"Stereotypical" millennials, at times thought to be indulgent and unprepared financially for the future, have in recent years outgrown that reputation and instead grown into their wealth.
According to a survey conducted by RBC Wealth Management–U.S., high-earning and high-net-worth (HNW) millennials are in fact very concerned about their long-term financial security, contrary to those popular stereotypes. However, these millennials don't feel that they have the knowledge, time or confidence to manage the complexity of their growing wealth.
Born between 1981 and 1996, and with the oldest now 41 years old, millennials recently surpassed baby boomers as the nation's largest living adult population, according to U.S. Census Bureau data. Millennial wealth, too, has grown significantly in recent years, jumping from $4 trillion in 2019 to $9 trillion at the end of 2021, according to data from the Federal Reserve.
“Millennials represent the next big wave of wealth," says Angie O'Leary, head of Wealth Planning at RBC Wealth Management–U.S. “They've been quietly advancing their careers and building wealth while also starting families and tackling the financial basics. And now they've reached an important point where they can't do it by themselves anymore."
Planning for the future
The RBC Wealth Management survey, which included 750 high-net-worth and 250 high-earning-but-not-yet-rich (HENRY) millennials (usually defined as having $250,000 in household income), found a large majority (84 percent) of millennials worry about their financial security, but many are unsure of what they need to do to attain it. For example, 72 percent of survey respondents agree that after paying off any debt, saving for an emergency fund and maxing out a 401(k), they have no idea what's next financially.
“Millennials are very pragmatic about their finances," O'Leary says. “They know they need to achieve financial security, but they also understand their limitations. They believe their lack of confidence and lack of time to manage their finances are obstacles to growing their wealth."
Indeed, many high-earning millennials find their time consumed by juggling important responsibilities for the first time—such as buying a home, starting a family, caring for aging parents, saving for their children's education, starting a company, or building a career—as well as preparing for other milestones still to come. And as their lives grow in complexity, so too do millennials' financial questions.
“Millennials want help with their full financial life," O'Leary says. “Many need assistance with their employee benefits, understanding the difference between a 401(k) and a Roth, how to manage equity shares they may receive as part of their compensation package, and much more."
The right answers for each millennial will depend on their individual goals. According to the survey, 38 percent said investing in the stock market is a top financial goal, compared to 33 percent who cited saving for retirement and 27 percent who said starting their own company. One in two anticipates receiving an inheritance, and one in three anticipates receiving a large sum from a business sale, equity compensation or IPO.
Facing all of these different responsibilities and ambitions, it's especially important for millennials to build a goals-based wealth plan that can provide a clear picture of where they are today and also help them prepare for upcoming life goals, O'Leary explains.
"A truly personalized wealth plan is more than just an investing plan," O'Leary says. "It includes an individual's specific goals, assets and expected expenses over time. When it's personalized, the plan can be a guide to reaching goals over a lifetime and help with important financial decisions."
Investing with a purpose
As they've built their wealth, millennials have developed their own priorities when it comes to how they invest. Nearly 85 percent of survey respondents said it's important to align their investments with their values, such as environmental, social and governance (ESG) principles, and that these types of investments are an integral part of their investment strategy.
“If you ask millennials what drives their interest in a particular company, a lot of their reasons aren't financial," says Kent McClanahan, vice president of Responsible Investing at RBC Wealth Management–U.S. “A lot of their interest is derived from the effect that company has on the world."
While investors of all ages are increasingly interested in ESG investments, it's especially important for millennials. “We've grown up in a world where climate change is a reality. We're all thinking about it and how it might influence our future," McClanahan says.
In fact, 80 percent of survey respondents said that ESG guides all or most of their investment decisions. But these investors aren't driven only by altruism; they also believe a focus on ESG investments is the best way to achieve financial security. Seventy-seven percent agreed that climate change will significantly affect their financial futures, and 85 percent said that over the long term, ESG investments will outperform the market.
Millennials' deeply held assumptions about ESG investing mean it's important for them to seek out financial advisors who are knowledgeable and can help them incorporate ESG principles into their investment and wealth planning. To find the right advisor, McClanahan recommends millennials consider the ESG focus that matters most to them, such as pollution or social issues. Next, “ask a potential advisor if they can recommend those specific types of investments," he says. “If they come back with a meaningful response, they probably have a good understanding of the ESG landscape."
Looking ahead to their future, millennials will likely seek out personalized advice, even though they have more tools and resources available to them than previous generations. According to the survey, 71 percent of millennials believe their investment portfolio is too complicated to be trusted to a robo-advisor, and 91 percent put a high level of trust in a reputable financial advisor.
That personalized guidance can help equip millennials to confidently work toward their goals of building wealth and creating a socially responsible world. Because despite all the setbacks they've been dealt along the way—ranging from the Great Recession of 2008 to the recent COVID-19 pandemic—they still have time on their side.
"Millennials should be taking a long-term approach with their wealth planning," O'Leary says. "The sooner they get started planning not just for today or for retirement, but for those other wealth-building life goals that lie ahead of them, the more prepared they'll be."
Due diligence processes do not assure a profit or protect against loss. Like any type of investing, ESG and responsible investing involve risks, including possible loss of principal.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.