3-minute article

Financial literacy for your clients in their 20s and 30s

Clients who are in their 20s and 30s today are markedly different than previous generations. Almost everyone who falls within these decades are millennials, who were born between 1981 and 1996 and are now ranging in age from 25 and knocking at the door of age 40. As a generation, they value education as 39 percent of them attended and finished college, according to CompareCamp. In general, they’re also delaying marriage and starting families, and about 57 percent of them say student debt is the largest source of financial insecurity among their generation. With the economy’s volatility and rising costs of gas, groceries, and other goods, many millennials feel less secure about their financial future, leading them to rethink their spending and direct money to their savings, according to CompareCamp. Along with student debt, they have less disposable income compared to past generations causing them to spend less and embrace a more minimalistic lifestyle. In short, they’re financially savvy but may still need guidance.

As a financial professional, filling in the gaps in their financial knowledge will help you build trust and hopefully increase the longevity of your relationships. Even if you’re fairly confident your clients are financially savvy, using simple terms and being overly explanatory even about basic financial matters — without talking down to them, of course — will help reinforce their knowledge and strengthen their ability to help themselves. Here are five things it would help for your clients in their 20s and 30s to understand.

  1. The basics of financial accounts
    The difference between a 401(k) and an IRA may be clear, but are you certain your clients understand how Roth and traditional IRAs, along with annuities, work? Breaking down the specifics of accounts — from HSAs to annuities — will help you to show the strengths and optimal uses of each.
  2. The importance of budgeting and saving
    Clients in their 20s may be in their first jobs out of college, while clients in their 30s may be focused on starting a family or buying their first home. Talk to them about how they’re budgeting their salaries to meet their short-term goals and monthly expenses. One way to broach the conversation may be by talking about emergency savings and the implications of losing their income.
  3. Proper use of credit and debt
    The total student loan debt in America is over $1.7 trillion, and 29.4 million individuals under the age of 39 still have loans to pay down. Helping them understand the importance of budgeting for and paying off that debt gives them the opportunity to learn more about how credit scores are calculated and the perils of high-interest debt.
  4. Risk tolerance, time horizon and interest
    Investing basics are essential. Individuals in their 20s may be socking money away for their retirement in employer-sponsored plans, but they may not fully understand financial risk with regard to market fluctuations. They should also understand how that risk may play out over time, especially for people with 30 or 40 years until retirement. Along with market volatility, the impact of inflation and interest on cash savings may be something they haven’t considered.
  5. The difference between short- and long-term goals
    Retirement may be in the distance for these clients, but that doesn’t mean you shouldn’t talk about it in realistic terms. Explain how income streams from financial accounts, plus monthly income from annuities can work together to help form a retirement budget. Show them how to allocate their savings to also help achieve their short-term goals, whether they want to buy a house or take a yearly vacation.

Two things you can do today

  1. Make a list of your clients who are in their 20s and 30s and schedule appointments to talk to them about their long- and short-term goals.
  2. Encourage clients in this demographic to increase their financial literacy through budget keeping, podcasts and apps.