Mil­len­ni­als may be mak­ing same money mis­takes as their par­ents

South Africans, no mat­ter how old they are, don’t un­der­stand how fees af­fect the value of their in­vest­ments. re­ports

Weekend Argus (Saturday Edition) - - FRONT PAGE -

THE stark re­al­ity is that 94% of South Africans are un­able to re­tire com­fort­ably, and a re­cent sur­vey by 10x In­vest­ments re­veals wor­ry­ing in­sights into the sav­ing habits of young South Africans.

Although their fi­nan­cial be­hav­iour dif­fers from that of other gen­er­a­tions in some re­spects, Mil­len­ni­als may still be in dan­ger of mak­ing the same mis­takes as their par­ents when in­vest­ing and plan­ning for re­tire­ment.

The aim of the sur­vey, which had more than 2 200 re­spon­dents aged 25 and over, was to ob­tain in­sight into the fi­nan­cial be­hav­iour, views and at­ti­tudes across dif­fer­ent de­mo­graphic groups among the eco­nom­i­cally ac­tive pop­u­la­tion.

Steven Nathan, the chief ex­ec­u­tive of 10X In­vest­ments, says that, in ad­di­tion to high­light­ing that South Africans do not start to save early enough for re­tire­ment, an­other alarm­ing find­ing was the lack of knowl­edge about how fees af­fect in­vest­ment val­ues.

“While the ma­jor­ity are aware that they are pay­ing fees to fi­nan­cial ser­vices providers, most peo­ple are un­aware of the ex­act level of fees or the im­pact that these fees are hav­ing on their in­vest­ment value.

“In to­tal, 42% of Mil­len­ni­als don’t know what fees they are pay­ing their ser­vice providers, and a fur­ther 51% think they are pay­ing less than 1% in fees, which is far be­low the cur­rent in­dus­try av­er­age of 3%. This is alarm­ing when one con­sid­ers that pay­ing 2% more in an­nual fees can leave in­vestors with 40% less over a 40-year in­vest­ing pe­riod.”

When asked about the im­pact of fees on their in­vest­ments, he says that 83% of Mil­len­nial re­spon­dents grossly un­der­es­ti­mated how fees can erode in­vest­ment out­comes, with 28% say­ing that fees re­duce in­vest­ment val­ues by only 2%.

“These find­ings sug­gest that Mil­len­ni­als, de­spite wit­ness­ing their par­ents’ poor fi­nan­cial de­ci­sions and re­tire­ment mis­for­tunes, have still not re­alised that fees are the most im­por­tant pre­dic­tor of suc­cess.

“At the end of the day, it comes down to aware­ness and un­der­stand­ing that to­tal fees of more than 1% of the in­vest­ment bal­ance will have a con­sid­er­ably neg­a­tive im­pact on long-term sav­ings,” says Nathan.

He says it is im­por­tant to recog­nise the fi­nan­cial be­havioural traits and trends of Mil­len­ni­als, and how these dif­fer from those of pre­vi­ous gen­er­a­tions, be­cause the im­me­di­ate fu­ture of sav­ing and in­vest­ment in South Africa de­pends on this de­mo­graphic.

“Our find­ings re­veal that the fi­nan­cial be­hav­iour and at­ti­tudes of the typ­i­cal Mil­len­nial in­vestor, who is de­fined in the sur­vey as any­one aged 25 to 35, dif­fers in var­i­ous ways to those of pre­vi­ous gen­er­a­tions,” Nathan says.

“While, in some in­stances, we are see­ing mis­takes be­ing re­peated across gen­er­a­tions, the ev­i­dent shifts in per­cep­tion that are hap­pen­ing of­fer valu­able in­sight into the eco­nomic fu­ture of South Africa.”

An­other ma­jor trend among Mil­len­ni­als that Nathan says was high­lighted by the sur­vey is the grow­ing de­pen­dency on the in­ter­net for in­for­ma­tion and an in­cli­na­tion to­wards do­ing daily tasks and ac­tiv­i­ties on­line where pos­si­ble.

“When asked which sources of in­for­ma­tion about fi­nan­cial in­vest­ments are used, Mil­len­ni­als – par­tic­u­larly males, and even more par­tic­u­larly black males – rely more heav­ily on the in­ter­net than they do on their fi­nan­cial ad­viser. The ten­dency to con­duct per­sonal re­search in this re­gard is likely driven by the grow­ing ac­ces­si­bil­ity and im­me­di­acy of in­for­ma­tion which has char­ac­terised the In­for­ma­tion Age.

“This ties into the find­ing that Mil­len­ni­als con­sider the abil­ity to man­age their in­vest­ments on­line to be one of the most im­por­tant char­ac­ter­is­tics of an in­vest­ment com­pany – as im­por­tant as the com­pany’s abil­ity to of­fer low in­vest­ment fees. This con­trasts sig­nif­i­cantly to the views ex­pressed by older in­vestors, who place greater sig­nif­i­cance on hav­ing a well-di­ver­si­fied port­fo­lio and lower fees than on­line ca­pa­bil­i­ties when it comes to choos­ing an in­vest­ment com­pany.”

When it comes to why they save, Nathan says Mil­len­ni­als and their par­ents are in agree­ment on some ob­jec­tives, but not all.

“For the older gen­er­a­tion, by far the most im­por­tant ob­jec­tive is to main­tain their life­style when they re­tire. While this is also ranked num­ber one for Mil­len­ni­als, they ap­pear to place greater im­por­tance on ed­u­cat­ing their chil­dren and leav­ing an in­her­i­tance to their chil­dren than their par­ents do.”

Nathan says that, although a shift is oc­cur­ring in the mind­set of South African in­vestors, high fees and un­der­per­form­ing fund man­agers can erode in­vestors’ long-term in­vest­ment re­turns.

“Even as fi­nan­cial be­havioural traits and trends change, the for­mula for a suc­cess­ful re­tire­ment re­mains sim­ple: put away 15% of your salary over a 40-year pe­riod in a high-eq­uity fund with to­tal fees of less than 1%, and let time do the work.”

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