Financial Planning for Millennials: How to instil confidence in the financial planning process
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The $30 trillion Millennial wealth transfer
The image of the broke Millennial is about to change. Over the coming decade, $30 trillion USD1 is expected to be passed down to Millennials from their parents, in the so-called “Great Wealth Transfer.” Over the next few years alone, Millennial earning power is set to increase by 75%.2 This raises the question: how are Millennials going to manage their soon-to-be inherited wealth?
Firing their parent’s financial advisors
Data suggests many may start by firing their parents’ financial planners. Coming of age in a tumultuous economic landscape has endowed Millennials with a different set of values than those held by previous generations: they’re more likely to prioritize self-expression and self-actualization than Boomers — a shift that can result in higher ethical standards for investments, valuing professional flexibility, or opting for a lower-paying job in favour of social impact.3
This being the case, perhaps it’s not too surprising that two thirds of Millennials decide to cut ties with the financial professionals who advised their parents after receiving their inheritance.4 The financial guidance that served the needs of past generations is no longer aligned with what younger clients are looking for.
Planners must pivot to address Millennial priorities
Planners — and their employers — have a choice: adjust their service offering or risk losing major market share as Millennials leave in droves. In order to best serve this cohort, financial planners working with Millennials must be prepared to face a new set of client expectations, desires, and challenges.
Fortunately, planners can harness their advantages over fin tech platforms (namely, their understanding of human behavior) to provide invaluable services to their clients. If they do nothing to adapt, they risk losing business as the market shifts. But doubling down on their unique abilities can create stronger, longer-lasting ties with Millennial clientele.
Behavioral Science, Democratized
We make 35,000 decisions each day, often in environments that aren’t conducive to making sound choices.
At TDL, we work with organizations in the public and private sectors—from new startups, to governments, to established players like the Gates Foundation—to debias decision-making and create better outcomes for everyone.
Supporting financial confidence can improve planning services for Millennials
While Boomers grew up with relative certainty that working hard could secure them a comfortable future, Millennials haven’t been as lucky. Saddled with record-breaking debt and stagnant wages, and having lived through a major market collapse and an unprecedented pandemic, Millennials are more likely to value the feeling of economic security than their predecessors were. Growing up with increased economic uncertainty has shaped how Millennials experience their financial world. Unlike previous clients, Millennials are more likely to value the feeling of economic security.
Millennials are lacking financial confidence - and for good reason
Millennials are also less prepared to manage their wealth than previous generations. A U.S. financial literacy survey identified 18-34-year-olds as the least financially literate age group, as well as the most likely to miss mortgage payments or overdraw checking accounts.5 Compared to their parents, Millennials have more difficulty moving towards financial independence and the feeling of economic security that they desire.
The lack of financial confidence is evident when planning with Millennials. It’s not unusual to experience clients with decades to go until retirement, and yet they have minimal appetite for risk and therefore can’t cash in on the greater gains that greater risk can achieve over those long time horizons. Or clients that stick close to their financial plans, and yet still feel an all-encompassing stress about their financial future.
In many of these cases, what keeps them from feeling stable in their financial planning is not their objective situation, but instead a lack of financial confidence. Without financial confidence, individuals may hold themselves back from achieving their financial goals: they may doubt their wealth is significant enough to begin planning, be reluctant to make those riskier long-term investments, or fail to explore investment options at all.
Understanding clients’ underlying emotions can boost their confidence
Thankfully, just like confidence in public speaking or negotiating, financial confidence can be trained and improved. Financial planners are in a prime position to reframe their client’s economic journey, moving away from stress and uncertainty in favor of confidence and celebration. An effective way to start this transition is acknowledging the underlying emotions that perpetuate these behaviors — and then making changes to address this human aspect of planning.
With improved financial confidence, Millennials can begin to build (and increase their feeling of security) in their hard-earned financial independence.
A behavioral explanation: The hedonic treadmill
It’s difficult to remember how we felt in the past. No matter how much time we’ve spent worrying about saving money or how hard we’ve worked for that promotion, after reaching our goals, we tend to immediately start chasing down the next challenge. Paid off your student loan debt? Time to start chipping away at your credit card balance.
The never-ending loop of chasing happiness
This restless feeling can be explained by the hedonic treadmill, a behavioral concept that suggests our happiness doesn’t fluctuate wildly in the long-term. We’re prone to believing that happiness is always just around the corner — we’ll finally feel accomplished once we get our dream job, reach our fitness goals, or buy the perfect home.
But we overestimate the increase in happiness that these aspirations will bring. Once we hit a goal, we’ll briefly bask in our success, but yesterday’s capstone achievement becomes today’s new normal. As a result, we quickly return to our usual set point of happiness. Before long, we’re fixated on the next big milestone that we think will bring us fulfillment. As a result, we’re often oblivious to our own financial progress, and the strides we’ve made in building up our confidence with money go unnoticed.
