do-it-yourself generation where it is easier and more convenient to Google something than to ask for help from a real person. This poses a challenge for financial advisers who want to help millennials make smart financial decisions.
To successfully connect with millennials, financial advisers will have to change the traditional model of prescribing financial advice; bulky investment reviews will have to be compressed into brief but meaningful information like infographics. Skype meetings will replace face to face meetings and traditional TV advertising will move to social media where millennials spend an ever-increasing amount of their time. Dealing with millennials requires lower barriers to entry, frictionless communication and a revised service offering from financial advisers, to ensure millennials are part of the minority who can retire comfortably.
The common misconception is that millennials don't save for retirement. But is this correct? Most millennials employed in the formal sector will belong to a company pension or provident fund, and as retirement reform and employee benefits become more important, the number will only increase. The concern is those millennials who don't belong to company pension or provident funds.
Led by the need to be independent and a lack of trust in the financial system, a lot of millennials are saving but in their own entrepreneurial way. A 29-year-old who changed employers recently approached me for advice on his employer benefits. After explaining the importance of preserving his funds and the benefits of compound interest, he purchased a Toyota Corolla and leased it to an Uber driver. The income from the Uber rides is then divided between him and the driver. He proudly stated the car was providing him with a consistent return on his investment.
One of my friends quit her job at the age of 31 and embarked on a mini-retirement. Using savings and an income she receives weekly from renting her 2-bedroom apartment on Airbnb, she is travelling South America. She plans to return home and start her second career once she is done with her wanderings.
The peer-to-peer economy is allowing us to rent out physical assets for a steady return on investment and income. Is this not the aim of traditional retirement planning?
Millennials are also more open to alternative investments like exchange-traded funds, futures contracts, and cryptocurrencies. Without going into the correctness of and the risks of cryptocurrencies, financial advisers should accept that ETF’s and cryptocurrencies are not going away and adapt to the new opportunities and threats to remain relevant. These alternative investments, often with a social conscience, will have to be merged with traditional assets to provide a balance between risk and return.
A real risk is the fact that one in three millennials who are between the ages of 23 and 34 in South Africa are unemployed. It is a concern as this group of millennials is losing the time and opportunity to save for retirement. Every generation has their problems and struggles with a major unemployment problem in the country. This should be an opportunity to change the savings culture and the thoughts of the traditional retirement solutions.
We have to help millennials find a balance between saving and enjoying life. It's not the responsibility of financial advisers to sell retirement annuities or grow their client’s funds with CPI+5%. Financial advisers are there to ensure their client's well-being - even if that means the client taking a mini-retirement. Millennials need support to reach their financial goals with traditional or alternative investments strategies and financial advisers to protect them against outside forces like cryptocurrency bubbles and the 'know it all, do it all yourself' approach.