What Financial Planners Should Know about Millennial and Gen Z Clients
Now is the perfect time to connect with these young generations to help optimize financial well-being and create decades-long relationships.
According to the Brookings Institute, more than half of Americans were Millennials or younger as of July 2020. While the term “Millennial” has been synonymous with “young adult” throughout much of the past decade, it’s a descriptor for those born between 1981 and 1996. Many of these Millennials, who now range from 26 to 41 in age, are entering new life stages as they advance in their careers, save for retirement and plan for their own children’s financial futures. The oldest members of “Gen Z,” ages 18 to 25, are also beginning to earn full-time wages and are projected to comprise nearly one-third, or 30%, of the workforce by 2030.
Although many financial planners have years of experience working with these generations’ parents and grandparents, some are still working to familiarize themselves with Millennial and Gen Z clients who are just beginning their financial journeys. The circumstances, priorities and perspective-defining events for Millennials and Gen Z clients often differ from those of Boomers and Gen X. Financial planners must understand these differences to provide these younger clients with high-quality, relevant advice.
Why Financial Planners Should Connect with Millennial and Gen Z Clients Now
Financial planners who recognize the importance of connecting with Millennial and Gen Z clients today better position themselves for future success. Some wealth management firms are already changing to attract younger clients who increasingly prioritize diversity and technology when choosing financial planners. In a recent Wall Street Journal article, Merrill Lynch describes how it diversified its advisor force and improved its technology. They report that people under 45 make up 20% of new clients this year, up from 10% five years earlier.
Millennials and Gen Z are receptive to working with financial professionals. 71% of Gen Z and 72% of Millennials say there are financial topics they want trustworthy advice on but aren't sure how to get it.
Millennials and Gen Z are receptive to working with financial professionals. Three-fifths of Americans, including 71% of Gen Z and 72% of Millennials, say there are financial topics they want trustworthy advice on but aren't sure how to get it. Haley Tolitsky, CFP®, a financial planner at Cooke Capital who is passionate about empowering the next generation, observes that younger generations are often excited to discuss their finances. A member of Gen Z herself, Tolitsky says that her younger clients “want to be educated and they want to do better.” In a rapidly changing job market and the aftermath of a global pandemic, the time is right for financial planners to engage with these highly motivated clients.
Challenges Shaped the Financial Lives of Millennials
Although Millennials now have a collective $1.4 trillion in purchasing power, one of Millennials’ defining features as a generation is the sequence of financial setbacks they experienced from 2007 to 2009 during the Great Recession. Those who were entering the workforce at that time faced high rates of unemployment. This precarious job market led many to settle for lower wages, and as a result, the average working-age Millennial lost about 13% of their earnings between 2005 and 2017.
Many Millennials postponed financial milestones like homeownership. 14.8 million Millennials have student loan debt, more than any other generation, with an average balance of $38,877 per borrower. Millennials also possess little to no emergency savings and have less overall wealth than previous generations.
Today, older Millennials are finally recovering their lost wealth and career opportunities and are in a prime position to begin planning their financial futures. In fact, December 2021 was the first month that Millennials surpassed pre-pandemic employment. The unemployment rate for those ages 35- to 44-years-old also reached 3.3% in December, below the national rate of 3.9%.
Today, older Millennials are finally recovering their lost wealth and career opportunities and are in a prime position to begin planning their financial futures.
As they gain their financial footing, some Millennials are establishing financial priorities such as paying down student loan debt, buying houses, raising children and saving for their children’s educations. While some of these goals are shared with older generations, the ways in which younger clients approach them is different.
One of the most significant differences between Millennials and previous generations is the amount of financial independence and agency that younger women hold. Merrill Lynch found that 75% of women under age 45 manage their own finances, while younger married women are twice as likely to say they are the primary decision-maker in their household.
Millennial women also earn more than they did previously in relation to their spouses, as they’re twice as likely as their mothers to make more money than their partners. Worth Winning Founder Lauryn Williams, CFP®, who specializes in financial planning for Millennials and young adults, adds that “many female clients are the primary breadwinners.”
