Attention, parents of Millennials: Your Gen Y kids — those 83.1 million 18-to- 34-year-olds who now comprise the largest generation — may fuel your angst at times, but they need your help to navigate the increasingly complex path to financial security.
Many Millennials simply aren’t confident about where they stand financially. Only 43 percent feel financially secure, according to a January 2016 Harris Poll for Northwestern Mutual, where I’m vice president of planning.
There are some good reasons why. Not only are people bombarded today with the false idea that picking a few magic stocks will lead to financial security, some of the traditional elements of financial security — home equity, Social Security or a retirement pension — aren’t guaranteed either. And because many boomer parents haven’t experienced this new reality, they understandably have a hard time knowing just how to advise their children.
Nearly half of the Millennials surveyed said they’re actively researching or reading about financial services. That’s encouraging.
So how do you give your Millennial kids financial wisdom and the counsel they may (or may not) know they need? Here are five tips:
No. 1: Make sure they understand why financial planning is essential.
There’s no lack of information showing that Millennials are different from previous generations. They work differently, communicate differently, consume media differently and the list goes on. Also, they came of age during the Great Recession, often have significant student loan debt and have encountered challenges getting hired, as indicated by Pew Research Center data.
As a result, it’s critical to illuminate why putting a financial plan in place is an important step they need to take sooner rather than later. Explain the benefits of creating a budget, setting goals and following a plan. Let them know that having a good relationship with their money early on is empowering and gives them options along the way.
Suggest a budgeting tool, like this one, to help them map out their monthly expenses so they can see where their money is going. You might even use your own budget as an example.
Then it’s a matter of them setting priorities and determining what they can do without (or cut back on) to have money for savings, student loan payments and various long-term savings vehicles like an IRA or a 401(k).
Let them know that budgeting and saving doesn’t have to be painful if they make these daily habits early on. Some banks and credit card companies even offer incentives and rewards programs as motivation.
No. 2: Offer help from your financial adviser if you have one.
To assist your Millennial in shaping future financial goals and creating a timetable for achieving them, if you have a financial adviser, arrange a meeting to show them what’s possible if they build their plan now rather than waiting even a year or two. And be sure they are talking to a professional who addresses investments and insurance; the latter is a critical element for your Millennial to protect his or her earning potential and assets.
They’ll likely be okay with seeing a financial adviser since Millennials are more positive about getting help from family and financial institutions than previous generations, according to the 2016 Edelman Trust Barometer.
If yours are reluctant, remind them of the times when you paid for them to see an expert or coach. The Spanish or chemistry tutor. The soccer trainer. The college counselor. Emphasize why you think this third-party assistance is even more important for their financial future.
No. 3: Point them to information about financial planning and strategy.
You may be surprised at their interest. Nearly half of the Millennials Northwestern Mutual and Harris Poll surveyed said they’re actively researching or reading about financial services. That’s encouraging.
Help them solve their biggest financial challenges, such as credit card debt. Give them information about managing credit cards wisely and point them to online resources so they can consume the information when and where they choose. (Our online resource, TheMintgrad.org, is meant to empower college students and recent grads to carve a path toward financial independence.)
No. 4: Confront the inheritance issue.
Too often, parents delay talking about the sensitive issues of wealth and inheritance. Openness is the best policy — especially since some Millennials may be counting on an unrealistic inheritance.
Studies have shown the disparity between what children expect to inherit and what parents plan on leaving behind. In a survey of several thousand Millennials conducted by Impacts Research & Development, more than two-thirds said they expect a “significant inheritance.” But nearly 90 percent of their parents said any bequest wouldn’t be “significant.” The average difference between the two: $359,970.
The conversation should be straightforward: Let them know your situation, and stress the importance of creating their own legacy. Also consider having your financial adviser, if you have one, discuss the issue with them.
No. 5: Discuss finances regularly.
Make it a priority at least once a year. This allows you to bring up any concerns or, at the least, to urge your children to see their adviser for an annual review of their plan. It also lets you explore related topics, such as your own future care needs.
Believe me, talking about money really matters. And remember: most Millennials consider their parents their most trusted financial source. Yours will thank you for helping them secure a long-term path to financial security — eventually, and in their own way.