March 23, 2016
More than a quarter of the US population is represented by millennials. Companies across industries are turning their priority and attention to creating products which can cater to this significant population. Millennials are expected to spend more than $60 billion on CPG in the next decade with a demand for mobile, social and personalized experiences when shopping.
A powerful pool of active shoppers and mobile users attracts the attention of entrepreneurs looking to leverage opportunities in such a perspective market. However, not all ventures aimed to lure millennials will be fortunate to succeed. In order to build an attractive and valuable financial product tailored for a demanding group, FinTech companies and banks need to understand who are they dealing with and what their target audience wants from the financial services industry.
Major players in the banking industry have come to realize the importance of millennials as customers and have performed studies on financial behaviors of the group over the past few years. Among some of the interesting ones are The 2014 ICBA American Millennials and Community Banking Study, Millennials Banking Insights and Opportunities, The Generation Game, Financial Behavior, Debt, and Early Life Transitions: Insights from the National Longitudinal Survey of Youth, 1997 Cohort, 2014, US News Millennials Report. Market Insights, 2014 and Millennials and Money by Private Banking and Investment Group Merrill Lynch. The last report from a major bank has revealed some of the most important traits millennials share when it comes to money and banking.
Millennials question everything
One of the hallmarks of the generation is skepticism. Millennials are eager to ask questions and to learn instead of placing their trust in hands of bankers. In their desire to seize the best, millennials want to get to the bottom of the things.
Millennials today are well-educated and financially savvy. They don't get lured by the promises of a high return of investments, but look to weigh possibilities and are prepared for the risks any investment carries.
An interesting observation has been made by Adam Katz, an advisor with the Private Banking and Investment Group. They’ve watched what’s gone on over the last decade, and they pretty much feel like they might as well put their money under the mattress, he noticed on practice.
According to the research, millennials have grown up immersed in online communities, where the wisdom of the group, the ethic of crowdsourcing and DIY culture are highly valued, and where analysis of information is as ubiquitous as information itself. It led to the desire to not just follow recommendations based on reputation on experience of dedicated professionals. Millennials want to understand what’s under the hood, as tech people often refer to seeing the skeleton and seeing the math behind the numbers. As Katz has commented, in his discussions with millennials about their financial futures, they invariably ask how they can best accomplish their goals. The vital question for them is how.
Millennials want to be in control
According to the study, more than 70% of the respondents describe themselves as being "self-directed" in their investing. The tendency is immensely related to the skeptical nature of the millennial mind. They do not simply believe in the reputation and superiority of past successful experiences. That could be the reason financial advisors usually have a hard time with millennials as they are seen by the last ones as salespeople without the client’s best interest in mind (only 19% believe the opposite). That is why more than 40% of surveyed millennials don’t have a financial advisor.
However, millennials do believe that advisors could be of help. This is a generation of people who grew up with very positive relationships with their parents, says Tammy Erickson, an author and consultant who specializes in multi-generational dynamics. They tend to have a lot of respect for people who are their parents’ age, and, by extension, they like to learn from them.
Millennials with inherited wealth have a strong fear of failure in the eyes of the family
Young inheritors of the family wealth are observed to have anxieties around their role in the stewardship of the family wealth. It often happens that parents of those young people have become very successful and recognized and are casting a long generational shadow, as the study suggests. Hence, the young beneficiaries have doubts about their ability to meet the high expectations of maintaining and raising the wealth of the family. And often, it doesn’t even matter if the younger generation is represented by equally successful and accomplished professionals, the anxiety to screw it all up remains with them with the fear of being a family disappointment.
The successful parents, in turn, share the fear of demotivating their children by oversharing information, which leads to a certain lack of communication at the end. This tendency leads to unfortunate consequences over generations. As studies demonstrate, a significant part of the family wealth is completely lost by the second generation 70% of the time, and 90% of the time by the third generation. Only 10% of families see their wealth become truly dynastic and make it to a fourth generation.
Millennials share an entrepreneurial spirit and they are socially responsible
A common characteristic millennials share is that they share an entrepreneurial spirit regardless of their background. Millennials believe that the real path to success lies through innovation. That may explain why there are so many young entrepreneurs behind successful FinTech startups.
Another interesting hallmark of millennial entrepreneurs is the desire to have their assets accessible and flexible. The way they see it, they’re not done yet, commented David Waitrovich, a Private Wealth Advisor in San Francisco whose practice includes a number of young Silicon Valley tech millionaires. They’re trying to think about: ‘What should I do with my money in an intelligent way—but (in a way) that also allows me the flexibility to continue to be an entrepreneur?’
Aside from sharing an entrepreneurial spirit, millennials also tend to be socially responsible. One of the surveys mentioned in the report from Merrill Lynch has found that almost 60% of the youngest age listed social responsibility as one of the most important factors by which they selected investments, far more than their older counterparts.
Millennials are looking for connections
A study of the factors playing a vital role in selecting a wealth management provider has revealed that for millennials that are looking for an advisor, the ability to provide sound financial advice is just one of the things they are looking for in the relationship.
The most interesting part is that millennials are looking for a connection opportunity. While they are certainly expecting a financial advice, what is really more important to them is to gain an access to network. They are looking to expand connections and reach those who might help them with their livelihoods or with their businesses. As Katz shared in the report, In a world of intense connectivity, young people value relationships very, very highly.
Millennials seek a networking value in advisory service. They want introductions to potentially beneficial relationships, members of boards and those with relevant knowledge about their businesses. It is important for millennials to make sure that with the service they pay for, they will receive an opportunity to get help to expand and deepen their professional network.
Millennials are not fully confident in the value banking industry professionals can provide
Given the sceptic nature of the millennial mind, young entrepreneurs tend to question the value financial advisory and financial industry professionals really provide them. At each step in their career and curve in their business growth, young entrepreneurs seek a tailored advice. There is a certain disbelief millennials share related to the ability of the financial services professionals to be at the cutting edge and provide the most relevant advice to a current situation. They seek for a proof that the service they pay for is relevant and based on a particular situation. Understanding the challenges of dealing with a skeptical and always-questioning mind, advisors are forced to constantly learn and develop, ask questions and listen to their clients.
One of the problems of industry professionals discovered in the research is the lack of communication of the evolvement of the industry. Despite the common opinion that traditional financial industry players are often lagging in being up to date and are unable to offer the most innovative solution available, the industry is drastically changing. Robo-advisors and application of AI takes wealth management and other financial services to a whole another level. In addition, banks need to communicate their ability to change and provide the best available.
The best thing advisors can do for millennials is to listen carefully and extract the short and long-term goals out of the sometimes unstructured desires and anxieties. An open mind from both sides can contribute to the ability of one side to trust and the other to listen and communicate.