Millennials, money and the financial services industry: mysterious millennials?

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By Amy Underwood, Alexander Forbes, and Jessica Chivinge, Discovery, on behalf of YALI Mbewu

AmyJessicaJust who are we, these much discussed ‘Millennials’? Sometimes described as ‘Generation Y’, ‘Echo Boomers’ or even the ‘Gaming Generation’, we are thought to be lifestyle centred, technologically savvy and somewhat impatient or lost, among other things. But the question remains – who are we, what do we really care about and what are the implications for the industries trying to get our attention?

In many ways, properly labelling a generation is tricky – especially for academics who apply a higher burden of proof. Until a generation has passed through several age groups, it is hard to parse out how much are generational effects and how much are simply a function of age.

Generational effects are normally traced back to formative events in early years. Entering the workforce during a recession, for instance, is meant to inculcate conservatism, as is a financial crisis due primarily to malfeasance in the financial services industry. Dramatic weather events and social disruption are meant to inculcate civic-mindedness and a broader sense of responsibility.

In this piece, we don’t try track attempts to map our generation out in all its complexity. Rather, we try to organize the thoughts of a defined group of young Africans, either South African nationals or residents, and present their insights and concerns around the financial services industry and their engagement with it. We have preferred to do a deep dive, rather than a broad sweep.

The group’s dynamic

This defined group of millennials is drawn from the inaugural class of the YALI programme, YALI Mbewu, which has 19 members. This is the youth cohort of the African Leadership Initiative (ALI), which is associated with the Aspen Institute. The purpose of the lifelong programme is to help successful, socially conscious young Africans transition to significance.

Naturally, this creates a group with some specific biases. The group is highly educated, with all members holding at least one tertiary qualification. It is also a relatively privileged group which leads above average lifestyles ranging from LSM ‘8 Low’ to LSM ’10 High’.

Nonetheless, this small group is diverse across a range of other metrics. Its members come from varied cultural backgrounds, including a few members born overseas. The group is reasonably representative of South Africa in terms of race and gender and although it is comprised of all professionals, some of who are also entrepreneurs, it cuts across a range of industries, including the public, private and civil society sectors.

Figure 1: Graphical representation of group demographic

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The group’s ethos

All members of the group subscribe to civic values and aspire to “make a difference” in South Africa. Given the core purpose of the group, members tend to be unafraid to express their opinions and challenge the status quo. They tend to be deep thinkers seeking to untangle the complexities of what South Africa faces.

In addition, the members of the group have all been identified as future leaders in their various spheres. This, combined with their educational and professional backgrounds, makes them a group of interest for financial services companies seeking to come to grips with the mysteries posed by millennials.

The research

The two authors of this paper are members of the group. The material in this paper draws on both written responses from the group as well as comments made during the group’s facilitated sessions. After circulating some broad, open-ended questions about the members’ relationship with money and financial services, the group’s responses have been organized around three axes:

  • personal relationship with money;
  • perception of the status quo in financial services;
  • desired future for financial services.

In the following material, we paint a picture of how this group interacts with these concepts, drawing on their own words as far as possible.

Personal relationship with money: there must be more than this?

While there were notable differences regarding what the group thought should be considered when defining success, money was rarely identified as a direct measure. In the one case where it was used as a direct measure, the group member said, “after I earned enough to cover basic necessities, money has become less of a marker by which I define success” [fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][32 year old male in the management consulting industry].

Overall, the group recognized money as a vehicle for achieving other goals. Such commonality in the group’s perception of money and the role it plays in their definition of success was surprising given the group’s diversity. Most acknowledged that while a certain minimum amount is needed, acquiring money is not their primary goal in life. A member with an economic background expressed this as follows: “There are very clearly diminishing returns to having more and more money, but there is an amount of money that is required to live life to the level that I like… happiness is only marginally correlated to money.”

Interestingly, there were also several individuals who emphasized the importance of being able to give money away.

