Millennials are, on average, better educated than any previous generation. Yet they have lower real earnings, higher levels of debt, less disposable income and experience more unemployment. These factors, says Viresh Maharaj, CEO: Client Solutions at Sanlam Employee Benefits, mean they’re the generation most at risk of achieving poor retirement outcomes.
If there’s one thing our industry needs to get right for millennials, it’s preservation – particularly since millennials change jobs more often than any previous generation, which exposes them to the temptation of withdrawing their savings more than ever before. To make things worse, millennials exhibit distinct characteristics that challenge the retirement industry.
Five challenging millennial characteristics
- They don’t relate to retirement as a goal. It’s associated with ageing, planning and taxes, which is hardly an engaging set of triggers. Consequently, millennials disassociate with the construct of retirement, and naturally, the need to plan for retirement.
- They’re sceptical of financial institutions as they experience the poor outcomes faced by their own parents. In addition, financial jargon, hidden fees and a severe lack of diversity in the industry are barriers to South African millennials.
- Millennials are both highly confident in their own abilities and highly optimistic about their futures. They expect they will have enough and are self-directed to seek and use information to forge their own path. They don’t know what they don’t know. In fact, 60% of millennials who indicated they wouldn’t use a financial adviser also said they were well equipped to craft their own financial plan.
- Despite being highly educated, they have low levels of financial education and literacy relating to budgeting, managing debt and the impact of compound interest.
- Millennials tend not to have adequate accumulated assets to be of economic interest to financial advisers and wealth managers. As such, they may be left to make critical decisions alone, especially in the initial stages of their careers, at a time when the preservation of seemingly small amounts would have the most long-term impact.
In short, millennials can’t relate to the concept of retirement, overestimate their own abilities, distrust financial services, have low levels of financial literacy and are generally not receiving advice at withdrawal. That’s a perfect storm.
And they make up almost 50% of the membership base of South African retirement funds!
How do we change this?
The research points to a multi-pronged engagement approach aimed at influencing millennials to make better financial decisions.
The first strategy is to enhance how we engage millennials using technology as an enabler. Technology needs to hit the psychological triggers of putting millennials in control, providing relatable insights to empower decisions and make users feel safe. In the context of money, millennials mainly use technology to speed up mundane transactional processes such as eFiling, banking, transacting, and so forth.
In our specific context, that means benefit statements, fund values, insurance amounts, transacting and getting immediate feedback on common enquiries. Technology can be used to transact, communicate and educate.
Retirement benefits counselling presents a great opportunity to engage millennials proactively at certain trigger events. In particular, proper counselling provides the most practical solution to influence preservation. It’s not a silver bullet but it can lead to better outcomes.
Our initial analysis has shown that the average retirement fund value of millennials is less than R50 000, which is generally not enough for the average adviser to consult on. This is where retirement benefits counselling makes a difference, as such members now have a better opportunity to receive the type of insight needed to make better preservation decisions at the best possible time.
Rather than using fear tactics to dampen millennials’ confidence by highlighting their lack of financial literacy or approaching them as unrepentant lost causes, we propose that our industry builds their financial literacy authentically by influencing them towards better financial decisions.
Millennials want to be at the centre of their life decisions, and an approach that respects this is likely to yield better outcomes than the current model of delegating decision-making power to an adviser or intermediary. Millennials don’t want to be told what they can and can’t do. They want insight that empowers them to self-evaluate what is in their own interest and gives them the ability to make better decisions.
For the full Sanlam Benchmark Survey and analysis visit www.sanlambenchmark.co.za.