Importantly, many women are also more willing to connect with a financial planner. It is crucial to increase the number of female financial planners available to serve the growing number of women who manage their own finances.
The Financial Goals of Millennials
Due to early financial challenges, many Millennials put off life milestones like homeownership and having children. However, that doesn’t mean these aren’t priorities, according to Williams. In fact, 90% of her Millennial and Gen Z clients are homeowners or actively engaged in the homebuying process.
Likewise, Tolitsky says that as the cost of living has skyrocketed in many U.S. states, young clients value help navigating the homebuying process. Both Williams and Tolitsky noted that their younger clients value financial independence and view homeownership as an extension of their individuality.
As for having children, the fact that many Millennials are getting married and having children later in life than previous generations has raised the cost of achieving this feat for some. Williams remarks that some of the most common expenses she helps her clients to budget for include IVF (In-Vitro Fertilization), fertility treatments, egg freezing and even surrogacy.
Some Gen Z clients anticipate a similar fate and are investing in freezing their eggs early. Because these expenses are not always fully covered by insurance, Williams works with couples and individuals to help them achieve their dreams of parenthood. She also notes the rising popularity among LGBTQ+ clients of preparing financially for children.
Only 58% of Millennials are saving for retirement, compared to 70% of their younger Gen Z counterparts.
One of the goals that many Millennials have deprioritized, according to Williams, is retirement. Only 58% of Millennials are saving for retirement, compared to 70% of their younger Gen Z counterparts. “The word retirement doesn’t resonate with my clients. They don’t plan to stop working,” Williams explains, “People see their parents doing well as professionals in older age and don’t want to plan for retirement at 65 or 70 because they assume they’ll be in great shape.”
61% of older Millennials believe they’ll be working at least part-time during retirement, per CNBC. But this isn’t the only reason Millennials are focusing their efforts elsewhere. 47% of Millennials say that they experience stress about the welfare of their families and their longer-term financial futures. Williams says that as a result, “They are prioritizing kids’ education over their own retirement. It’s important to us to give our kids the opportunities that we didn’t have.”
Lastly, and potentially most importantly, older Millennials are also poised to inherit $68 trillion. By forming relationships with these clients early, financial planners can build the trust needed to help allocate this income responsibly and help lay the foundation for a fruitful financial future. This is, of course, not as straightforward as it sounds. One of the obstacles Williams encounters is actually obtaining her clients’ parents’ estate planning information. Many Boomer and Gen X parents are reluctant to share this information, making wealth transfer planning an ordeal. Additionally, much of this will not transfer directly to Millennials or Gen Z, but through Gen X.
Notably, many Millennials express an interest in improving their financial situations. 50% of Millennials polled by Nationwide Retirement Institute® said they see a need to use a financial professional and more than 75% said they want to work with a professional to help them mitigate risk and plan for retirement.
Gen Z: Financial Lives Shaped by Diversity and Technology
Gen Z, the generation succeeding Millennials, holds an estimated $143 billion in spending power and is projected to surpass Millennials’ income by 2031. This is significant, considering that the youngest members of Gen Z were born as late as 2012.
Gen Z also differs demographically from its Millennial counterparts. According to the U.S. Census Bureau, Gen Z is the most diverse generation in U.S. history, with racial or ethnic minorities accounting for nearly half of the demographic. A quarter of Gen Z is Hispanic, 14% black, 6% Asian and 5% a different race or two or more races.
According to the U.S. Census Bureau, Gen Z is the most diverse generation in U.S. history, with racial or ethnic minorities accounting for nearly half of the demographic.
Wealth management firms would benefit from reflecting the demographics of the rapidly changing population, as Gen Z demands more diversity and representation across all businesses that they patronize.
Another core characteristic of Gen Z is its digital nativism. Most grew up with access to the internet and social media, so they are used to receiving information instantaneously, including financial information.
“This generation has had more access to financial literacy and financial education than any generation before,” says Tolitsky, who notes that many of her Gen Z clients display strong foundational knowledge when arriving at their first planning sessions. “You can watch a 32-second video and learn what a Roth IRA is. Past generations didn’t have that.”
