written by Darin Yuzyk | Consultant
June 14, 2016
Millennials. We hear the term, but who are they? Loosely defined, they are those who were born somewhere between the early 1980’s to 2000. But more importantly, next to Baby Boomers, they are the largest demographic group.
As such, financial planners need to realize that the approaches we use for the Baby Boomers/Gen Xers will, generally, not work with Millennials. Why is that? What makes them so different?
On the move
Millennials are likely to have several jobs or career changes over the course of their lifetime, and tend to focus on trying to make a difference rather than merely pursue the almighty dollar. This creates a need for greater mobility that wasn’t there in previous generations. As a result, Millennials may decide that the benefits of renting outweigh those of home ownership. Because renting:
– Provides greater mobility and varied location through short-term leases
– Doesn’t subject one to housing costs such as increasing property taxes and maintenance
– Requires no emotional attachment
– Frees up cash for life style choices
These benefits tend to outweigh the long-term appreciation and pride of ownership that comes with buying a home.
A penny saved
Another major difference between the generations is that Millennials are not big fans of debt. That’s not to say they don’t have debt. Some born in the 1980’s are carrying pretty steep student loans. But the majority are not taking on more debt to accumulate assets – even if those assets are homes. Millennials are more focused on having experiences than on accumulating “things.” Money is a tool to help them live their lives more fully.
Millennials are savers – but it’s not all for retirement. Maximizing their RRSPs is not as important as it was for their parents. Utilizing the flexibility of the TFSA often proves to be a more attractive option than RRSP contributions, even though they may be giving up certain tax advantages in the current year. Here’s a snapshot of the difference between the two:
Deductible contribution Yes No
Tax Sheltered Growth Yes Yes
Taxed on Withdrawals Yes No
Earnings based contributions Yes No
Ability to recontribute No Yes
Previously withdrawn amts. No Yes
They’re also less inclined to make riskier investments. More predictable and stable returns are what draws the attention of the Millennial mind. For them, financial freedom means doing what they want in the near term – such as continuing their education or travelling – rather than socking money away in their RRSP for retirement 30 years down the road.
Communication with Millennial clients is changing from more traditional means. Millennials are used to getting an answer to a question within a couple of mouse clicks. Digital literacy means they’re getting information through social media outlets such as Twitter, Linkedin, and Facebook, as well as the relatively old fashioned e-mail.
In dealing with Millennials, Planners need to think more like a coach or personal financial trainer. They were taught to work in teams, take a more collaborative approach, and to explore. We need to provide direction, and ask the right questions in the right sequence to help them solve the problem for themselves as opposed to telling them to do steps 1,2,3 to get results x,y,z. Give them the freedom to choose what they want to do, and offer some direction to support them in their choices – even if it runs contrary to conventional thinking (such as RRSP contributions).
Despite these differences, what Millennials ultimately want is the same thing as the previous two generations; a Financial Planner that understands what they want and where they’re coming from.
Darin Yuzyk has over 20 years of experience in financial services and education. He customizes and delivers employee-focused education programs for a variety of corporate clients. Through compelling and dynamic group seminars and one-on-one presentations, Darin helps employees understand and personalize their pensions and financial plans.