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Diving into The Young Investor Mindset

Addressing the challenges and opportunities next-gen investors face.

Millennials and Generation Z are, as a whole, better educated and more economically active than previous generations. However, despite the ability to access information easier than ever before, there is still an overall lack of financial literacy among younger generations.

E*TRADE recently hosted a panel exploring the young investor’s mindset, challenges they face and key insights for advisors on how they can cater to the next generation.

Reaching Young Investors in Ways that Matter

For many potential young investors, the perception that investing requires a high level of financial sophistication is a major roadblock when it comes to taking that leap into an unknown environment. Advisors can provide real value to younger generations by breaking down these walls and educating them on the best strategies for financial success.

Social media can provide a wealth of financial knowledge, but at the same time it’s an uphill battle against a false sense of reality and “keeping up with the Jones’.” Finding ways to cut through the superficial clutter and reach young investors where it matters is a challenge, but one that is not impossible to solve. Because today’s young investors are fundamentally different in how they consume information, advisors must adapt their approach to financial education in a way that addresses their tech-forward lives.

“Social media algorithms have the ability to pinpoint exactly what users are looking for and deliver it right to their doorsteps,” said Liensa Vidra, director, product management at E*TRADE. “Young investors are looking for that same type of ease and personalization when it comes to how they receive investing information, so it’s incumbent on our industry to deliver digestible insights and best practices.”

Becoming a Financial Resource

The first step in increasing financial literacy among younger generations is to through education. Advisors can help break down the barriers when it comes to talking about money and empower young investors to kickstart their financial futures. Volunteering at a local school or hosting a financial “open house” at the local library are great opportunities to create a familiar and safe learning environment, in which students can have their biggest questions around investing answered and start a financial dialogue with an expert advisor.

It’s also equally as important to help the younger generation understand money isn’t just something that’s on their phones. Unlike their parents and grandparents, much of the younger generation is growing up in a world where physical money is rarely used. From apps that allow you to pay friends and retailers with a click of a button, to brick-and-mortar stores that don’t accept cash, the concept of a dollar is shifting. It can be a big hurdle for young people to understand how money can be invested when they don’t have a full appreciation for what it truly is.

Making an Impact

Despite the obstacles, the good news is the next generation is looking to build good financial habits. Advisors can:

  • Engage their clients’ children. Advisors can add value by getting to know all the members of the client’s household. Building a relationship with clients’ children can help build their financial acumen, lay the groundwork for future relationships, and establish a level of trust early.
  • Leverage account aggregation. Managing multiple accounts can be overwhelming for a young investor, especially when they’re juggling both debt and assets. Bundling everything from a 401(k), to a traditional brokerage account and student loans can help advisors create a complete financial picture that’s easier to understand. It also helps take away the guesswork for an advisor on the financial health of their client during their formative years.
  • Consider fee schedules. Combined with recent moves to provide commission-free trading, offering the option of an annual subscription model versus a more traditional asset-based fee structure can greatly reduce the barrier to entry for first-time investors.

For many young investors, saving for the future takes a backseat to the here and now. By providing greater guidance on their terms, advisors can help the younger generation feel confident in their decisions and increase the value they perceive from advisor relationships.

Kerry McDermott is Senior Relationship Manager at E*TRADE Advisor Services. David Kupecky is Executive Director at Boys & Girls Club of Metro Queens, Inc.

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