Technology and easy access to information aren’t always a good thing. 51% of Gen Z respondents admitted to having taken online financial advice from someone they didn’t know. Akeiva Ellis, CFP®, warns that it’s crucial to separate the experts from the amateurs or the scammers on Instagram, YouTube and TikTok.
Tolitsky adds that many of her clients feel a sense of urgency after watching influencers online discuss their streams of income and investments, which sometimes prompts interest in financial fads. She emphasizes to them that much of what we see online is unrepresentative and that each person must make decisions based on their own circumstances, rather than what they feel they “should” be doing.
The Financial Goals of Gen Z
Gen Z is in the early stages of accumulating wealth, but many 18 to 25-year-olds in this cohort have already made strides toward financial goals. In addition to working toward goals like financing their education and paying down student loan debt, many older members of Gen Z have been proactive about investing, retirement saving and homeownership, with 70% already saving for retirement and 66% investing in stocks, real estate or cryptocurrency.
Gen Z is projected to be the most educated generation, with 59% pursuing higher education. As such, education and student loan debt remain major priorities.
Gen Z is projected to be the most educated generation, with 59% pursuing higher education. As such, education and student loan debt remain major priorities. However, after observing Millennials’ struggles with student debt, many are taking a more prudent approach. Many are first considering if college is even worth the financial undertaking, according to Tolitsky.
Moreover, many Gen Z clients are better equipped to pay off any debt they accrue. 61% of all Americans age 18-25 live with their parents or grandparents as of 2021 and are projected to live with their parents after receiving at least a bachelor’s degree, mitigating their living expenses. That being said, many of Williams’ and Tolitsky’s Gen Z clients have goals of homeownership and are beginning to learn about the homebuying process.
Additionally, according to both Williams and Tolitsky, Gen Z is more empowered to negotiate amidst the Great Resignation. They are also starting their careers with higher salaries than Millennials were able to secure. “Something that I love to see with this generation is they're not afraid to stand up for what they believe in and what they deserve,” says Tolitsky.
Historically, the top barrier preventing Americans from seeking financial advice from a professional financial planner is the belief that they don't have enough money to hire one. According to Tolitsky, this is changing, as many young people seek help managing their diversified income streams and investments. Many Millennial and Gen Z clients either have side hustles or own businesses that supplement their primary income, which Tolitsky predicts will prompt younger generations to work with financial planners earlier than previous generations.
Connecting with Younger Generations
Financial planners understand the importance of meeting clients where they are. Like older clients, all Millennial and Gen Z clients are individuals with their own goals and levels of education. Both younger generations are generally more open about finances and are interested in connecting with financial planners. However, the way that they interact with financial planning may differ from past generations.
Many in the younger generations view financial planning as a form of wellness or self-care, according to Williams. Both generations also are interested in building communities where they learn from and share with others. “Social media has been instrumental in that respect,” says Williams.
Many in the younger generations view financial planning as a form of wellness or self-care.
In addition to social media, the way each generation consumes information has changed. While Williams finds that younger generations spend just as much net time researching financial topics, they tend to favor formats like infographics, apps and short-form video clips. Accordingly, she incorporates accessible infographics and charts into financial plans for these clients.
The ways young people prefer to meet with their financial planners have also evolved. Many Millennials prefer not to meet in person or over the phone. Rather, they prefer communicating through text messages, videos or audio messages. Gen Z clients, by contrast, prefer to talk on the phone and are more loquacious than Millennials, in Williams’ experience.
One prevalent trend across all age groups rings especially true for Millennials and Gen Z — personalization. Two-thirds of Americans say a personalized financial plan based on their goals would be an important factor if they were considering a financial advisor.
As Millennials and Gen Z begin to comprise more of the American workforce, the market for financial planning grows. Financial planners can get a head start on cultivating relationships with these future clients and make a commitment to staying on top of trends related to these generations’ financial circumstances, priorities and goals.