Thanks to their skills and education, millennials are better equipped than any previous generation at the onset of their careers to make positive changes, according to a new report by BMO Wealth Management (U.S.).
However, many millennials lack financial literacy.
Asked what personal matters concerned them the most, 65% of millennials cited their current financial situation, edging out personal relationships and well ahead of job insecurity or opportunities.
The survey found that when millennials were able to save, they were generally very conservative. When asked whether they were saving for a major purchase, two-thirds said they were able to save, favoring the following methods:
- Specific purchase: in a savings account — 42%
- Specific purchase: in an IRA or 401(k) — 13%
- Specific purchase: in a Roth IRA — 6%
- New/upgraded home: in a savings account: 24%
- New/upgraded home: in an IRA or 401(k) — 9%
- New/upgraded home: in a Roth IRA — 4%
Thirty-four percent of respondents said they were not saving at the present time.
BMO Wealth Management noted that although savings accounts enable easy access to accumulated funds for any potential use, they lack any of the additional advantages of IRAs, 401(k)s or Roth IRAs.
“IRAs, Roth IRAs and 401(k)s are some of the best plans for helping millennials save for retirement,” said Stephen Williams, Senior Vice President of Wealth Planning, BMO Wealth Management (U.S.). “Contributions to these accounts grow tax-free or tax-deferred and savings can significantly accumulate over time. I cannot stress enough to millennials the value of utilizing these accounts for retirement planning.”
ValidateIt Technologies surveyed 1,003 women and men age 18 to 34 in April on topics such as millennial traits, personal goals, saving options, setting financial goals, life priorities and retirement planning.
The study, citing previous research, noted that many millennials lack financial literacy, which may impede their ability to attain the financial success they desire. Just 24% had basic financial literacy and only 8% had a high level.
Millennials in the BMO Wealth Management research appeared to be aware of this. Thirty-seven percent of men and 29% of women expressed concern about their lack of financial literacy.
In response to a question about their highest financial priority, 25% said it was paying down accumulated debts, 17% finding a meaningful or better-paying job and 15% purchasing or upgrading the home.
Saving for longer-term goals trailed: retirement 10%, specific large purchase 6%.
Indeed, 37% of survey participants said retirement was too far off and other priorities were more immediate. And gaps in financial knowledge become more of a concern as income increases, according to the study.
“As millennials’ incomes grow, financial planning and literacy will become even more important in order for them to achieve their financial goals,” Williams said.
“It is imperative for millennials to engage advisors as they start to map out their financial plans, in order to maximize their financial potential in a way that suits their current lifestyle and helps accomplish their aspirations.”
Millennials in the survey cited three main characteristics they look for in a financial advisor:
- Ability to provide personalized advice — 51%
- Knowledge and experience — 51%
- High level of service and ongoing communication — 46%
The study pointed out that such responses could apply to any generation, although more “millennial” answers — such as socially responsible investing and the use of innovative technology — were also cited, but less frequently.
BMO said that developing even a basic financial plan could help millennials prioritize goals and determine actions they could take to achieve them. A financial advisor can often provide needed additional support and guidance to make the most of their financial resources and strategize goals.
Not only that, it said, but the right financial advisor can help them quickly increase their financial knowledge in areas specific to their goals and concerns.
Unforeseen events can strike at any time, even for young and healthy individuals. Inadequate insurance coverage can pile financial hardship on an already challenging time.
Insurance, BMO said, can help millennials ensure their plans are not derailed by disability or death, and that they are prepared for out-of-pocket expenses.
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