As the first generation of digital natives, it may be unsurprising that Millennials — twenty- and thirty-somethings born between the early 1980s and 2000 — are more engaged with their finances than older generations.
RBC Wealth Management's Millennials and Wealth Transfer study found the majority of Millennials begin learning about wealth when they're around 20 years old. This is much younger than Baby Boomers — those born between the mid-1940s and mid-1960s — who mostly learned around age 32.
As Millennials prepare to inherit approximately $16 trillion from their parents and grandparents over the next 30 years, they will be growing their net worth in a different world to the one in which previous generations were raised.
"They have probably had a more well-rounded education and have been more exposed to financial issues than their predecessors," says Ben Taylor, managing director, relationship management at RBC Wealth Management in London. "They're coming in with an educated point of view, and I think they probably have a desire to do something different with that wealth."
"Growing net worth successfully can mean balancing an ability to live in the present while understanding the needs of the future," says Katherine Waller, director, relationship management at RBC Wealth Management in London.
“What do you have right now and where do you want to be in five, 10 or 20 years and what does the earnings path look like?" asks Waller. She sees younger investors grappling with the realities of reconciling the needs of today's society with planning for the future. "Do you want to still be working at the age of 50? Or 65? It's a hard concept to grasp at this age while reconciling how much is enough for their future."
Few terms define the Millennial generation quite like “sharing." In addition to the growth of social media, the sharing economy — services that allow users to share things such as work spaces, apartments, vehicles or mobile phones — has grown. One forecast by PwC predicts the UK sharing economy will grow to £140 billion by 2025.
For many Millennials, this sharing extends to where they live, as high property values are pricing many would-be buyers out of the market. However, home ownership in England fell to its lowest level in three decades in 2016 as affordability declined and shared ownership became a more attractive prospect.
“Rising property values used to be how people made their wealth. This is no longer the case with shared ownership. Making significant wealth these days comes from saving and investing early or growing a business quickly," Waller says. “For example, the immediacy of tech and cryptocurrency have changed our perception of how money can be made."
Gavin Smith, associate, relationship management at RBC Wealth Management in London, says his high-net-worth Millennial clients tend to favour liquidity as a way to counter uncertainty in the markets.
“Millennials don't want to be locked up in an investment period of five years," Smith says. “For them, the most important thing is having access to funds to be able to make quick investment decisions."
He says Millennial clients tend to keep a portion of their portfolio in cash holdings to invest in emerging markets, support new technologies or even to consider investing in cryptocurrencies such as Bitcoin. It's a well-trodden strategy but Smith notices Millennials seem to have a higher propensity towards keeping assets liquid and readily available.
"You see these startups that have gone from inception to multi-million or -billion pound companies overnight — everyone wants a piece of the pie," he says. “Having access to funds to be able to invest in these new structures and new trends is very attractive to Millennials."
Millennials have also helped to fuel interest in responsible investing by choosing to support companies and products that take into account environmental, social and governance (ESG) concerns.
ESG investments can be beneficial for those who want to protect their reputation or personal brand, whether they are a business owner, a corporate executive or a high-profile personality. This type of strategy offers investors a portfolio that aligns with the image they want to present to the world.
“Rather than it being an overarching theme or project or part of an end game, philanthropy is very much woven into the day-to-day investment choices for Millennials," Smith says. “They see philanthropic investments as one aspect of a multi-asset portfolio, accessible by investing in an ESG portfolio or sustainability index."
Taylor agrees, pointing out wealth managers have become more adept at integrating ESG factors into portfolios for clients.
“Investments inside those portfolios will be screened for a number of factors, not necessarily at the expense of the performance," he says regarding ESG concerns. “Yes, it's great if you can get a 10 percent return on your stock, but if that company is not as good as the company that gives you seven percent, can you give up three percent and know that you're investing in something that feels right?"
Finding your trajectory
As a highly financially literate generation, there's no question Millennials have the tools and the education necessary to prepare for their wealth. Many have started already; 38 percent of high net worth Millennials surveyed by RBC Wealth Management say they've already developed a comprehensive wealth transfer strategy.
Waller recommends younger clients ask themselves how their everyday life will affect where they want to be in the future. “You need to understand that what you do now, and what you do in the future, will be directly comparable, and that there are pitfalls along the way that can come from that accessibility to technology."
She points out 70 percent of wealthy families lose their wealth by the second generation, often by being over-leveraged, not investing for the future or by overspending.
“To even know there are going to be risks you have to have some form of education around what is being overly exposed in one area and what is being too leveraged," she says.
But the challenge for Millennials, as with any generation, will be to strike the right balance between living in the present and preparing for the future. “Being present is also about how you're present in the long term," Waller says. “What does the world you want to live in look like in the future?"