Millennials are more cautious about investing in the market than their parents. But they are also more knowledgeable about what to do with their money.
When she was young, Michaele Bradford thought that the world of investing was a fun, cheery place – a sort of playground for your piggy bank.
With good reason. Her grandparents bought her a mutual fund while she was still in elementary school. It came through USAA, a big financial services firm, which provided a monthly newsletter specifically for its young customers.
"It had a column called 'Ask Kurt,' where you could ask an investment banker at USAA anything you wanted," she recalls. "I still have the response Kurt sent me when I asked him what companies were in my mutual fund. So they kind of spoiled me."
The 2008-09 market crash and deep recession became a smelling salt to her about investing. Ms. Bradford, now in her late 20s, suffered a severe setback with her finances, as did others of her generation. Not only did her modest portfolio plummet, she also lost her job and had to liquidate two retirement accounts to survive.
"There's a 15 percent tax penalty, but I was unemployed for six months and I needed it," she says. "It was like $1,000." Since then, Bradford, who graduated from college in 2007, has found work as a case manager at a Detroit-area homeless shelter – and, reassuringly for Wall Street, restarted a 401(k).
Millennials represent a key demographic for Wall Street. If the events of the past six years have soured them on stock investing, then they won't provide the growth for the next generation of mutual funds or the cash that will help drive the stock market forward.
For now, Millennials seem more conservative about investing than some generations in the past. Surveys show many young adults are cautious and less trusting in the financial industry than their predecessors – but also more knowledgeable about what to do with their money.
This is perhaps understandable. Unemployment among people ages 18 to 29 was 11.7 percent in March, compared with 7.7 percent for the nation as a whole. Saddled with more than $1 trillion in student debt, this generation is also delaying buying houses and cars in greater numbers than ever before. Many young people have also been influenced by the experience of their parents, which has acted as both a cautionary tale and a goad. Take the Tillmans.
"My parents lost a fair amount in the stock market and it really scared them," says Corrin Tillman, who graduated in 2008 and has a 2-year-old. "We wanted to start early; we're concerned about becoming part of that 'sandwich generation' you're always hearing about, taking care of both our parents and a daughter. Happy to do it, but we want to be prepared from all angles."
She and her husband have retirement savings and a 529 college plan for their daughter. They hope to amass about $100,000 by the time she turns 18. Soliciting the services of a financial planner is not a high priority.
"We're both really comfortable doing Internet research, using things like Money magazine," Ms. Tillman says. "With the amount of info out there, I really don't feel like we need a professional."
The Tillmans mirror the values of their generation. According to a survey of 1,000 "high income, tech savvy" people released by Accenture in February, 43 percent of investors ages 21 to 30 characterized themselves as "conservative," compared with 31 percent of baby boomers. Young investors are also starting their retirement savings as soon as they can, aided in part by automatic 401(k) enrollment by many employers. And they are four times more likely to do their own research before acting on the advice of a financial planner than boomers were.
"They really do have a true 'buy and hold' approach to long-term investing," says Michael Liersch, director of behavioral finance at Merrill Lynch Wealth Management in New York.
The Tillmans have opted for a leave-it-alone strategy indicative of a generation that will be in the market for a long time: Their daughter's 529 gets more conservative as she gets closer to college, and they don't reshuffle their holdings regularly. "I used to check [the portfolio] a lot, but it was a little disappointing, and the experts say to set it and forget it," Ms. Tillman says.
Bradford follows a similar approach. "I listen to the banks on this matter when they say, 'Be patient. Don't freak out. That's the nature of the market.' "