How we really feel about money and investing.

Mr. Nick Halle, a history and economics major and junior at the College of Wooster, provided research assistance for me over his winter break. Nick was too young to remember the market correction of the early 2000s, but he witnessed the effects of the 2008 crash and the meltdown of housing prices. I was curious about how millennials are likely to approach finances and investments, and what they might seek from financial advisors once they graduate and enter the workforce. Nick researched this topic and also has shared his own personal perspective. Here is what he wrote. 

– Greg Gann, president of Gann Partnership LLC, Baltimore, MD

The world of money is changing. The Great Recession of 2008, student loans, and the upcoming great wealth transfer all play important roles in what my generation will do with their wealth. The key to this article is to focus on how investing attitudes are changing, the importance of financial literacy, the impact of student loan debt, and how the upcoming wealth transfer from our parents will play a part in our investing. All of these issues will redefine how individuals attempt to guarantee a safe future for themselves.

Previous generations have focused on passive “traditional value investing,” building “safe” portfolios that included large, well-known corporate companies and other investments. We have different attitudes toward investing, as we are able to share information through a variety of forums such as social media, and we are not tied down to a financial advisor for information. Sharing is part of our DNA. We expect transparency and control.

“Sharing is part of our DNA. We expect transparency and control.”

We focus on companies that appeal to us but may be more volatile. Our portfolios would likely include social media or technology companies—just as previous generations favored stocks of companies making products they were familiar with. The stock market for us has been a place of volatility and not great returns. The Great Recession took place when many of us were in high school, and we witnessed firsthand the hardships our parents faced. Will this make us too conservative for our own good? A key to investing is to start young, as I’ve been told over and over again. The gains made early only grow on each other, and a sound understanding of financial fundamentals is key. But what if we are unable to start early?

“Financial literacy,” as defined by a U.S. Treasury Department initiative, is “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” The ability to manage personal finance falls into two categories for college students: the short run and the longer-term future. For many of us, we only focus on the amount of money on our debit cards and how we can afford the necessities and occasional impulse purchase.

Many of us are unaware of the true consequences of not understanding how our own personal finances work. While we rely on our parents to control our finances to a point, you can’t build a plan by just saying, “I’m sure my parents will take care of me.” Unfortunately, for many recent graduates this is a necessity due to the debt they have incurred. In addition, the “Great Upcoming Wealth Transfer” has begun and will have its impacts in the coming decades. Understanding how these will affect all young people, whether college graduates or not, is imperative for our collective growth in financial literacy.

The figures on student loan debt are staggering, now exceeding credit card debt. This is large enough to make student debt seem like a national crisis touching every household. It has a major impact on the macro economy, delaying first-time home purchases, as well as limiting the mobility and disposable income of many recent grads. We might have difficulties getting loans, be unable to start small businesses, and be hard-pressed to save for the future.

This in turn can hurt our long-term career development and possibly our lifetime earnings potential. Making early career decisions simply to be able to pay off debt is not a good career strategy. Many of my fellow students are very pessimistic about their future. A real fear for many of my peers surrounds what happens if they don’t graduate or cannot find a decent job. If they compile large amounts of debt, this debt will most likely linger for decades.

While the “Great Transfer” from the “Greatest Generation” (those born in the ‘20s and ‘30s) to the baby boomers is still taking place, a second and even larger wealth transfer from the baby boomers to their heirs is starting now, and will only become more apparent over the next 10 to 30 years. A study done by consulting firm Accenture says that over $30 trillion will be passed down through generations.

“Financial advisors that tune into the issues facing my generation are more likely to win our business.”

What does this mean for my generation? All transfers of assets have inherent risk, however the scale of this upcoming transfer raises the stakes. It is imperative that we utilize the resources available to us and become financially literate.

Financial advisors that can tune in to the issues that face my generation are more likely to win our business. They can play a central role in helping to educate us and to help us in dealing with the many upcoming challenges and opportunities we will face. But they have to speak our language, understand our concerns, and take an interest in having us as clients—even if we don’t have a lot of assets to start with.

My biggest takeaway from this is the impact of the Great Recession in terms of shaping millennials’ attitudes toward building a sound financial future. Many millennials saw the value of the homes of their baby boomer parents sink after the financial meltdown—as well as their stock portfolios. Consequently, they don’t see real estate, or any investment, in the same way that we boomers did at their stage.

They have also been dramatically shaped by a sharing culture that provides them with endless information, with the potential to shape financial literacy in a way that was not available to a prior generation. They are accustomed to navigating for themselves. They don’t treat advice from any professional as gospel.

If we only bring them “yesterday’s” asset allocation models, and tell them we are “managing” on their behalf, they will call our bluff. If we are simply delivering what they can negotiate for themselves online, we as financial advisors will become obsolete. Millennials will demand that we bring benefits beyond what a machine can deliver. In other words, they will require all of us to become more proactive advisors and money managers who add real value.

– Greg Gann, president of Gann Partnership LLC, Baltimore, MD

Gregory Gann has been an independent financial advisor since 1989. He is president of Gann Partnership LLC, based in the Baltimore, Maryland, area.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions expressed in this material do not necessarily reflect the views of LPL Financial or Proactive Advisor Magazine. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Securities offered through LPL Financial, member FINRA/SIPC.