Our ever-moving benchmarks block our perceptions of success
Our tendency to quickly update our benchmarks for financial success can make us lose sight of our progress—and Millennial clients often fail to build the financial confidence they so desperately seek. Moving from one goal to the next leaves no time for recognition or celebration of our hard-earned achievements. It’s easy to overlook our hard-earned half-marathon finish when we immediately start training to run a full one. This can lead to discounting past successes and diminishing financial confidence.
With a better understanding of the behavioral influences behind confidence in planning, planners can take concrete steps to improve their clients’ experience.
What planners can do: Use snapshots to ground clients’ confidence
Taking stock of behavioral metrics
Financial planners can remedy this common demotivating pattern through their practice. They can start by taking snapshots of their clients’ financial breakdown every month or quarter, taking stock of metrics such as outstanding debt, dollars in a savings account, how the client is tracking against their goals, and most importantly, how they perceive their finances. Are they starting to feel comfortable? Does financial stress plague them daily?
At client meetings, planners can then present a chain of snapshots chronicling their financial journey. Being faced with concrete measurements can override the ease with which clients tend to forget about their past accomplishments.
In practice: Using snapshots to beat the hedonic treadmill
Picture this: your client is in their early thirties with a young family. Your client is stressed about their retirement planning, uncertain whether they’re making enough progress. You try to reassure your client by going over their current financial plan together, but their stress prevails. As their planner, you can see the strides they’ve made over the years — and at your next meeting, you end the check-in with a summary of those accomplishments. Even goals like buying their first car seem distant to them, in the rear-view mirror; it can feel like they’ve been a two-car household for ages now, even if the change was only in the past year.
With a reminder of how far they’ve come, your client realizes the huge gains they’ve made since engaging you as a planner.
Not only can this practice improve a client’s sense of financial confidence in themselves, but it’s also a reminder of the value that you are delivering as a planner. The ability to guide a client through their journey while improving their financial confidence shouldn’t be underestimated. In fact, it’s one of the most prized outcomes that Millennials are looking for.
How planners can connect with a new generation
Millennials will soon be facing an unprecedented influx of wealth, but their preferences, lifestyles, and values have changed drastically since previous generations. The outlook that served older generations will retire along with that generation. And unless they also plan to be exiting the business in the next couple of years, financial planners need to update their service to deliver value to the upcoming Millennial cohort.
The Decision Lab is a research-oriented consultancy that uses behavioral science to advance social good. We work with leading financial organizations to ensure that wealth management services are empathetic, imaginative, and personalized for those who need them most. If you'd like to help us make finance more inclusive and equitable for all, contact us.
- Choi, A. (2018). How Younger Investors Could Reshape the World. Morgan Stanley. Retrieved from: https://www.morganstanley.com/access/why-millennial-investors-are-different
- The Economist. (2020). Wall Street will soon have to take millennial investors seriously. The Economist. Retrieved from: https://www.economist.com/finance-and-economics/2020/10/20/wall-street-will-soon-have-to -take-millennial-investors-seriously?utm_campaign=editorial-social&utm_medium=social-organic&utm_source=linkedin
- FP Canada. (2021). Values & Priorities of Millennials in Canada: Synthesis & Application Report. FP Canada Research Foundation. Retrieved from: https://www.fpcanadaresearchfoundation.ca/media/ypqgzzjm/fp-canada-tdl-value_priorities-millennials-white_paper.pdf
- Skinner, L. (2015). The great wealth transfer is coming, putting advisors at risk. Investment News. Retrieved from https://www.investmentnews.com/the-great-wealth-transfer-is-coming-putting-advisers-at-risk-63303
- Forbes. (2022). Millennial Money: Financial inspiration and insight for a generation. Forbes Media. Retrieved from: https://www.forbes.com/feature/millennial-money/#26b0f4114799
About the Authors
Sarah Chudleigh is passionate about the accessible distribution of academic research. She has had the opportunity to practice this as an organizer of TEDx conferences, editor-in-chief of her undergraduate academic journal, and lead editor at the LSE Social Policy Blog. Sarah gained a deep appreciation for interdisciplinary research during her liberal arts degree at Quest University Canada, where she specialized in political decision-making. Her current graduate research at the London School of Economics and Political Science examines the impact of national values on motivations to privately sponsor refugees, a continuation of her interest in political analysis, identity, and migration policy. On weekends, you can find Sarah gardening at her local urban farm.
Dr. Brooke Struck
Dr. Brooke Struck is the Research Director at The Decision Lab. He is an internationally recognized voice in applied behavioural science, representing TDL’s work in outlets such as Forbes, Vox, Huffington Post and Bloomberg, as well as Canadian venues such as the Globe & Mail, CBC and Global Media. Dr. Struck hosts TDL’s podcast “The Decision Corner” and speaks regularly to practicing professionals in industries from finance to health & wellbeing to tech & AI.
Katie MacIntosh is Lead Editor at The Decision Lab. She is interested in the intersection of behavioral science, culture, and new communication technologies. Before joining The Decision Lab, she contributed to research on the neurochemical bases of memory and the social psychology of the internet. An aspiring polyglot, she has studied a number of languages, including as an exchange student in Germany, Japan, and South Korea. Katie graduated from the University of Toronto with a Bachelor of Science in psychology and linguistics.