Financial Planning for Millennials: the Benefits of Acting Sooner Rather Than Later
There’s a commonly held belief that financial advice is only for older people – because they’ve accumulated sufficient wealth to make seeking advice a sensible move and they also start to worryabout their income in retirement.
Many people in their 20s and 30s have a very limited interest in financial advice, because they either don’t have surplus income or spend it all – and matters like retirement planning seem like a lifetime away.
From personal experience I know that very few of my friends in their 30s and 40s have received financial advice and of the 100+ active clients that our firm manages, only three are under the age of 30. Why? I asked my 20-something assistant this question and she replied that younger people don’t seek financial advice because they prefer instant gratification to long term planning. That’s something I can certainly identify with in my mid-30s, but surely there’s more to it than that?
There’s the dependence of the younger generation on the internet and the overwhelming habit of using a search engine to find an answer to any question. This is undoubtedly appealing if you’re busy and need a quick solution, but in the same way that using a search engine to diagnose a medical condition often results in a scary misdiagnosis, generalized financial advice can lead to a poor understanding of the consequences of financial decisions.
Linked to our love of all things techie, there’s a relatively new development in financial advice calledrobo-advice, which uses algorithms to automate the investment process. Robo-advice is certainly a much more streamlined process than traditional financial advice, because it relies on far less information to make investment decisions. But herein lies one of its biggest drawbacks – it lacks the ability to analyse an individual’s financial affairs and take into account changing circumstances. The biggest attraction of robo-advice has to be the low cost, which leads us to perhaps the most obvious reason why young people don’t use financial advisers …
Money, or the lack of that surplus income mentioned above. In general people in their 20s and 30s have less expendable wealth which means financial advice seems unnecessary and expensive. But,contrary to popular belief, financial planning doesn’t have to be about investing surplus cash. Often in your 20s and 30s the need is less for substantial savings and more for the holistic side of financial planning. Children, house purchases and marriage lead to the need for protection products designed to provide for your family if the worst were to happen or to replace your income if you couldn’t work.
Research shows that one of the main reasons the younger generation don’t seek financial advice is because they follow the lead of their parents. In our experience this is true. We advise the parents of our younger clients and know that they’ve encouraged their children to use our services. But if your parents have managed without the services of a professional advisor, it seems unlikely that you’ll seek financial advice until you’re faced with a problem you can’t solve.
And that’s the thing with financial advice: it’s not something you know you need until you actually doneed it, by which time it might be too late. We’re often approached by potential clients in their 50s who want to take early retirement but can’t afford to do so. Yet if they’d engaged a financial adviser earlier on in life they could have built up a substantial additional pension to fund the early years of their retirement.
We often quote the not very interesting sounding time value of investment growth as an argument to start saving regularly sooner in life rather than later, even if you can only afford to save a small amount every month. It’s been proved that – in a 20 or 30 year period of regular saving – the rate of investment growth is higher in the later years than in the earlier ones due to the reinvestment ofearlier gains. So – in less technical terms – your fund is likely to be more valuable at your age 60 if you make small regular savings from age 30 rather than make larger savings from age 50.
Possibly the most important thing to remember about financial advice is the traditional image of an antiquated man in a suit is long gone (at least, in this firm!). The nature of financial advice means that advisors have to be up to date, not only with financial regulations but also with the wider economic and social climate. We take the time & trouble to get to know you and we’re not interested in preaching to you about your spending habits. Instead we want to help you to recognise andrealise your financial goals, whether they’re over the short term or they take 30+ years to achieve.