Millennials have been widely derided for their love of avocado toast, smart phones and aversion to home ownership. However, too little attention has been paid to Millennials focus on personal finance and differences between them and their parents.
A recent Schwab study found some interesting facts about Millennial finance:
- 31% have a written financial plan compared to 20% of Gen X and 22% of Boomers
- 36% have specific savings goals compared to 25% of Gen X and 17% of Boomers
As discussed before, having a plan in place is a critical milestone for investors because a plan turns abstract figures into real-life goals, concerns and achievements. The clarity and specificity resulting from a personalized plan make it a critical component of investing.
Specific goals are client-directed and many times refined through discussions around the financial plan. These goals expand beyond simply retirement, which provides short- and intermediate-term rewards such as a house renovation, investment in passive income, and special vacation. Building towards and experiencing these achievements provides a positive feedback loop that builds on itself.
Simply telling someone “do this for 30 years and things should turn out just fine” may sound acceptable in text books. In the real world, it doesn’t account for unexpected opportunities, costs and newfound goals. This is where an evolving financial plan remains valuable over time.
The study also finds a difference in rebalancing methodologies for Millennials vs older siblings and parents.
- Nearly 75% regularly rebalance their investment portfolios compared to 66% of Gen X and 64% of Boomers
An advantage of rebalancing is that it extends beyond the portfolio implications. Consistent rebalancing shows that a consistent methodology is being applied to investments and the financial plan. Building a plan just to have it collect dust is as worthless as never having created one. Implementation of the action items is where the value is delivered and accrued through repetition and an ability to execute the plan.
Not all is sound and well with the Millennial generation. The report finds this head-scratching statistic:
- 64% of Millennials believe they will become wealthy in their lifetime
Of course, wealth is relative; so, it’s not impossible for this expectation to become a reality. More likely is that each household works towards their own goals, regardless of where that ranks in the wealth spectrum.
In the bigger picture, it’s positive to see an increase uptick in financial plans amongst a younger generation of investors. Without a plan, you can find yourself missing opportunities and a greater direction that extends beyond retirement.
Plan the work. Work the plan.
One point of concern in the research done by Schwab is that twice as many Millennials, Gen X and Boomers have a rebalancing plan than financial plan. This is like a chef setting the table without buying any groceries.
Portfolio investing can be alluring with its instantaneous pricing and ability to generate wealth. A good week in the market can mean more in earnings than savings the prior year. Instant feedback yields the desire to focus on investing.
A financial plan, on the other hand, can feel like pulling teeth—“Where is the 529 statement?” “Did we ever roll-over your old 401(k) from your old job?” Yet these questions yield the greatest value.
For all the ridicule that Millennials have received, their adoption of financial plans is a tremendous advantage for their financial futures. And for investors wondering whether a financial plan is right for them, we are reminded of the old Chinese proverb: “The best time to plant a tree was 20 years ago. The second-best time is now.”
The information herein was obtained from various sources. Delta Wealth Advisors does not guarantee the accuracy or completeness of information provided by third parties. The information in this report is given as of the date indicated and believed to be reliable. Delta Wealth Advisors assumes no obligation to update this information, or to advise on further developments relating to it.
Delta Wealth Advisors is a federally registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. For more information please visit: https://adviserinfo.sec.gov/ and search for our firm name. This is for informational purposes only and is not to be construed as an offer or a recommendation to buy or sell a security.