It may be fitting that the group nestled between baby boomers and millennials is labeled “Generation X,” since its members are more of an unknown than the generations before and after. Their elders, the boomers, have virtually owned popular culture since the Beatles landed in the U.S. in 1964. Their kid brothers and sisters, the millennials, are applauded for their tech use, social consciousness and entrepreneurial gusto.
As a 2014 Pew Research Center report (“Generation X: America's neglected ‘middle child,’’’) put it, this generation is like the middle child in a family, underappreciated for how its members behave: hardworking, tech-savvy, intelligent and independent.
(Related: The ‘Middle Kid’ Sounds Off)
Moreover, they have a tremendous need for financial advice as they move through their peak earning years. For this second installment in IA's series on generational differences, we asked financial planning industry gurus Kol Birke, Angie Herbers, Michael Kitces and Cam Marston how advisors can “think Generation X” to reach this smart but cynical cohort.
Don't Look Now, But You’re Being Stalked
Gen Xers aren't as focused on being “part of the pack” as millennials are, generational change expert Marston told us. “Millennials are more social, more herd animals. They tend to be influenced by what the pack does.”
By contrast, Gen Xers are more likely to learn on their own. They’re comfortable with online research and will study websites and social media to form first impressions. “They want to know, ‘Do I like you? I want to know who you really are,’” says Marston, founder of Generational Insights. “They’re stalkers of people and information.”
Unlike boomers, who had the good fortune to live through years of strong market performance, Xers experienced a tech boom followed by a tech bust, followed in turn by a real estate boom and then a worldwide financial crash, points out Kitces, the co-founder of XY Planning Network, an organization of fee-only advisors who specialize in Gen X and millennial clients. As a result, this middle generation is much less confident about the markets and financial institutions than either boomers or millennials.
In contrast to the axiom “Trust, but verify,” as the president of their childhood, Ronald Reagan, famously coined, Gen Xers believe in “Don't trust, validate,” Kitces says. “They will vet you in three or four places online, so before they ever meet you they’ll know what you do, what you say you do and how much you charge. If you say something on your website that's wrong or misleading, you’ll lose their trust forever.”
Many advisors aren't comfortable being vetted so thoroughly. “It can feel annoying to be challenged,” Kitces says. “But after being burned by 15 years of market stagnation and volatility, Gen Xers want to know how trustworthy you are and what you can do for them.”
Gen X investors lost close to 40% of their net worth between 2007 and 2010, according to the Census Bureau. Those who ignored their investments or had the stomach to “let it ride” learned that good things can come to those who wait, says Kol Birke, a senior vice president and financial behavior specialist at Commonwealth Financial Network. For many others, though, the widespread devastation fed a belief that sometimes nowhere is safe.
This painful experience often makes Gen X reluctant to invest for the long term. In his book, “The Gen-Savvy Advisor: Advising the Generations in the New Age of Uncertainty,” Marston cites a 2016 Transamerica study reporting that four out of 10 Gen Xers still felt uncomfortable with stocks, while almost seven in 10 said they didn't know as much about investing as they should.
Kitces agrees. Gen X's fundamental risk tolerance isn't very different from boomers’, he says, but they are more skeptical about the markets. They may be open to taking risks in a different way, such as by investing in their own business or in real estate.
Too Busy To Admit Needing Help
Investment Advisor columnist and ThinkAdvisor.com blogger Angie Herbers, founder of Angie Herbers LLC, believes that the real “risk” question should be about financial security. By that measure, she says, “Generation X, unlike the other generations, is high risk. Over the past two decades, there has been a surge in business growth, innovation and new technologies across all industries. But the result is that while Gen X is making more than their parents, they are risking more and have less wealth than their parents did at their age.”
According to that same Pew Research report, the average Gen X household earns about $12,000 more than their parents’ household did at the same age, even adjusted for inflation and household size. In other words, Xers are working harder than Mom and Dad did (so much for the slacker myth).
However, fewer than 50% of Xers have as much wealth as their parents did at the same age. Blame a delayed entry into work life due to a lengthier education, along with a lower savings rate and less cooperation from the market. An important point for many members of this generation, for “lower savings,” read “higher student debt.”
As for market balkiness, in contrast to boomers, whose portfolios were goosed by the S&P 500's 15.4% real annualized return between 1985 and 2000, Gen Xers saw returns of only 1.9% from 2000 to 2014, as reported by Noah Smith on Bloomberg View.
The Secret World of Money
There's a deeper issue, according to Herbers. A Gen Xer herself, she says, “Our generation is indifferent to talking about money,” unlike “boomers who avoid talking about money” and “millennials who talk all the time about money.”
This doesn't mean Gen Xers don't care about their finances. “We do care,” Herbers says. “It's just that we often don't know what to do about money or where to turn, which is where we really need help.”
(Related: 10 Ways to Engage Gen Xers)
She believes that this lack of knowledge explains why Gen X tends to be unprepared in many financial aspects of their lives. “Research shows that they’re underinsured; they’re underfunded for retirement; they’re not teaching their kids anything about money,” she points out. “In general, they have no confidence about money because their unfamiliarity with it makes them feel it's insignificant.”
What Do They Want To Hear?
There's a clear distinction among the messages these different generations like to hear, Herbers says. “Baby boomers like straight talk. Millennials like messages that make them feel in motion. Gen X like messages that give them meaning.
“Finding meaning is the best way to overcome indifference,” she explains. “To get them out of indifference and to care more about money, you have to ask them, ‘What does money mean to you?’ Unlike millennials who find meaning in social causes and baby boomers who made money their meaning, Gen X needs help finding the meaning for their money.”
So what advisor message would resonate most strongly with this generation? “Anything with purpose,” Herbers replies.
Most Important: Trust
Trust inspires strong loyalty among members of this generation. Although Xers tend to act on their own, Marston emphasizes that they do have friends with whom they share good advice and recommendations of people they trust. Their loyalty can disappear in a flash, though, if they feel they’ve been deceived.
As Gen Xers become more knowledgeable about their finances, their behavior changes. A 2016 Transamerica Institute study found that 52% of Xers who worked with advisors had at least $100,000 in retirement savings. Only 27% of those without an advisor had saved that much.
Greater money savvy can benefit this generation's children, too. “Much as they knew to buckle their kids’ seatbelts and put bike helmets on them, this generation has started to become aware of the danger of staying silent about money,” says Birke. “While it's still an uncomfortable conversation for those who don't feel they have a handle on the topic themselves, many more parents seem to be prioritizing money conversations with their kids than their boomer parents did.”
However, he adds, “Money is still an intimate, taboo, and for most, scary subject. The more this generation can take the plunge into forming healthy money habits and being transparent with their friends and loved ones, the better off they’ll be. In my opinion, this is the single biggest gift they can give their kids.”
To achieve that cross-generational benefit, Gen Xer Herbers says, the challenge for advisors is clear. The Xers may be a smaller cohort than either of their sibling generations (an estimated 65 million Xers versus 77 million boomers and 83 million millennials), but she says, “If there's a generation that will define financial advice, it will be this generation. And if there is any generation that needs help with money, it's us, the Gen Xers, right now.”
--- Read Thinking Millennial: How to Woo the Largest Generation on the Thinking Generations home page.