07.08.20

On Back Side of 30, Oldest Millennials Really Are Special

by: Rich Blake

On Back Side of 30, Oldest Millennials Really Are Special

The youngest millennials have graduated from college and, depending on what week it is, are either getting crushed by grim economic prospects – or killing it day trading on Robinhood.

The oldest millennials, meanwhile, are closing in on 40. Retirement planning professionals can do a lot more than set up an auto-birthday greeting. Indeed, they are a unique breed and generation: traumatized at a tender age by 9/11; financially rocked out of their post-college starting gates by the global financial crisis; digitally savvy, of course, yet surprisingly old school in terms of certain traits, some brought out in earnest by the COVID-19 pandemic. Call it a kind of what-matters-most pragmatism.

To the extent advisors can muster it, special attention is owed the subset we’ll call the “OMs.”

“Commonly, assumptions are made that lead some to believe that millennials are not a ripe market for bank and credit union investment services,” said Tim Kehrer, senior research analyst, Kehrer Bielan Research & Consulting.

But it’s never wise to stereotype.

In Credit Unions They Trust

True, younger people are that much more distrustful of traditional institutions relative to older cohorts. Trust in financial institutions has eroded overall, across age groups. But even as phone-based apps surge in popularity, the credit union — surprisingly — still carries some reputational cache, according to Kehrer, who did a deep dive into a range of survey data sets a few years ago when the OMs were reaching their mid-30s.

Among traditional institutions, credit unions stood out as most trustworthy to the Millennials in general with 36% of those surveyed viewing credit unions with a "great deal of trust." Banks were next, notching 26%. Other categories — noticeably, full-service brokerages and mutual fund companies — were in single digits.

One of the most commonly held assumptions about young people is that they don’t have any money. Some data suggests this is true — seemingly, relatively and no doubt, as Business Insider has reported, an affordability crisis has acutely impacted millennials. This generation has faced higher costs for housing, childcare and healthcare while also being laden with student debt far exceeding earlier generations, all contributing to under-age-40 wealth levels that, per the Federal Reserve, are on average below where they should be.

For example, in 1989, when the youngest boomer was 25 — wearing pastels, listening to Jan Hammer cassette tapes on Sony Walkmans — that generation (born 1946-64) generally in aggregate held 21% of America’s net worth. That’s seven times the size of the (3%) share held by millennials today, according to The Fed.

In 1998, an era of Hotmail, dot-com millionaires and HBO just starting to rule Sunday nights, the 20-to-35 demographic household made $103,400; today, despite moderate wage increases for most college degree holders, that average is $100,800.

Still Time to Catch-Up

But there are some wildcards in the experts’ demographic-trend slide decks, suggesting that some serious catching up could happen depending on circumstances and factors i.e. millennials’ parents’ wealth/longevity.

“Their wealth is increasing,” Nationwide Advisory Solutions said in a 2019 report highlighting millennials’ priorities (ethical investing), preferences (digital, phone-based, low-fee) and worries — chiefly among them, for the OMs, having enough money to retire.

More than one-third of those surveyed by Nationwide said that they want face-to-face meetings with advisors, suggesting, perhaps stereotypically, a certain attention-craving propensity; but also probably more so reflecting a practical approach to financial goals, too important to be left to texting.

The Nationwide research incidentally also found that concepts like “fiduciary standard” are not as important to the millennials; mobile technology ranks higher-up on the priority list.

Younger investors are signaling, by their real-life habits, an acceptance of companies profiting from their data. The zero-commission, phone-based Robinhood platform generated headlines throughout the spring. With numerous articles chronicling the return of the day trader, locked down and locked in, snapping up pandemic plays and taking flyers on airline stocks, a sort of pop-up speculative boom wrapped inside what still could turn out to be a depression.

Robinhood’s community of users increased their total holdings in March, when stocks bottomed and then began a stunning retracement that even Warren Buffet missed.

“For all the mocking of Robinhood investors, their timing back into the market looks impeccable, with a significant pick-up in holdings as equity markets bottomed in mid-March,” Societe General said.

“We see a lot of buying activity of industries that were impacted by the pandemic,” Robinhood co-founder and co-CEO Vladimir Tenev recently said to the public. Battered airlines were popular, he said, as were videoconferencing and streaming companies.

TD Ameritrade’s millennial clients followed a similar path in May, the firm said.

One lesson for older advisors is, on the one hand, don’t make blanket assumptions about the financial acumen of young people. But it may be, on the other hand, with COVID-19 cases spreading aggressively around the country, too early to declare a “shrewdest generation.”

Stocks are looking risky, so there may be events still unfolding that, let’s just say, could bode well for the merits of sound financial planning.

Playing with Fire

Motley Fool examined Robinhood data, showing the most traded stocks on the platform were hot-to-the-touch-type bets such as Hertz. The auto rental company is being held up as the kind of car wreck that was waiting to happen and then did. With Robinhood investors piling in after its bankruptcy filing in late May, bidding Hertz up to $5 in early June. By around the Fourth of July, however, Hertz shares sank below $1.50 making for at least an interesting homonym play.

More than 170,000 Robinhood users were holding HTZ shares as of mid-June or quadruple the users who owned them before the bankruptcy filing, the Motley Fool research found.

‘Focused on Retirement’

Advisors should pay extra attention to the millennials born before the turn of the century (in 1996 or 1997), as this group will increasingly get more serious and start to reflect many of the qualities of all the generations we've known. Because these are difficult, turbulent times that will test us all, drawing out our stoicism, brotherly love, creativity and greatness are all things that society is going to need. A sense of financial preparedness is also being bred by this moment in time, particularly for the “kid” about to turn 40.

“Millennials are already focused on retirement and engaged in investing," Kehrer said. “Their number one goal is providing for retirement.”

Millennials, he said, want to learn more and have familiarity with banks and credit unions. That still counts — more than one-third of them (responding to a MacroMonitor survey done a few years back), reported owning a brokerage product purchased at a bank or credit union.