How millennials are tackling life’s big decisions
This year the first millennials turn 40. Now ranging in age from 25 to 40, this cohort is also known as gen Y and follows gen X (from mid-1960s to early 1980s). Parents of millennials are usually gen X or baby boomers (born 1945-1965). Each generation has had its money issues. Baby boomers were able to take advantage of thriving economies after World War II, buying into the dream of home ownership often as early as in their 20s. They bought things for the house as they could afford them. Credit wasn’t as easily available as it is now. Gen X, now aged between 41 and 57, faced high interest rates, recessions and tough job markets. It’s millennials’ turn in the spotlight. Now facing life’s big decisions, they’re likely to be in the throes of buying their first property, having children and starting on their journey of accumulating wealth. Here we look at what steps digital-savvy millennials are taking to overcome the challenges and thrive.
New set of challenges – and opportunities
According to economist Nicki Hutley, millennials have different economic and financial opportunities and challenges from previous generations. “This is the first generation that is likely to be less well off than predecessors, due to relatively slow wages growth and the ridiculous speed of house price increases.”
There is a bright side, though. Employment prospects are better in many ways.
“Tertiary education has increased, so opportunities and skills have increased. People can move into higher paid work if they have that advantage,” says Hutley.
Real wages have stagnated, so the standard of living is not improving for millennials at the pace it did for many boomers and that affects long-term investing prospects and retirement.
“The issue of housing affordability is the biggest challenge,” she says. “The latest statistics show that for under-35s, the rate of home ownership has halved. It’s down 4% across the board and many millennials believe they’ll never own a house, which doesn’t matter as long as they have other avenues of investing and tenure in renting – but in Australia, that’s pretty poor.”
Many millennial kids live in “shoeboxes” to be close to work and avoid commuting, says Hutley. “The range of so many employment opportunities doesn’t extend beyond the two major cities. The concentration of the servicesbased economy is in NSW and Victoria. If you want to work in certain sectors, you have to work there.”
However, there are options for acquiring that “forever” property: buying an investment property, investing in shares and other assets and rentvesting have all become more popular.
Millennials are challenging the status quo and changing the investment landscape.
Bianca Hartge-Hazelman, chief executive of Financy, which aims to empower women, says millennials have benefited from the financial awareness of the baby boomers, including the need to be financially independent.
Hartge-Hazelman says millennials are the “woke” generation. “They’re awake to social issues, to what is right and fair. They have a platform to voice that, and they’re aware of financial products that allow them to invest in that way. They know they can have an impact by investing in favour of climate change issues, or a digital currency that can disrupt major currencies.
“There is a major disruption to major ideals. It’s not totally unique, but this generation has a really loud platform to execute on it and bring more and more like-minded individuals together. They really are a force to reckon with in terms of investing, and there is a need to tailor products that will resonate with them,” she says.
“What is missing is something that allows them to invest in property like many of us have before. In many ways the property boom that gen X and boomers grew up with is at risk of dying for millennials. There’s a level of ‘I’m not interested in that because I can’t get into it’. They’re having to change the way they do things to make it work for them instead of fitting into the status quo – it’s the products and people who are clued into that who can move with that opportunity,” she says.
At the same time, significant changes in technology mean their investment mechanisms are easier, faster and more flexible.
“There’s an increase in social media of how to do things on your phone,” says Hartge-Hazelman. “You no longer need to engage a broker to invest in shares, making it more affordable to get into the market. It’s not just the platforms, but the type of products available – the Bitcoins and Dogecoins can provide cash windfalls if you get in on the right side.”
Power of the “finfluencer”
In the wake of social influencers, we’ve seen an increase in financial influencers or “finfluencers”.
“Some of these finfluencers have thousands of followers and some of the questions are quite basic, but a lot of people are getting the answer they need and that’s good enough to make decisions for many of them,” says Hartge-Hazelman.
Financial adviser Victoria Devine started a Facebook group, She’s on the Money, in 2017 because she noticed women had a lot of questions about money but were too afraid to ask anyone.
“Money was a taboo topic that was ‘unladylike’ and I wanted to change that,” she says. What started as a network of people she knew personally quickly grew as they added their friends and those friends added their friends. There are now more than 180,000 people in that community. “I think millennial women
are an incredibly engaged cohort of investors. They’re ready to take control of their financial future and they know a partner is not a financial plan,” says Devine.
“This generation of women is incredibly smart, driven and fiercely independent and they are hungry for the flexibility and comfort that being financially free will afford them. They’re eager to learn and they’re making the most of the wealth of information that wasn’t available to previous generations. Plus microinvesting has entered the game
and that’s a really hands-on way of teaching people the power of investing.”
Devine also has a podcast, launched in 2019, which demonstrates her great influence in the millennial market. Her audience is most interested in getting better at saving, creating a budget and starting to invest.
So, what worries them?
Former financial adviser Glen James now works full time as a finfluencer through his My Millennial Money podcasts, which he started in 2018. This was the first financial advice podcast in Australia – by Aussies for Aussies.
According to James, his listeners’ top five issues are: investing in a share portfolio, buying a first home to live in, buying an investment property, getting a cash flow and spending plan under control, and wanting to increase income.
“It’s the generation that wants it all – and knows what ‘all’ means,” he says.
James says his audience wants to be given the tools to do it themselves. “They want to know how everything works, how we research it. They want to see under the hood of available options.”
