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Financial Planning for Millennials: How to measure financial happiness 

Set to inherit nearly $30 trillion in the next 25 years from their predecessors, Millennials are about to become the recipients of the largest intergenerational wealth transfer in history.1 As Baby Boomers steadily move into retirement and begin to pass down assets to their children and grandchildren, those who grew up in the digital age will need ample guidance in managing their wealth.

Most Millennials don’t want their parents’ advisor

Nearly 66% of Millennials express intent to fire their parents' advisors after they receive their inheritance.2 Millennials cite a lack of connection with their parents’ trusted guides, sometimes in addition to a preexistent, established relationship with their own financial gurus.3

But it doesn’t have to be this way: advisors can capitalize on Millennial eagerness to work with a financial professional. Four out of five (79%) Millennials have a greater desire to work closely with a financial professional, if they have one, compared to 59% of Gen Xers and 18% of Baby Boomers.4  In order to retain those accounts, financial planners need to engage effectively with Millennial clients - who have different needs from previous generations.

One of their priorities? Happiness. 

Self-determination theory acknowledges our motives

Self-determination theory (SDT) is a framework that posits we experience optimal well-being when our three fundamental psychological needs of autonomy, competence, and relatedness are met. SDT can provide an effective means to cater to Millennial inheritors in a personable, need-enhancing way.

As we move away from a period characterized by worsening mental health (which was massively exacerbated by the COVID-19 crisis)5 people are seeking ways to enhance their livelihoods and protect their health and happiness. Financial health, especially among Millennials who have borne the brunt of the mental health crisis,6 is of particular importance. 

Financial independence is highest on the priority list for Millennials. And it’s not just our research that has found this to be the case - in other literature on generational conceptions of personal happiness, Millennials marked successful individuation from parents as their top priority.7

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.

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pie chart of living off the financial dripline

How to bring SDT into the office

Motivations for making money matter. A lot. Pursuing net-worth growth and maintenance for intrinsic reasons (like fun, life satisfaction, or security) leads to higher well-being than doing so for extrinsic reasons (notoriety, social pressure, chasing superiority) - the latter can actually impede healthy personal development.8 When individuals desire financial success for intrinsic reasons,9 their financial aspirations are more positively related to self-actualization. 

Working with the client to understand whether their financial motivations weigh more in the self-integrative motivation bucket (the one linked with all the good intrinsic reasons), or in its non-integrative counterpart (the more ego-centric one) advisors can help construct a feasible, long-term financial roadmap to independence, and ultimately, happiness.

Approaching Millennials through an SDT lens might look like a conversation that underscores the value of competence and autonomy in the economic dimension. By emphasizing the benefits of having an external, trusted source of guidance and financial literacy—one who remains independent from parental advice and who cares about the psychological components of their happiness—advisors can effectively target the inheritors of their existing Boomer clients.

chart: % of millennials who are financially dependent vs independent

Introduce behavioral KPIs to measure wellbeing

The question of who is happy, where and why, has burgeoned over the past twenty years - one reason for this rising interest in happiness mapping is the wider awareness that we have considerable control over it. As we move away from a period characterized by worsening mental health, reduced hedonic tone, and emotional dysregulation (during the height of the COVID-19 crisis) people are seeking hope for ways to enhance their livelihoods and protect their health and wellbeing from the inside out.10 By working with the client to identify their motives for financial wellbeing, financial advisors can successfully integrate the ‘happiness metric’ to help realize their client’s lifestyle desires, values and goals. 

In addition to traditional measures like savings rate, credit monitoring, and discretionary spending, introducing behavioral KPIs can be a great tool to monitor happiness. These measures might be attained through questions like:

  • How achievable do you feel [a given objective] is?
  • Do you feel that you control your money or that your money controls you?
  • How often do you notice yourself thinking or worrying about money, even when you don’t have a financial decision to make?

By monitoring variation in responses to such questions over time, advisors can get a good grasp on their clients’ money motives and how to best structure their service to complement their client’s needs and preferences. 

Measuring SDT needs: Competence, autonomy and relatedness

Behavioral KPIs can help analyze how well the clients’ needs for competence, autonomy, and relatedness are being met. It is important to incorporate these metrics throughout the duration of the client-advisor relationship to measure the improvements that should emerge as the client becomes more knowledgeable and confident in their financial health. Clients derive real value from having their improvements made more salient to them, because in retrospect we often misjudge how we felt in the past; for example, we can easily forget how stressed we felt about our student loans before they were still looming over us. Highlighting improvements to clients, as demonstrated through repeat measurements, improves clients’ sense of competence—and their understanding of the value of your services.

