As kids head back to school, adults spanning several generations set their sites on getting their financial house back in order. What are the most important financial planning considerations in three major demographics—Millennials, Generation X and Empty Nesters?
Millennials: First things first – Before making any big financial commitments, like buying a house, figure out what you want life to look like.
- Are you in a relationship and looking to “settle down,” or do you highly value freedom and flexibility? If the latter, you shouldn’t be buying a house or committing to a job that is geographically tethered.
- If you’re in your twenties, the primary factor that will influence your financial success is how well you establish yourself in a career. Invest in yourself, and that will likely help you invest more money in the future.
- Save as much as you can in tax-qualified retirement accounts at this phase of life, because once you get settled down and have kids, your expenses will rise dramatically.
- Don’t default to 100% equity portfolios just because you’re young. After getting burned by the market crash of 2008, many Millennials got scared away and didn’t benefit from the subsequent market rise. Your portfolio should likely be predominantly stocks at this age, but consider some fixed income exposure to keep from losing your shirt (and abandoning your strategy) in a downturn.
As the kids head back to school, many of us are getting back to work on our personal financial plan. I talked with Susie Gharib about the most important considerations for Millennials, Gens X & Y and Empty Nesters on the Nightly Business Report on PBS (produced by CNBC):
To really help people, financial planners have to delve into the the feelings and emotions that drive their clients’ financial decisions. One planner explains why that’s so hard.
While most of us financial advisers want to do the best for our clients, we often struggle at the task.
The main problem, as I recently wrote: We don’t know our clients well enough. We may say that a client’s values and goals are important, but most of us don’t adequately explore these more personal (a.k.a. “touchy-feely”) parts of a client’s life.
Why is this?
One reason we avoid deeper discovery with clients: No matter how we’re paid—whether by commissions or fees—most of us don’t get compensated until the financial planning process has neared its end.
Last month I attended a presentation that explored, in depth, the notable differences and financial tendencies of several generations, from the silent generation through the millennials.
The presentation described certain representative traits perceived as common among each generation and what financial advisors should consider when communicating with members of them as prospects and clients.
When discussion of the younger generations came up, I noticed advisors around the room rolling their eyes and scratching their heads. The expert at the front of the room was providing well-researched data to help us understand what is important—and less so—to these generations and how we might consider breaking through to them.
But, as the attention of this group of well-heeled advisors descended into a collective yawn, the presenter scurried to wrap up before answering the most important questions:
- Why exactly should financial advisors dedicate themselves to working with younger clients?
- Why should advisors apply valuable time and money to crafting services and messaging for a demographic niche notorious for inspiring descriptors such as “entitled,” “ungrateful” and “distrustful”?
The U.S. Department of Agriculture (USDA) recently released its annual “Cost of Raising a Child” report. The news from it is really no news at all to us parents—kids are stinking expensive and growing even more so. However, if you read between the lines, there are three extremely important points that don’t show up in the executive summary:
1) Parents still have a choice. The USDA estimates that households with less than $61,530 in income will spend a total of $176,550 per child. Meanwhile, “middle-income parents” making between $61,530 and $106,540 each year can anticipate spending $245,340 per kid. Those blessed with household income over $106,540 should expect to spend $407,820.
Here’s how I read these numbers: It likely costs approximately $175,000 to care for a child’s needs in today’s dollars. Beyond that, it’s our choice as parents if and how we spend additional money on our progeny. When your household income jumps from $106,000 to $107,000, the USDA isn’t holding a gun to your head and demanding that you spend an additional $162,480 per child.
It’s completely up to you, and you may choose to spend more or less than some of the USDA estimates. For example, you may choose (wisely) to spend more on one child than another for various, justifiable reasons, including each individual child’s own gifts and weaknesses. If you choose to put even one child through private school, from kindergarten through a graduate degree, you could easily spend a million bucks just for education—and college isn’t even included in the USDA’s numbers.
There is no shortage of receptacles clamoring for your money each day. No matter how much money you have or make, it could never keep up with all the seemingly urgent invitations to part with it.
Separating true financial priorities from flash impulses is an increasing challenge, even when you’re trying to do the right thing with your moola — like saving for the future, insuring against catastrophic risks and otherwise improving your financial standing. And while every individual and household is in some way unique, the following list of financial priorities for your next available dollar is a reliable guide for most.
Once you’ve spent the money necessary to cover your fixed and variable living expenses (and yes, I realize that’s no easy task for many) consider spending your additional dollars in this order:
A study by the Urban Institute uncovered a shocking statistic, that 35% of Americans have some consumer debt in collections. I discussed this with Tyler Mathisen on PBS’s Nightly Business Report, produced by CNBC.
You might think that the most important work a financial advisor can do is related to allocating a client’s investment portfolio, or perhaps helping secure a timely insurance policy or drafting the optimal estate plan. In fact, their most important work is done when clients are in the midst of navigating life’s major transitions.
I have very recently undergone two of these major life events — a job change and a move — in the span of five months. Crazy, right? Who would willingly subject themself to two of life’s most stressful changes within such a small window of time? Fortunately, I had at my disposal three keys to surviving major life transitions, and I’d like to share them with you:
Key #1: Flexibility
“Blessed are the hearts that can bend; they shall never be broken.” — Albert Camus
In February, I left the company I loved after seven years of life-changing work to lock arms with a national alliance of financial advisory pioneers dedicated to the practice of “building relationships by doing the right thing.” But in order to build a new and rewarding relationship with them, I had no choice but to sever some relationships with others.
Since shortly after its inception, I’ve been a fan of Mint.com and have recommended their powerful budgeting tool to anyone willing to listen. The tool has changed so many lives that Mint.com has become a reputable personal finance source of news and information as well. So when they asked if they could do an “Expert Interview” with me on the topic of human behavior and personal finance, it was an easy “yes” response.
Enjoy the interview here: “Expert Interview with Tim Maurer on Human Behavior and Personal Finance for Mint”
||July 23, 2014
||Interview with Magnetic Personal Finance Site, Mint.com
I’ve heard it estimated that out of all the financial and estate planning recommendations that advisers make, their clients ignore more than 80% of them. If there’s even a shred of truth in this stat, it represents a monumental failure of the financial advice industry.
To explain why, let me tell you a story about a financial planning client I worked with a few years back. In one of our first meetings, she and I were reviewing her three most recent tax returns. As I discussed them with her, it became clear that the accountant who had prepared those returns — an accountant who had been recommended to her by her father — had filled them out fraudulently. A bag of old clothes that she had donated to charity became, on her Schedule A, a $10,500 cash gift. She also deducted work expenses for which she had already been reimbursed.