Today's Millennial Investors Have "Depression Era Mentality" - UBS Survey In America

Eliane Chavagnon Editor Americas 28 January 2014

Today's Millennial Investors Have

Investors aged from 21 to 36 are the most financially cautious generation since the Depression Era of the 1930s, a survey by UBS Wealth Management America says.

Millennial investors, defined in UBS Wealth Management America’s latest Investor Watch report as individuals aged between 21 and 36, are the most fiscally conservative generation since the Great Depression, according to the firm.

This “Depression era mentality,” combined with advice this cohort of investors get from their families, is turning them into a generation of savers who are sceptical about long-term investing and market-chasing, UBS said.

The implications for the wealth management industry are significant as financial advisors targeting this segment may want to re-evaluate their client prospecting techniques, as well as consider the relevance and suitability of their offering for different investor demographics.

The findings also resonate with insights from an Accenture report earlier this year, which said that millennial investors are more conservative and less trusting of financial advisors than Baby Boom and Gen X investors. They’re also more inclined to consult other sources before accepting financial advice, it said.

UBS' latest report revealed that 34 per cent of millennials describe their risk tolerance as either conservative or somewhat conservative, while their average asset allocation is extremely conservative; the average portfolio dedicates 52 per cent to cash, compared to 23 per cent cash among other investors. Additionally, the majority said saving was “the best financial advice they had received,” while other generations said investing was the best. For instance, only 28 per cent of the millennial respondents said they viewed long-term investing as a route to success and are more focused on meeting their own goals than a specific market return.

“Millennials seem to be permanently-scarred by the 2008 financial crisis,” said Emily Pachuta, head of investor insights at UBS Wealth Management Americas. “They have a Depression Era mindset largely because they experienced market volatility and job security issues very early in their careers, or watched their parents experience them, and it has had a significant impact on their attitudes and behaviors.”

Meanwhile, a large majority of the millennial respondents surveyed believe the road to financial success requires hard work (69 per cent); saving and living frugally (45 per cent); and a good education (37 per cent). Of note, UBS said that, when it comes to defining success, millennials and other newer generations have added emotional and relationship factors and life experiences to the traditional financial definition. However, just under half still regard financial freedom as the most important factor of success (48 per cent), and believe that a household income of $220,000 is an indicator of “success.”

“Having witnessed both the technology boom and the collapse of global markets, it has made Millennials concerned, but resilient, and optimistic for the future,” Pachuta added. “They’re conservative, similar to the WWII generation coming out of the Great Depression, not resting on their laurels, but rather working hard for their wealth and success, making sacrifices because they believe their goals are achievable.”

Millennials also demonstrated higher levels of anxiety about their parents’ financial situations (21 per cent), compared to Gen X (15 per cent) and the Baby Boomers (4 per cent). This, UBS said, is a result of seeing their parents' retirement and investing plans seriously disrupted by unprecedented market volatility.

“Questions about financial stability and the ability of younger generations to succeed on their own exposed the most divergent perspectives on money and success,” UBS said.

For example, while the majority of both millennial and Gen X investors (57 and 56 per cent respectively) believe that they already have achieved financial stability, or will in the future, only 18 per cent of the Boomers and 21 per cent of “Swing/WWII” investors predict that their children currently do, or will, enjoy greater financial stability than themselves.

Survey methodology
The survey took place from December 31, 2013 – 7 January, 2014. The core sample of 2,532 investors had at least $250,000 in investable assets while 1,130 had at least $1 million.

UBS said it also included two over-samples:

1.    1,169 millennials: respondents aged 21-29 with at least $75,000 in household income or $50,000 in investable assets; respondents aged 30-36 with at least $100,000 in household income or $100,000 in investable assets.

2.    564 investors who did not use a financial advisor: all have at least $250,000 in investable assets and 276 of these investors have at least $1 million in investable assets.

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