Financial Planning for Young Adults: What Advisors Should Know

Throughout the past decade, the term "young adult" has been used interchangeably with the term "millennial." This term refers to Americans born between 1981 and 1996.

With this generation in mind, it's safe to assume that the majority are entering new life stages and going through a transition. This is a time in life when people have to make big decisions and changes in their life — financially or otherwise.

Following on their heels are the youngest generation to enter the workforce, Generation Z, or Gen Z for short. This generation is comprised of people born between 1997 and 2012.

This year, the youngest members would be as young as 10 years old, while the oldest would reach 25 years old. A big portion of them are in high school, but just like the youngest millennials, many are college grads and have started contributing to the workforce. In 2030, it's projected that Gen Z will make up about nearly thirty percent of the workforce.

These young adults are seeking to achieve sound financial futures, and it’s essential to know how to work with these generations. In this article, we’ll touch on what to know about millennials and GenZ adults and the initiatives you can take when working with them. 

What to Know About Younger Generations

Something that distinguishes millennials from other generations is the series of financial challenges they’ve experienced.

The oldest millennials were 26 years old when the Great Recession hit — meaning half of its members just entered the workforce and had to face high rates of unemployment.

With how uncertain the job market was at the time, many had to settle for lower wages. In turn, the average millennial chose to settle for a lower income and delayed life milestones.

When compared to other generations, millennials carry the most student debt — with 14.8 million of them carrying debt with an average balance of $38,877 per borrower.

Understandably, once they achieve a more stable financial life, their priorities move toward student loan payments and reaching delayed milestones — such as buying a house.

As a financial advisor, your help in navigating the house-buying process and balancing their income would be very valuable.

With the oldest Gen Z being born in 1997, it's not far-fetched to say that this generation is native to the digital world. The majority of them grew up with the internet and social media constantly present in their life. As a result, they are used to receiving information instantaneously, and that also applies to financial information.

Having financial education just a Google search away is very convenient. Yet, due to the nature of the internet, the ease of access may also breed misinformation and poor financial tips from strangers.

While not all of those strangers are scammers who spread misinformation, it's still important to separate online sources from experts who have credible money management advice and personal finance know-how. For example, professionals with a known track record, such as certified financial planners (CFP) or certified public accountants (CPA), are much more trustworthy providers.

Top Tips for Young Adult Financial Planning

Considering the differences between millennials, Gen Z, and the generations that came before them, here are our top tips for young adult financial planning.

Understand that Financial Goals May Differ

In order to provide relevant advice to younger generations, financial advisors need to understand where their clients come from.

Compared to their parents and grandparents, millennials and Gen Z have different interests and financial goals due to the different financial climates they grew up in.

Millennials may tend to put off life milestones, such as buying a home and having children, but this doesn't mean they aren’t interested. They are merely delaying it for later as they have more pressing concerns to prioritize — such as student loan debts, credit card debt, and gaining their financial success. 

As a financial advisor, you need to help younger clients plan accordingly in line with their life goals. Whether that means they need to balance their earnings with student loan debt payments, navigate the home-buying process, prepare for parenthood, or more.

Focus on Budgeting

The historically lower wages and the rising cost of living don’t make things any easier for the current generation. Stretching their income for essentials becomes a necessity, especially if they have loans to pay off or ambitious financial goals.

With less income and higher expenses than any other generation, young adults need to manage their money even more tightly. Focusing on budgeting helps them do this while also making sure that they have enough money to fulfill their existing lifestyle.

It’s likely that most young people coming into your practice already have budgets geared toward saving money. It’s easy for them to get information like simple budgeting frameworks. For example, what percentage of their income should they set aside for their savings account, retirement account, monthly expenses, and money to spend on what they want? They may already have a decent idea. 

However, don’t assume that they have all the information or that what they have is already enough for their current financial situation. As a financial advisor, your job is to guide them on the importance of budgeting, how to structure better budgets, and, most importantly, how to stick to them.

Look to the Future

Unlike their older counterparts, the majority of older millennials don’t plan to stop working and instead put retirement savings goals low as their priority.

In fact, a survey conducted by Deloitte Global shows that 46% of millennials are stressed over the welfare of their families and long-term goals. This indicates that they might be prioritizing their kids’ education over their own retirement.

However, they are still looking forward to retirement despite not prioritizing it. A poll published by Nationwide Retirement Insititute shows that among the 50% who are open to seeing a financial professional, more than 75% are willing to see an expert to help plan for retirement.

In contrast, a whopping 70% of the older Gen Z members are already saving for retirement. A study from BlackRock shows that, on average, Gen Z saves 14% of each paycheck for retirement.

Despite this, a third of them believe that $250,000 saved is adequate, compared to baby boomers, who believe $1-3 million is necessary to retire in comfort.

This indicates a stark difference in financial literacy. As a financial advisor, you can help close the gap by educating millennials and Gen Z on retirement bank accounts, emergency funds, money market accounts, and other financial tools that can help them achieve future success.

Review Credit History

Building a good credit history will help young adults with the bigger purchases of their life later on. They may need guidance on the financial decisions that they need to make when they’re trying to fulfill a life milestone, such as buying a house or having kids.

While millennials most likely have already had run-ins with their credit score, this isn’t the case for Gen Z. This is especially true for the younger folks that just entered the workforce or created their first credit cards.

If you encounter these types of clients, it’s necessary to point out when their credit history is used, how they can build a good credit score, and things they should do to maintain a good credit score.

Expand Meeting Offerings

Millennials may not have grown up with the internet and social media like Gen Z, but they still make use of digital tools a great deal compared to previous generations. Slack, Facebook, LinkedIn, and WhatsApp are often used for work and communicating with family and friends, just to name a few.

The recent pandemic also pushed work meetings to online spaces, so it’s safe to assume that the average person would be familiar with and, perhaps, more comfortable with doing things online.

By offering more ways to contact you — such as through virtual meetings and texts — firms will be better positioned to serve their millennial and Gen Z clients.

However, remember that the point of expanding meeting offerings online is to make things simpler and more convenient for clients.

If they had to fight unreliable applications, connection issues, and constantly finicky digital integrations just to go to their scheduled meeting, they might opt out and even move to firms with a smoother client experience. Ensure that your online presence creates a seamless client experience to best connect with young adults. 

Prepare Your Younger Clients for Success with Asset-Map

To sum it up, millennials and Gen Z have different financial priorities than older generations.

Their disposition is affected by the financial climate they grew up in and where they are now financially.

While many still share life milestones like buying a house, having children, and plans for retirement, their approach differs due to a shift in priorities. To pinpoint exactly how different their priorities are, you need to have a nuanced view of their background before approaching their financial problems.

The two things that will help them greatly are helping and educating them on their cash flow, reviewing their credit history, and giving them financial advice on how to make it better, as well as helping them with their retirement planning.

A strong online presence is often the way to go. However, you need to remember that you’re changing your workflow to make a simpler and easier client experience, not complicating it.

Asset-Map simplifies your client experiences — from onboarding and discovery to meeting and tracking assets. Use our intuitive visual maps to help clients understand the big picture, or use our Discovery feature to make client discovery meetings more productive with questionnaires they can take from anywhere.

Something you’re interested in implementing? Book a demo today and see how our tools can work for your advisory firm.