Millennials, also known as Generation Y, are currently in their 20s to early 30s. With around 79 million members, they are the largest generation in U.S. history. By 2020, millennials are expected to make up 50% of the U.S. workforce.
Clearly, millennials represent a significant market for financial products. However, due to their youth and other factors, they are not naturally inclined towards financial products. Engaging them in retirement planning, life insurance planning, and other long-term financial concerns can be quite challenging. To attract millennials, it is crucial to understand who they are, their attitudes, perceptions, behaviors regarding personal finance, and their communication preferences. Understanding their unique circumstances can help tailor your marketing strategy accordingly.
Financial Challenges and Wariness about Financial Systems
Millennials face higher levels of unemployment (11%) and underemployment (53%) compared to previous generations. They carry record levels of student loan debt; the average 2012 graduate accumulated more than $29,400 in student loan debt, with debt increasing 6% per year from 2008 to 2012. Overall, 71% of students graduated with some student loan debt.
Millennials have seen their parents and others from previous generations face financial hardships, especially due to job losses and diminished savings after the economic recession of 2007 to 2009 and the stock market crash of 2008 and 2009. Given the uncertain economic climate in which they have grown up, it is not surprising that millennials are cautious about investing and wary of financial systems. They generally save what little money they can while delaying major life milestones. Although they do not save a high percentage of their income, they place a high priority on having savings, with 86% in one survey considering savings as part of their “definition of success.” Their average credit card debt is down 30% since 2007.
Millennials are also postponing life events such as establishing a household. Among millennials who complete an undergraduate degree, 45% choose to live with their parents while looking for and securing a job and establishing a financial footing; this figure is up from 31% a decade ago. Millennials are waiting longer to marry, with the median age for first marriages at its highest level in modern history—29 for men and 27 for women. The homeownership rate for 25- to 34-year-olds is 37%, down from 47% pre-recession.
Despite their guardedness about money matters, millennials are nearly on par with their elders in terms of financial literacy, as shown by the results of the TIAA-CREF Financial IQ Quiz.
The “Digital Generation”
Technology plays a central role in millennials’ lives. Gen Y is the first “digital generation,” raised on mobile phones, laptops, tablets, and other rapidly advancing technology. This technology has influenced where and how Gen Y gets information; for example, television and the Internet, not print media, are their primary sources for news. In the United States, millennials spend an average of 25 hours a week online, including eight hours on social media.
Gen Y is used to constant communication and immediate response. This helps make millennials highly productive but can also cause them to be out of touch with older colleagues. Global interconnectedness, facilitated by Gen Y technology, has made this generation increasingly reliant on peers for information and motivation.
Reaching Millennials
Given the characteristics of millennials, what are the keys to engaging them in your marketing efforts? Any program to market financial products to millennials will be more successful if you follow the guidelines below.
Address Present-Day Needs First
Millennials aren’t likely to be receptive to, or in immediate need of, guidance on planning for long-term goals like retirement, especially if they have little disposable income. Before they start thinking about goals that may be 30 to 40 years away, millennials need to address more pressing money concerns, like paying bills and coping with student loans and credit card debt. When marketing to millennials, your initial objective should be to assist them in these areas and offer guidance on budgeting, debt management, setting up an emergency fund, and, if relevant, saving for marriage or a first home.
With millennials waiting longer than prior generations to marry and buy a first home, their need for life insurance is important but generally not as immediate. Marketing should address present-day concerns first before moving on to assessing life insurance needs. However, for married or homeowner millennials, or those who provide financial support to a loved one, assessing life insurance needs should be a near-term financial priority.
Once a millennial’s near-term needs are met, a financial provider can and should proceed to discuss long-term planning and investing for retirement. Any retirement savings plan participant should contribute at least enough to take full advantage of any employer match. Too few millennials are participating in their workplace retirement savings plans, and 58% of those who are participating were enrolled automatically. Often, automatic enrollment means the participant’s savings go into a default investment unless the participant makes investment decisions based on their specific objectives for risk and return. For example, many millennials signing up for a TIAA-CREF workplace retirement plan passively use the plan’s default investment option. If the default option is a lifecycle fund with an asset allocation targeted to the investor’s age, that may not be problematic in the long run. However, many plans still use a money market fund as their default investment, which likely will not provide enough investment growth to ensure retirement readiness for young savers.
Invest in Digital Communication
To engage millennials, you need to meet them where they are, which is often in the digital world. Intuitive, easy-to-use, and highly interactive web-based applications are key to a successful effort to market financial products to Gen Y. For example, much can be learned from innovative online account aggregators that allow users to track all their money from one place on the web and offer comparative data and products tailored to the user’s unique financial needs.
Understand the Benefits and Limitations of Social Media
Millennials are used to, and comfortable with, using social media sites like Facebook, Instagram, Twitter, and Snapchat as communication tools and information sources. Such sites, rather than web tools currently being used by the financial services industry to target more general audiences, should serve as benchmarks on how to connect with millennials via digital communication. Remember, though, that millennials still spend a considerable amount of time outside the digital realm, and social media sources have limitations as communication tools. To truly engage millennials, you need to offer them both digital and real-life experiences.
Explore Peer-to-Peer Mentoring and Parental Influence
Many millennials rely on their peers and parents for financial advice. In certain instances, mentoring by peers who are trained and supervised by financial professionals can be an effective way to engage millennials. Similarly, parental influence can be leveraged as a tool for connecting with millennials.
For example, providing your baby boomer clients with tools, guidance, and resources to support their money conversations with their millennial children can be a good start. Leverage the relationship with your older clients to encourage their children; for example, encourage parents of younger adults to initiate these conversations with their children and suggest that parents accompany their children to an advice session.
Restore Confidence in Investing
The stock market downturn of the last decade is still fresh in the minds of millennials. Investment education is critical to helping millennials feel confident about investing and understand the importance of asset allocation and diversification in targeting a given return while managing risk.
Conclusion
As the largest generation in U.S. history enters their working and consuming years, Gen Y, or the millennials, offer both opportunities and challenges to firms marketing financial products and services. Despite the unique challenges they face compared with prior generations, millennials are likely to welcome opportunities to explore financial products—if the marketing of those products reflects their immediate and unique concerns, needs, and communication preferences.
Richard Pretty, FSA, MAAA, is senior managing director and head product actuary for TIAA-CREF. Jonathan Gentry is senior director of segment marketing for TIAA-CREF.
The material is for informational purposes only and should not be regarded as a recommendation or an offer to buy or sell any product or service to which this information may relate. Certain products and services may not be available to all entities or persons. Past performance does not guarantee future results.
TIAA-CREF Individual & Institutional Services, LLC and Teachers Personal Investors Services, Inc., members FINRA, distribute securities products.