In terms of their direct relationship with money, the group expressed varying levels of confidence. The highest levels of confidence were expressed by members with either relevant academic qualifications or working in the financial services industry. In these cases, these members expressed gratitude or relief that they were in a position to manage their own finances. For instance, a 30-year-old investment banker said: “It is not lost on me though that I have an advantage by being in the industry and understanding the complexity and risk better than many people without access to the information.”

Amongst other members, there seemed to be a strong appreciation of basic principles, such as spending less than you earn, saving and managing debt carefully. Members appeared to be in a reasonable to strong financial position from a balance sheet perspective.

However, many of these members did express a desire for greater knowledge, security or trustworthy advice, including:

“I’d rate my current financial wellbeing as being 4/10… but I’m fairly confident I know what I need to do to improve it over the next couple of years” [27-year-old in financial services].

“I often feel like there are a lot of things that I could be doing but that I don’t really have much a grasp on” [29-year-old lawyer].

“I… could definitely be smarter in how I invest it for the future” [29 year old in the business services sector].

“To some extent I have a negative relationship with money in that I don’t believe that I have enough or will earn enough in the near future” [28-year old in the public service sector].

Interestingly, all the above quotes, chosen as the most illustrative, are extracted from responses from women. The results of larger surveys indicate that women tend to under-estimate their ability with money. There were also men in the group who expressed a desire for advice, but the level of confidence in their abilities did appear higher.

Perception of the status quo in financial services: mindful millennials

The Good The Bad The Ugly
  • Opportunities to invest money safely
  • Increasingly innovative products on offer
  • Strong regulatory and legal framework
  • Facilitates upward social mobility
  • Obfuscation regarding products and services
  • Poor communication with clients
  • Lack of accountability to clients
  • Too few proactive initiatives to educate the general public on financial literacy
  • Vulture-like practices and products preying on the poor and illiterate
  • Worrying focus on short-term profits over country stability

Like many others, the group is quite critical of financial services in South Africa. Since the crisis, criticism has been levelled at the industry from many quarters. None of the specific criticisms should come as a complete surprise to those in the industry, but what industry insiders do need to pay attention to, is which of the many criticisms of the industry are top of mind for this group.

Firstly, a handful of members felt disempowered by needing to rely on the industry in the first place. A 27 year old woman in financial services said, “Whether I like it or not, it plays an increasingly important role in my life”. This was a sentiment echoed by Kgomotso Mokoena, an attorney, who remarked, “I have to use the banks whether I like it or not and that reliance is something I don’t like.”

Secondly, there is a high level of mistrust towards the industry, fuelled by a lack of choice in products, excessive fees and poor communication. The poor standard of communication in particular fuels a strong sense of uncertainty when dealing with the industry. As a communications specialist in the public sector pointed out, “surely we should have greater control and clearer understanding of even the most basic of processes/evaluations?”

There was also a sense of suspicion regarding the intentions of those in the financial services industry: “I think the financial services industry relies on information asymmetry and overcomplicating investments…the financial advice that the FSI provides is typically not the best option for the individual but the best option to sell a product” [30 year old operations manager in the green sector].

While professionals operating in the industry had a more positive view, this knowledge and faith does not come naturally to all: “I have had to build a level of trust with certain providers…I am very cautious as to where I put my money, I try to use logic and common sense to avoid malicious service providers” [28 year old male in engineering].

When it comes to mistrust, the group had strong concerns beyond their own interactions with the industry. Despite leading relatively privileged existences themselves, most members expressed concern for those considerably less fortunate.

“Among certain demographics there is far too much reliance on credit…too often the financial services industry are part of the problem” [28 year old woman in the public service].

According to a 28 year old in engineering, “there are systemic problems that allow creditors and insurers to practice unfairly and take advantage of our illiterate and poor citizens”. Some organizations were even named and the retail sector did not escape unscathed.

