Monday Morning: Generation Y has money, needs advice

With increased competition in the financial services industry, discovering untapped sources of potential customers has become more important than ever.

College students and recent graduates represent a great opportunity for financial advisers. By fully understanding the importance of Generation Y, advisers have a chance to get a jump on the competition in acquiring the most desirable segment of that consumer group.

Generation Y encompasses the 70 million Americans born between 1977 and 1995 who make up 21% of the U.S. population and, at their peak, will exceed the number of baby boomers. What’s more, the percentage of Generation Y in the population is expected to grow at twice the rate of the population until 2010, reaching 32% by 2020.

Generation Y, whose members have never used an eight-track tape player or, most likely, a rotary telephone but are the first generation to grow up online, is important because it affects the economy tremendously.

Recent surveys show that of the group’s total annual income of $211 billion, it spends about $172 billion each year while saving about $39 billion.

“Generation Y’s influence on the consumer economy is immense,” John Geraci, vice president of youth research at Harris Interactive Inc., an online research firm based in Rochester, N.Y., states in a recent online report. “Generation Y’s needs and opinions drive many adult purchase decisions, and they represent the future market for consumer goods.”

According to the report, Generation Y is very optimistic. They demonstrate a great deal of confidence that the economic rebound is around the corner and that good times are ahead for them, Mr. Geraci writes.

These young people are also savers. Harris Interactive’s research shows that members of Generation Y put 62% of their total income into savings at some point, though just 19% of their income is used for long-term savings. That is where advisers come in.

Lagging behind

Many banks and credit card companies already understand the importance of the Generation Y market and have established programs to reach and serve it. While insurance firms have also entered the market, industry observers say investment firms have lagged behind.

Meanwhile, studies show a growing demand among young people for a trusted adviser.

Ignore this market at your own peril, industry watchers say.

“This is not about teenage marketing,” J. Walker Smith, a managing partner at Norwalk, Conn.-based Yankelovich Inc., which specializes in generational marketing, states in a published report. “It’s about the coming of age of a generation.”

Generation Y is marked by a distinctly practical worldview, marketing experts say.

The members of this generation have already been given considerable financial responsibility. Research shows they are deeply involved in family purchases, from buying groceries to helping decide on the new family car.

“This is a very pragmatic group. At 18 years old, they have five-year plans. They are already looking at how they will be balancing their work/family commitments,” Deanna Tillisch, who directed a survey of college freshmen for Northwestern Mutual Life Insurance Co. in Milwaukee, states in the published report.

A recent survey by Boston-based research and advisory firm Celent Communications LLC of college students found that 65% said they ranked parental recommendation as “very important” when choosing a financial provider.

So it is a good idea to have those kids around when you are talking to their parents about financial planning.

The survey also found that 38% of those polled either had a current brokerage account or were planning to open one within two years.

Opportunity is knocking in the form of 70 million potential clients who will continue to wield a huge economic impact on this country.

Advisers better be sure to open the door.

Jim Pavia is editor of InvestmentNews.

Related Topics: Generation Y