  1. Competence: Asking questions and noting responses in each session to questions like “To what extent do you feel able to save money regularly, even if just a little bit?” is key to understanding how best to approach advising on budget balancing, retirement planning, and property purchase.
  2. Autonomy: To develop a coherent roadmap to self-sufficiency, learning how important individuation is to the client can be extremely effective. Money motives can be revealed by asking “How independent do you feel with your finances?” on a scale of 1-10, inquiring into the reasons why, and following-up with “How independent would you like to feel with your finances in the future?”.
  3. Relatedness: By inviting the client to answer questions like, “How do you feel your financial state affects your relationships?”, advisors can better evaluate how well the psychological need for relatedness is being met and proceed in identifying ways to balance healthy spending habits and lasting social bonds.

Report: Making Millennials happier with behavioral science

In order to adequately provide for their up-and-coming Millennial clients, financial advisors must introduce practices that cater to self-fulfillment needs. Perhaps the most effective means of gaining attention and building loyalty is by ensuring their preparedness for long-term financial stability, such that they meet the human psychological needs suggested by SDT to help them achieve optimal, subjective well-being.

In 2021, The Decision Lab partnered with the FP Canada Research Foundation to conduct research on the financial values, priorities, attitudes, and position of Millennials in Canada today. From their trusted sources of information, to money anxiety, to markers of success, the report details the massive shift that Millennials bring to the financial planning industry. You can read the report here

The Decision Lab is a behavioral consultancy that uses science to advance social good. research-oriented consultancy that uses behavioral science to advance social good. We're working to equal the playing field in finance and wealth management, in partnership with some of the world's leading financial organizations. If you'd like to be part of our mission, contact us.

References

  1. Hall, M. (2019, November 11). The Greatest Wealth Transfer In History: What’s Happening And What Are The Implications. Forbes. Retrieved from: https://www.forbes.com/sites/markhall/2019/11/11/the-greatest-wealth-transfer-in-history-whats-happening-and-what-are-the-implications/?sh=6762ef1b4090
  2.  Skinner, L. (2015, August 7). The Greatest Wealth Transfer In History: What’s Happening And What Are The Implications. Forbes. Retrieved from: https://www.forbes.com/sites/markhall/2019/11/11/the-greatest-wealth-transfer-in-history-whats-happening-and-what-are-the-implications/?sh=6762ef1b4090
  3. Polyak, I. (2017, December 12). To hang on to boomers' assets, advisors must court their kids. CNBC. Retrieved from: https://www.cnbc.com/2017/12/11/to-hang-on-to-boomers-assets-advisors-must-court-their-kids.html
  4.  AIG Life & Retirement Study Shows Americans Setting Renewed Focus on Financial Security and Planning. (2022, January 27). Bloomberg. Retrieved from: https://www.bloomberg.com/press-releases/2022-01-27/aig-life-retirement-study-shows-americans-setting-renewed-focus-on-financial-security-and-planning
  5. Moccia, L., Janiri, D., Giuseppin, G., Agrifoglio, B., Monti, L., Mazza, M., ... & Janiri, L. (2021). Reduced hedonic tone and emotion dysregulation predict depressive symptoms severity during the COVID-19 outbreak: an observational study on the Italian general population. International Journal of Environmental Research and Public Health, 18(1), 255. Chicago   
  6. Hoffower, H., & Akhtar, A. (2020, October 10). Lonely, burned out, and depressed: The state of millennials' mental health in 2020. Business Insider. https://www.businessinsider.com/millennials-mental-health-burnout-lonely-depressed-money-stress
  7. Shrestha, S., Hendrickson, J., Gomez, G., Vasquez, J., & Bavineau, J. (2018). LIFE, LONGEVITY AND THE PURSUIT OF HAPPINESS. Innovation in Aging, 2(Suppl 1), 120. 
  8. Manganelli, L., & Forest, J. (2020). Using Self-Determination Theory to Understand when and how Money Buys Happiness: a Cross-Sectional and Intervention Study. Applied Research in Quality of Life, 1-26. Chicago  
  9. Carver, C. S., & Baird, E. (1998). The American Dream Revisited: Is It What You Want or Why You Want It That Matters? Psychological Science, 9(4), 289–292. 
  10. Moccia, L., Janiri, D., Giuseppin, G., Agrifoglio, B., Monti, L., Mazza, M., ... & Janiri, L. (2021). Reduced hedonic tone and emotion dysregulation predict depressive symptoms severity during the COVID-19 outbreak: an observational study on the Italian general population. International Journal of Environmental Research and Public Health, 18(1), 255. Chicago 

About the Authors

Rebecca Mestechkin

Rebecca Mestechkin

Becca Mestechkin is a behavioral insights specialist, passionate about applying decision-making research to improve client practice and strengthen social bonds. In addition to her work with TDL, Becca works as a research assistant investigating judgments related to behavior genetics and the ethical implications of health policy.

Sekoul Krastev's portrait

Sekoul Krastev

Sekoul is a Co-Founder and Managing Director at The Decision Lab. A decision scientist with an MSc in Decision Neuroscience from McGill University, Sekoul’s work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.

Brooke Struck portrait

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.

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