A recent Wells Fargo survey indicates millennials are fearful about their ability to save enough for retirement, and more than half believe they will never be able to accumulate $1 million over their working lifetimes.
While it’s debatable whether $1 million will even be enough in retirement for this generation, it’s also misleading to say they have given up. More than half of surveyed millennials say they have started saving, indicating perhaps some optimism or, at least, that some of these fears may be unfounded.
As young investors start careers, accumulate assets and look to the markets to compound their savings, financial advisors have an opportunity to help shape and shift their early perspectives. It’s important to recognize, for example, that the $1-million figure can appear daunting to anyone. Helping emerging investors think about saving in terms of $10,000, $20,000, $50,000 and so on can make these sums seem more achievable.
In the next 30 years, older Americans will begin to pass down $30 trillion in assets to their children and grandchildren, Accenture Consulting predicts. It’s critical this next generation has the financial knowledge and confidence to manage these assets. As financial advisors, many of us are in a place to educate and build long-term relationships with younger generations, but we must first convince them that reaching the $1-million mark is possible. And that starts with conversations about savings, consistency and planning.
There is a hard and fast rule we can help millennials adopt: Pay yourself first. One in three members of this generation faces student loan debt, with a median load of $19,978, according to Wells Fargo’s millennial retirement survey. As advisors, many of us know that paying all of your bills first and then attempting to save does not always work as well, mostly because people find a way to spend it. Advisors can have conversations about compounded interest, the benefits of saving early and how the easiest way for someone to pay themselves first is to sign up for an employer’s retirement plan, which employers often turbo-charge savings by matching a percentage of employee contributions.
For millennials in a digital world, this next suggestion may sound like heresy, but I’ve seen it work in my office: Pull out a small note pad and ask an emerging investor to record his or her savings and debt levels each quarter. There are mobile apps that also help consumers track their saving and debt, but the exercise of recording this information with a pen and paper makes the process more personal and real. It forces a look at savings and debt and helps with accountability.
Young investors also believe their retirement savings are in great peril due to stock market volatility, according to Wells Fargo’s survey. Financial advisors have an opportunity to ease these concerns by helping emerging investors understand why volatility in markets does not equate to a permanent loss of an investment.
As financial advisors, we have seen volatility work in both directions, and a quick history lesson can alleviate some concerns about market volatility. Looking back over time, research shows the longer one holds a diversified basket of stocks, the risk of losing is greatly diminished. In other words, holding an S&P 500 Index fund and reinvesting the dividends over 20 years equates to very little risk.
Rather than let fear and debt erode millennial savings habits, financial advisors are in a place to help emerging investors concentrate on their greatest asset: Time. Convincing this generation to start the process early, with small, incremental investments and a plan for the long term can go far towards building lasting relationships that help them achieve their goals.
Jeff Weeks is a first vice president-investment officer with Wells Fargo Advisors in Pensacola, Florida.