Financial Advisor Lori Sackler talks with her Millennial son—also a Financial Advisor—about the current financial issues facing Millennials and how FAs and parents can help.
Officially, this blog is called “The Two ‘M’ Words” but today the better title might be “My Two Sons.”
During my first two blogs on “Money and Millennials,” I gave you my thoughts from 30,000 feet on what I think makes Millennials tick. Sometimes they seem to have more in common with their grandparents than their Boomer parents. They have grown up with the tragedy of 9/11 and struggled through a major economic recession after all. They’re thrifty and tend not to trust institutions including financial services firms, or so my experience indicates.
But what’s it like for Millennials at ground level?
My own “self-teachable moment” came when one of my sons “went it alone” on wealth management – then moved to an advice platform later. This taught me that Millennials are struggling to achieve financial literacy and sometimes get there only through trial and error. They definitely can benefit from sound advice from people they can trust.
I have a second millennial son, 8 years older, who is a Financial Advisor with me at the Sackler Group at Morgan Stanley. I thought it might be interesting to get his input as well, given he understands more fully the concerns of his generation and can better relate than a somewhat typical Boomer like me. I decided to sit down and have a conversation with him about the current financial issues facing millennials and how Financial Advisors and parents can help.
Lori Sackler and the Sackler Group and Morgan Stanley, which includes her son, Henry Sackler.
Lori: Henry, you must see a lot of debt burden on the shoulders of your friends. How are they handling it, and are they seeking advice on this topic?
Henry Sackler: How are my friends handling it? Many of them are paying off their student debt the old-fashioned way: through a monthly payment plan, which sometimes can be onerous but is a whole lot easier than one lump sum payment or immediate upfront payments. Replacing the student loan with one more cost effective can bring emotional and financial relief both to the parent and child. The last option, usually the least recommended, is putting off payments for a period of time, usually in abeyance, until the student is able to begin making the monthly payment.
Lori: As Millennials start a job, you and I see that one of their first decisions oftentimes is what to do about the company benefits. They have questions about what choices to make. We are seeing this in our practice, right?
Henry: Well, Morgan Stanley is not really in the health plan advice business of course, but in terms of retirement plan choices and saving and investing and the basics, yes, this is often the first question that someone who has just started working will come to us with. What I believe and what we tell our clients is, “you should always pay yourself first!” In other words, in most cases you should enroll in the 401(k), and try to set aside enough to get the company match if there is one, and then take advantage of any of the other plans that can help you save for retirement.
For most people, depending on the plan and pricing, it could make sense to sign up for group life, disability, health and dental insurance, and the supplemental policies offered. Young people often think that they will never get sick, or that they will be healthy forever, and that is not always the case. We all have health issues at some point. I remind my clients generally: Don’t skimp on the benefits just because your take home pay may be greater.
Lori: When they get to the point where they marry and are considering a family, that is when some start to think seriously about life insurance and permanent housing and may seek help from family members. What is the experience of your contemporaries?
Henry: Typically, most of my contemporaries in that position will begin to think about life insurance as a way to protect their loved ones and family members. I feel that it’s always advantageous to lock in an individual life insurance policy at an earlier age because premiums are usually less expensive, and if you can afford a permanent policy - or some policy that gives you the ability to accumulate cash value -- that may be a preferred option to include in your insurance portfolio. I am always reminded that oftentimes people wish they had included permanent insurance in the portfolio early on. Typically the change in mind is a result of unforeseen health changes or the realization that after the term insurance expires there is still a need to leave cash to beneficiaries, for example, a child with special needs or an unfunded tax liability. As to housing, I feel it is usually better to own than to rent over the long term, but having a Financial Advisor to help evaluate the options is critical. Having the “money talk” with family members to assist with the down payment or help with a loan may be advised.
Morgan Stanley does not provide legal advice or services, but as a good rule young couples and those considering starting a family should always think about a will, a living will, a healthcare proxy, and providing for guardians and trustees in the event something terrible happens, particularly while the kids are young. Typically, once a newborn comes into the equation, risk tolerances of the parents will become more conservative as they think about preserving and growing what they have, as well as providing for their child. Whenever a change in life circumstance happens, like marriage or the birth of a child, it’s important to talk about investing objectives and have a money talk. There may be differences of opinion between the marital partners regarding risk tolerance and objectives that can help to resolve the conflict and create a plan that works for everyone.
Lori: I hear from Boomer parents sometimes that they worry that their adult child is choosing a partner burdened with student debt and other liabilities. They fear their child would assume the partner’s liability and potential financial setback upon divorce. Are you seeing pre-nuptials as the solution? Or is this something Boomers should just stay out of?
Henry: That’s an interesting question. Again, we don’t offer legal advice, but if it’s a concern it’s worth exploring. I always thought one would be more concerned about losing assets in a divorce, but yes, I imagine someone in a marriage could be concerned about gaining the other person’s debts as well. I’m not sure a prenup is needed as long as the debt remains in the individual’s name, incurred prior to marriage, and is not commingled with other assets and liabilities. Every relationship is different, but if it is a concern, then a prenup could be used to protect the spouse or family. These are all good overall personal finance questions, but the detailed answers need to be discussed with an attorney.
Lori: Millennials definitely seem to me to believe in the need to save and invest and create a stable financial future but for many struggling with salaries that barely keep up with housing and basic expenses, it’s challenging. What would you say to them?
Henry: Life can be financially challenging when you’re getting started, but there are definitely some tried-and-true techniques that we recommend and that will, over time, help you create a more stable financial future. As I mentioned before, you have to figure out a plan to pay down the debt but also as I mentioned pay yourself first and try and take advantage of the company 401(k); if your company doesn’t have one, set up your own IRA. Invest a small amount of money monthly, and over time it will grow with the power of compounding interest and the appropriate asset allocation. It doesn’t happen overnight (as nothing ever really does), but over the course of 5 to 10 to 20 years, savings can add up.
Lori: This generation is quite sensitive to fees associated with financial advice. I think it may be a result of their experience with two economic and market downturns, the losses their families may have incurred and significant negative media attention around the topic of fees. What should Financial Advisors say in response?
Henry: Well, being a Financial Advisor is itself a differentiator among Millennials, who want to be consulted on financial concerns and who don’t necessarily want to be “sold.” So by itself, taking a consultative approach will help Financial Advisors engage Millennials better, which means offering services or products that are in the best interest of the millennial irrespective of the Financial Advisor’s own financial gain.
Lori R Sackler is a financial advisor, Senior Vice President and Senior Investment Management Consultant at Morgan Stanley Wealth Management and author of the M Word: The Money Talk Every Family needs to Have about Wealth and Their Financial Future (McGraw-Hill Education, undated 2016) and the M Word Journal: How To Have the Money Talk (2016).