I’ve written before about whether “millennials,” born between 1980 and 1995, are attractive clients for independent advisors. Answer: not yet.
Historically, the vast majority of folks between the ages of 21 and 36 just don’t have financial issues complex enough to warrant paying a professional advisor. And it’s my observation that most of today’s “young adults” are no exception.
However, a recently released study conducted by Big Four accounting firm PwC (formerly Price Waterhouse Cooper) and the George Washington University Global Financial Literacy Excellence Center, suggests that the financial situation of most millennials is far worse than even I thought: raising the larger question of when, if ever, this generation will become viable advisory clients — and what the impact will be on the advisory industry if they don’t.
The PwC/GW study of “over 5,500 young people” is called “millennials & Financial Literacy — The Struggle with Personal Finance.” And the title is not an overstatement.
As the study shows, millennials’ finances were torpedoed before they even had any finances, by decades of insane student loan programs which encouraged colleges and universities to raise tuitions to ridiculous levels (my words): “2/3 of all millennials, and a staggering 81 percent of college-educated millennials, have at least one long-term debt.”
Moreover, 31 percent of all millennials, and 44 percent of college-educated millennials, “carry more than one source of outstanding long-term debt.”
Consequently, “more than 54 percent of millennials expressed concern about their ability to repay their student loan debt.” Even among millennial households with annual incomes over $75,000, “34 percent are concerned they many not be able to repay their student loans.”
What’s more, the study found that “nearly 30 percent of millennials are ‘financially fragile,’ meaning they are currently overdrawing on their checking accounts, and “53 percent are carrying credit card balances.” At the same time, 42 percent have used “Alternative Financial Services, such as payday loans, pawnshops, auto title loans, tax refund advances, and rent-to-own products.”
And “more than 20 percent of the millennials with retirement accounts (36 percent) had taken loans or hardship withdrawals in the past year.” The bottom line: “Nearly 50 percent don’t believe they could come up with $2,000 if an unexpected need arose within the next month.”
As if this weren’t a dismal enough picture, the study went on to detail millennials’ financial knowledge: Some “24 percent demonstrated basic financial literacy”; and “only 8 percent demonstrated high financial literacy.”