It is a common and tedious meme that if only we millennials spent less money on avocado on toast and barista coffee, we would be that bit closer to the financial freedom we all crave. Although I admit I have saved a small fortune on coffee since working from home more recently, the introduction of expensive brunches to the UK is a great example of how products and services have adapted to cater to a millennial generation heavily focused on living life to the fullest today, even If it sometimes means living a little beyond ones means. It’s therefore always puzzled me that the consumers who would benefit from some guidance on financing the future consume less advice on the matter than older generations. I think this is due to two key points, which will be the topics of my first few blog posts this year:
- The cultural impact of digitisation and higher asset prices in the UK is changing the definition of financial freedom for millennials
- The transformation to a digital economy has radically altered the cost-benefit profile of lots of services, but it hasn’t yet done so for financial advice
For this blog, ill focus more on point 1, the definition of financial freedom and how it is changing.
When it comes to financial freedom, millennials see the world differently. We have grown up in a world where digitisation has fundamentally changed the accessibility of experiences previously reserved for the time or cash rich members of society. Alongside other cultural developments, the internet has meant there is no reason to wait till later in life to travel, work in foreign cities, create a non-profit, or just find a more desirable amount of daily leisure time. Instead of finding that one dream job, one might have many, perhaps even at the same time. Instead of buying a house, we rent for longer, and instead of retiring at some arbitrary birthday, we plan to taper on and off working commitments for a lifestyle that suits.
As lovely as this all sounds, millennials don’t receive advice on making sure they can optimise their finances to support such a lifestyle. In the UK, Only 8% of adults receive regulated financial advice, the majority of which are unsurprisingly over 55 years old. The absence of advice for younger cohorts makes realistic goals-based planning and saving time-consuming and complex, resulting in a lack of confidence and knowledge about money and basic financial literacy.
The data suggests the advice market in the UK is predominantly geared towards serving the more traditional Baby Boomer and Gen X’s path to financial freedom, where customers are more likely to have benefited from asset inflation over a sustained period. This makes older cohorts a better fit for a declining adviser population, seeking to cultivate a recurring revenue stream on larger accounts. This dynamic is at odds with the millennial segment, who although may have higher incomes, are less likely to have had the opportunity to benefit from the increase in asset prices over the last 20 years. For example, a recent report concluded that on average, adults over the age of 60 today have benefitted from around £80,000 of gains on their current main residence since 2000, whereas those aged 40-44 have received around £34,000. In the same time period, millennials looking to enter the housing market have seen the average house price increase by well over £100,000. If you add in the cost of educating yourself ready for a digital services economy, stagnant wage growth, a financial crisis and a global pandemic it’s understandable why it has become nigh on impossible for millennials to take the same approach to gain financial freedom as our parents and grandparents. Out of the population not currently benefiting from financial advice, 74% have suggested they are unlikely to in the future, even though 90% of those that do say they find It helpful. The difficulties facing millennials and the lack of advice they receive have led to the creation of an economic class where the journey to financial freedom is a lonely and complicated journey, out of sync with the otherwise intuitive and personalised financial services available from modern banks.
I don’t think this is a sustainable situation for customers or advice businesses and change must be around the corner. There is an enormous opportunity for wealth managers to supply financial advice in a digitally engaged but human first setting. The combination of a respected, professional adviser armed with a myriad of customer financial data creates the potential to provide clients with deep insights into their spending habits and a path to financial freedom.
Some wealth managers are beginning to wake up to the challenges confronting the millennial segment, however, most of the innovation so far has focused on robo-advice and cheaper direct digital investment platforms. Although these breakthroughs will help make investing more accessible, they haven’t fundamentally reinvented the way that holistic wealth management can provide value to customers. This is what wealth managers of the future must do and will be the focus of my next blog.