New Money

Millennials have had it rough, in more ways than one. They’ve been saddled with record-breaking debt, a floundering job market, and utterly unattainable real estate prices. And to add insult to injury, popular media is anything but supportive.

Generational spending differences from their Gen X and Boomer predecessors have been sensationalized in every direction possible. You probably remember the headline of the 2010’s: “Millennials are killing the _____ industry.” Millennials are the unfortunate age group saddled with the responsibility of destroying everything from napkins, to golf, to Big Oil. But as much the media loves to talk about what Millennials are doing with their money, it doesn’t always paint a full picture of the generation’s complex financial journeys — or a fair one. 

Coverage of Millennial finances tends to be lacking in the nuance and empathy departments. TDL and FP Canada saw this gap and set out to map this generation’s financial landscape from a more evidence-based, behavioral perspective: How were their bank accounts looking? What were their wildest desires? What did they value, and what was holding them back financially? It was time to get past the avocado toast tropes and actually try to understand how this generation, which is about to inherit the world, feels about their finances.

Perhaps unsurprisingly, Millennials value financial independence and control more than previous generations. It’s easy to understand why: with less predictable incomes, a much higher cost of living, and more economic precarity, this younger generation came of age understanding that financial stability isn’t something to be taken for granted. 

But Millennials are also a cohort that values social impact — sometimes more than the bottom line. This generation often chooses to spend on experiences over possessions, and it’s not uncommon for younger investors to sacrifice profitability in their portfolios in exchange for ensuring that they’re putting their money into causes they believe in.

Our findings also challenged the common belief that young people are woefully uneducated about how to manage their finances. It’s true: research often shows that Millennials score lower on traditional measures of financial literacy than older generations (though it’s not clear how those cohorts scored at the same stage in their lives). But more importantly: the traditional markers of financial fluency may also be much less relevant — and much less useful — in today’s economy. Millennials are learning how to manage their finances in ways that better suit the more complex financial world of the new millennium.

For example, one commonly used question to measure financial literacy asks respondents whether it’s better to pay down mortgage debt or buy a bond, where the bond had a higher rate of return than the mortgage had rate of interest. The “right” answer (according to the test) is to buy the bond, since it has a better return. But to a Millennial who is wary of market volatility and unpredictable interest rates, or who’s more focused on managing immediate concerns (like repaying debt) than they are on accumulating wealth, paying down a mortgage may feel like the safer option. This is the kind of nuance that financial advisors, trained to help clients through the economy of a bygone era, can use to offer a higher-value service to Millennial clients.

One of the best ways to improve financial health is through planning — and most Millennials are open to sitting down with a financial advisor. But most advisors are used to a Gen X or Boomer clientele (the ones who, you know, have most of the money). We wanted to help advisors meet the needs of their up-and-coming Millennial clients.

TDL and FP Canada compiled a set of recommended practices for financial planners, including examples of how planners could take these tips from report pages into their offices. We wanted Millennials to feel not only like someone understood them, but cared enough to do something about it.

Consider this example: we found that Millennials are  gripped by a lack of, and simultaneously a desire for, financial confidence. They want to feel like they control their money, not the other way around. 

However, even Millennials with solid financial plans still don’t possess the confidence they desire. A behavioral explanation for this lack of confidence can be found in the hedonic treadmill — once we achieve a goal, like paying off our student debt, we expect we’ll become happy. But what is far more likely to happen is that we immediately start pursuing the next goal. Down payment for a condo, here we come! The same thing happens with our financial confidence: when we stop agonizing about one hurdle or difficulty, we easily find another one to occupy our attention, and ultimately we don’t get to enjoy the satisfaction of making progress.

To help Millennial clients value their hard-earned achievements, we suggested planners integrate benchmark questions into their client check-ins, asking questions like:

• How many times a week do you stress about finances?
• What’s your current financial goal?
• What financial achievement are you proud of?

… and use the answers to update their clients’ journey over time. With the chance to reflect on how far they’ve come, it’s harder to get lost on the hedonic treadmill.

While only one small step to advising, the importance of financial confidence shouldn’t be underestimated, especially for Millennials.

Even though Millennials have been dealt a lopsided hand of cards, we’re working to shed light on their real financial situations — beyond the cries against their expensive latte habits.

Everyone deserves to be understood by their planner, and supported at whichever stage of life they’re at. If planners know why clients act and think the way they do, they’re in a much better position to take an empathetic, impactful approach in their advising—and ultimately to deliver much higher-value service to their clients. With this report, we’re ensuring planners have access to the most accurate information about the most misunderstood generation, and practical tips to put it that knowledge into action.