The legal sector has certainly witnessed the downsides of irresponsible financial practices all around: “I have been involved in litigation with banks against desperately poor people and I feel at times they are not considerate of our current economic situation and how it affects the poor” [29 year old lawyer].

There was an acknowledgement, however, that the real issue could be that people do not understand remedies available to them when in debt. Worryingly, this inability to clear debt quickly is, “limiting entrepreneurship, limiting innovation, blocking change-for-good and deepening spiritual and mental distress in communities” [Caitlin Dreyer, communications and strategy specialist].

In fact, a few members expressed belief that the industry can and should do more, “especially when it comes to financial education with the industry as the initiator” [Makashule Gana, a Member of Parliament].

Once again, the industry’s actual or perceived complexity was at the core: “they don’t seem to be able to give me clear, succinct direction so I keep having to peel back the layers which takes time and disillusions me – this coming from someone whose job every day is to peel back layers!” [29 year old woman in the business services sector].

On the positive side, a few members mentioned the progress which has been made by the industry for the citizens of South Africa. Many cited the benefits of the National Credit Act believing the industry to operate within a strong regulatory and legal framework. A 32 year old man in Commerce and Industry praised the industry acknowledging that it is, “becoming more and more innovative with the products offered in the market”. The industry was also praised for its role in facilitating upwards social mobility for example by virtue of the availability of loans for students and those aiming to buy homes.

Desired future for financial services: managing millennial money

As a group, there was a strong undercurrent regarding the powerful role that the financial services could play in the country. One member put it like this:

“It has an influence on the economy and the shaping of society” [32 year old male in management consulting].

In many ways, it was this sense of wasted potential that fuelled their dissatisfaction with the status quo expressed above. One specific example raised by a 30 year old economist was with regard to retirement savings:

“I think the management of retirements contains a fatal flaw. These funds should be investing in country stability; this is education, health, and infrastructure. Each of the RAs individually will optimize short-term profit but there is a systematic risk that they can collectively mitigate”.

Consequentially, this individual chooses to manage their money directly, rather than entrust it to the industry. For many others, they do entrust their financial future to the industry, albeit with trepidation. Going forward, they express high expectations for how their money should be managed.

Most commonly, there was a general plea for increased transparency and accountability. It was suggested that risk assessments be conducted and that both the nature and risks of any investments be thoroughly and clearly explained to clients. In fact, there was general dissatisfaction with the frequency, quality, authenticity and chosen methods of communication for both good and bad news.

A couple of members sought more meaningful interactions with their financial advisor: “a relationship with my service provider is what I would like and this isn’t happening at the moment” [28 year old male in engineering]. It’s also important to note that the expectations are not merely about the management of the money itself but also around whether it is being invested in a manner which sees the industry act as a force for social good.

As a whole, the group would like to be able to trust the industry, both for their individual and collective future. In many cases, they are open to closer relationships with advisors – good news for the industry – but they expect their trust to be earned. It should be noted that in discussing how their trust could be earned, the group did not express a desire for exceptional returns, but for transparency, accountability, good communication and social responsibility.

Mystery solved!

In light of the above, the initial question is posed once again – who are we and what do we really care about?

In a New York Times article, Emily Esfahani Smith and Jennifer L. Aaker, argued that the onslaught of challenges Millennials have faced are turning them from “takers” to “givers”. This is echoed in the responses from our group, who aspire to give money away, are concerned for the impact of financial services on the poor and show a nascent interest in impact and responsible investing.

This may simply be a function of the size and biases of the group chosen, but work by Aaker as well as research by Merill Lynch in their “Millennials and Money” report suggests that it isn’t.

As for us? We would prefer to be recognized as a questioning generation; a generation of givers, who are neither narcissistic nor “lost”. Our hope is that as financial services seeks to attract the money from our generation, they will feel increasingly obligated to clean up their conduct, build relationships with us and provide products that look after more than just us as individuals.

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