Read time: 3-minute article

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

This content is categorized as:

Known as millennials and Generation Z, clients in their 20s and 30s are markedly different than previous generations. Many who fall within these generations were born between 1981 - 2012. Many young adults are focused on their financial health, and according to a recent survey, would feel more optimistic about their financial situation if they had a better understanding of personal finance. Among this group, nearly 70% are actively searching for a trusted source for financial information.

Your younger clients are also facing unique challenges that may be affecting their overall financial health. With volatile markets and rising costs of gas, groceries, and other goods, many young adults may feel less secure about their financial future, leading them to rethink their spending and direct more money to their savings. Millennials and Gen Z individuals also have less disposable income compared to past generations, causing them to spend less and embrace a minimalist lifestyle. In short, they’re financially savvy but may still need guidance.

Many young adults in this age group may also be relying on their parents for financial support. According to a recent study by Athene, 58% percent of people in their 40s and 50s — known as the Sandwich Generation — have adult children at home, and another 76% are providing financial support and helping cover a variety of their adult child’s expenses. To help younger generations gain more financial independence and successfully manage their money, boosting their knowledge will be key.  

Financially empowering your younger clients

For financial professionals, filling in the gaps in your younger clients’ financial knowledge can help you build trust and establish durable relationships. Even if you’re fairly confident your younger clients are financially savvy, using simple terms and being overly explanatory even about basic financial matters — without talking down to them — will help reinforce their knowledge and strengthen their ability to help themselves. Here are five things your clients in their 20s and 30s should know.

  1. The basics of financial accounts
    The difference between a 401(k) and an IRA may be clear, but do your clients understand how Roth and traditional IRAs, along with annuities, work? Your younger clients may also be unfamiliar with life insurance and the importance of protecting their loved ones. Breaking down the specifics of accounts 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 to meet 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 comprehend market risk. 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 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.