He says the purpose of his podcast is to get people to a point where they are ready to see an adviser, get out of consumer debt, have an emergency fund and maybe dip their toe in the investment waters.
James left his own business two years ago because he wanted to provide advice to more people. “I hit some of my own personal and career goals in the financial advice industry and wanted a new challenge,” he says.
“I think it’s easy to help people en masse to get out of debt and get into their mindset, but we can’t give individual advice in a podcast. People do want professional help, but in the early stages they need to get on a self-directed plan to get to a point where it’s beneficial to see an adviser.
“This comes back to the reason I started my podcast. I met too many people who came to me for financial advice and I said, ‘You don’t need a financial adviser, you need a budget, you need to stop overspending and you need to get an emergency fund’,” says James.
Obsession with property
Paridhi Jain started financial education provider SkilledSmart in 2017 to help people understand finance. Early in her career, she worked as a financial counsellor at the Cancer Council helping people through financial distress, which was her first glimpse of people struggling with finance. Later she realised that many people struggle and don’t know where to start taking control of their money.
Millennials are her core demographic, across a range of occupations including Olympic athletes, doctors, actors, stay-at-home mums and even the unemployed.
“There are three main issues,” she says. The first is that many millennials grew up in an environment where things like spending
on travel and experiences was a big deal, so it took longer for them to get to a point where they were focusing on where their money was going.
She says social media has made financial advice more accessible than in the past.
Property is also a focus, but it differs according to where they are in their financial journey.
“I think the obsession with property is a legacy of a lack of financial education. We have a lot of students who come in thinking property is the only way to build wealth and they learn about ETFs (exchange traded funds) and other investments and that opens a new area. They realise they can invest today or tomorrow,” she says.
Finally, the concept of retiring early makes the millennial generation quite excited, says Jain.
With property prices in the capital cities moving more than 10% in most areas since the beginning of 2021, first home buyers have now another hurdle to clear to access the market.
They’re finding it tough to put together a decent deposit. Their loan to value ratio (LVR) – which usually needs to be below 80% to avoid expensive lenders mortgage insurance (LMI) – has increased in many cases. And for the millennials we interviewed, it’s a case of whether they should wait and see if conditions improve or risk missing out (FOMO) if prices continue to increase.
Glen James says they are asking: is it too expensive to buy where I want to live? This leads to the second question: should I buy an investment property elsewhere in Australia and rent where I want to live? James says he tells people it’s okay to pay LMI if it gets you into your property sooner – it’s the price you pay for playing in this market.
“A lot of my listeners are falling into rentvesting by default. If you are living in a capital city, particularly on the east coast, it’s too expensive to buy there,” he says. “It’s absolutely different from other generations. My parents didn’t buy an investment property until I was in my 20s.”
ASX 2020 Investor Study: 27% of intending investors are millennials and they are the largest adopters of ETFs out of any cohort.
Cash flow is king
The main fail for many millennials – and the reason many seek help – is cash flow. “People feel like they live week to week and while they have a good income they don’t have an automated cash flow system in their life,” says James.
He has a budgeting tool – the Glen James spending plan. He set it up because he knew he wanted to make sure his savings were always going up and his bills were always covered. He now sells the budget to others who need help with spending but don’t really need financial advice yet.
Credit cards get the chop
Millennials are not big fans of credit cards. They see them as costly and risky. The proportion of young people with credit cards has fallen from 58% to 41% in the past two decades.
They have half the credit card debt of older Australians as a proportion of their income. Instead, they are using buy now, pay later products as a cheaper alternative. Almost 70% say Afterpay helps them use credit cards less, so they can avoid interest costs and debt traps.
NAB launched a StraightUp credit card last year for younger customers who wanted simple, transparent and predictable payments. The card allows limits of $1000, $2000 or $3000. There is a fee for each card but if there is no balance then there is no fee. There are no late payment fees.
Matt Heine, chief executive of the investment platform Netwealth, is on the cusp of gen Y and remembers the impact that the GFC had on him and those around him. “Millennials are certainly more debt averse, and gearing is not as key a strategy as it may have been in other generations. Debt is for buying your house but not investing,” he says.
Heine says he’s seen three big themes. An ESG approach (environmental, social and governance) is a huge emerging trend for millennials. Investors now realise you don’t need to forgo returns to invest ethically.
Another trend is investing in ETFs to get broad exposure without necessarily having to pick individual stocks. They also want to invest in tech companies.
Podcaster Glen James says he doesn’t believe Bitcoin and other cryptocurrencies are as popular with most millennials as it might appear. “There’s a lot of interest in non-fungible tokens (NFTs) and cryptocurrencies, but the problem is greed can get in the way, and stupidity and broke can follow greed. I caution people that if they want to put money in crypto and other risky assets it should be well under 2% of their net worth.”
Trust and transparency
James says that millennials are savvy in who they trust and what they need to know. They want transparency. “They think, ‘I don’t care if you make money off me – just tell me you’re making money off me.’ They are prepared to pay advisers, but only after they understand the value of advice and that’s what I want to teach them.
“I think that as soon as you get your first full-time job, see an adviser to get some income insurance. The first thing people do when they buy a new car is get it insured. That should be a cost of your first job. “People should also see an adviser when thinking of buying their first property – whether it’s an investment or home to live in – and starting a family.”
James has noticed another growing trend: the transfer of wealth from one generation