I'm not a parent of a millennial, but they may be shaping up to be more financially savvy than baby boomers like me.
Maybe you've heard about all those houses they're not buying. First-time home buyers are renting for six years before buying, a longer period than ever before, according to a recent report by Zillow. But their reasons for waiting are financially sound. They're waiting to get out of debt for one. But it's not credit card debt. That's declining among millennials. It's student loan debt averaging $35,000 per graduate.
"They're being responsible," said Sharalyn Orr, executive director of generational strategies at Frank Magid Associates in Los Angeles. "They know they can't buy a house when they have so much debt."
I know a few baby boomers, myself included, who could use a refresher on delayed gratification.
Younger Americans ages 19 to 38 are also avoiding homeownership because many saw their parents in a house that went underwater or was foreclosed. We shouldn't expect them to see the pain that real estate can bring (a heavy debt and unforeseen, budget-busting expenses) without questioning homeownership as an investment. Maybe a few see what current homeowners would rather not consider — that a home may no longer be a sound investment.
That's just the beginning of my respect for the way many millennials are managing money. They're also less patriarchal. Orr said while boomer men often handle money, millennials share the financial responsibilities with spouses and partners. "It's absolutely the case," said Michelle Young, a private wealth adviser at Ameriprise in Edina. "Millennials are more interactive and comfortable talking about money with a spouse. Gen X's too."
Younger financial planners are doing something that I've been advocating for decades. They're eliminating high investment minimums that exclude small savers.
Ben Wacek, founder of Wacek Financial Planning in Minneapolis, started his firm after working for companies with minimums that many millennials couldn't meet. "I saw a real need to start a company without investment minimums," he said. Wacek, 31, should be commended for that, but the real test will occur when his and his clients' nest eggs expand. Let's hope he resists abandoning small investors as most planners 50 and older tend to do.
Sophia Bera, a fee-based Minneapolis adviser who works only with clients in their 20s and 30s and the founder of GenYPlanning.com, said that most of her clients are young professionals, but she offers a Quick Start plan for those with simpler needs. For $499 she helps young clients choose 401(k) investments, create a budget or spending plan and a strategy for paying off student loans faster. Although she occasionally meets face-to-face with clients, she generally conducts meetings in a 90-minute Skype or Google Hangout video call.
Many young planners are fee-based rather than commission-based, but they've found an interesting way to increase their income with a monthly retainer. It makes me uncomfortable, but they've grown used to monthly bills such as gym memberships and Netflix. Financial advisers are charging $149 or more per month for ongoing monitoring of clients' accounts. Online-only sites such as LearnVest.com charge $299 upfront and $19 per month after that.
Young investors who want to do it themselves can try a free site such as Moneyunder30.com, which includes free credit score tools, cheaper car insurance, and car and home affordability calculators. The site is careful to disclose when it's suggesting a source that is also an advertiser. "Millennials are more attuned to transparency. They want an honest conversation about how an adviser is being compensated," said David Weliver, founder of Moneyunder30.com.
The traditional financial planning model isn't going to work with most younger investors, said Joe Pitzl of Pitzl Financial in Arden Hills. "It's a sales approach where you throw products at them, explain them, and hope the client buys," he said. Many products lock up resources for a long time. Pitzl said his clients crave flexibility.
The funniest, and maybe the scariest, example of how millennials are changing financial planning came from Matt Cosgriff, a certified financial adviser at Lifewiseadvisors.com and BerganKDV Wealth Management in Bloomington. He recommends checking out Chelsea Krost on Twitter. Her handle is @chelseakrost. She has 95,000 followers, mostly millennials, and offers chats on Twitter on Wednesday evenings. "The chats are incredibly insightful and amazing that it all takes place virtually within the confines of 140 characters," he wrote in an e-mail.
Warren Buffett once said not to invest in any business you don't understand. But it scares me to think his millennial successor might write, "Don't invest in anything that you cannot understand in a tweet."