With a variety of interests, behaviors, experiences, personalities, and attitudes about money, we manage finances, invest, and save. Even if we are not directly responsible for financial management, we are involved via spending or generating income. How do financial institutions and advisors provide guidance? They divide us up into groups by our age, gender, net worth, income, and maybe some less-than-ideal measure of risk tolerance.
The focus on Millennials is a great example of this: making general statements about a group based on on age…ignoring other critical individual differences. It’s convenient and easy, but for personalized advice, it’s less than helpful.
A recent article discussed how Millennials’ greatest asset is their time, and that by not investing, they are sacrificing the magic of compound interest. True: young investors have more time. The problem lies in the theories of why this is the case, and one is especially general in its application: Millennials like “instant”…especially those who have only known clicking and getting. As one author put it: There’s nothing instant about investing and finance. So, the advice given to advisors and others hoping to woo and/or advise this group is based on the idea that most Millennials are this way.
Broad, sweeping statements about groups of people, grouped together by demographic characteristics, are convenient and sometimes accurate but lead us to ignore important differences within the group. When we do this, we are doing a disservice everyone we’re attempting to advise. What’s the alternative to advice by easy-to-create groups? Financial coaching advice tailored by life experiences…experiences that are predictive of future behavior.
Instead, ask Millennials, Gen Xers, Baby Boomers, etc. if they were raised by frugal parents, had experience managing money throughout their young adulthood, have a career that they are satisfied with and that can provide future income. Ask them if they can focus on their long- and short-term goals without becoming distracted by trends and the buying behaviors of friends, family, and neighbors. Ask them if they have sufficient knowledge to make decisions about complex investments or if they even understood those questions on the risk tolerance questionnaire.
This can be done on a large scale with scientifically developed measures of life experiences and behaviors. And, the individual’s wealth potential score, a score based on experiences and behaviors versus age, can provide tailored financial management advice.