Spotting mistakes millennials make when it comes to financial planning

Although many financial advisors have years of experience working with these generations’ parents and grandparents, some are still working to familiarize themselves with an important generation of millennials who are just starting their financial journeys.  

Tong Woei Sean, a seven-year MDRT member from Malaysia with two Court of the Table qualifications, shares his experience as he explains some of the common mistakes that millennial clients make when it comes to financial planning.  

Mistake #1: Millennials tend to overlook the basic financial planning pyramid 

According to news reports, Malaysian millennials are struggling to save up due to a lack of financial awareness, slow salary growth, increased living expenses, and the rise of a more urbanized, consumption-oriented lifestyle. Experts have added that millennials should be taught financial literacy so that they will better understand their financial needs and priorities.  

To help millennial clients understand better, Tong shares the four stages of the financial planning pyramid to help them decide which stage to focus on and prepare them to reach their financial objectives. With protection at the bottom of the pyramid, then comes savings, investments, finally distribution. He reveals that many millennials today are not saving, and has urged them to start saving now, today, as even the smallest amount plays a part in the long run. Tong adds that some are even unaware of the effective methods of saving money. “Explaining the financial planning pyramid to younger clients will allow them to understand the need to accumulate wealth to support their long-term goals,” he added. 

Mistake #2: Millennials are spending more than they earn   

According to Malaysia’s Finance Minister, 40% of millennials are spending beyond their means. Tong shared that this is because millennials these days are more inclined to pursue instant gratification, which could lead to over-spending and over-commitment to big and long-term expenses.  

He then uses real-life scenarios on his millennial clients to help them better understand the situation. For instance, an example he used was when a client wanted to purchase a property that is almost 50% more than what he could afford. This would lead to over-committing as they would have to pay for the mortgage for the next 30 years. “Is that a must, a need, or something that you want instantly? If you are spending more than your earnings, you’ll naturally have less money to put aside for your savings” is what Tong often tells his clients to help them put things into perspective.  

Mistake #3: Millennials using information they find online as a guide for managing finances 

As we move towards a more digital world, we are now able to find more data and information online. According to Tong, this includes unverified financial advice as well as alleged financial gurus and experts, in which many young impressionable people follow their ideas and suggestions. “This is dangerous as information from self-proclaimed gurus online can be not credible, and it would not be wise to follow them. Financial plans need to be personalized to each individual. I have to caution and remind younger prospects and clients against following such information as this could bring more damage to their finances. To help them, I offer my assistance, if they need any advice or are unsure of anything, they can always check with me.” 

To counter this issue, Tong will ask in-depth questions to have them think about what they would like to achieve financially in the short term, medium term, and long term. There are four main points he asks his clients, “What are your expectations or specific goals? What is your current financial position and obligations? Are there dependents involved in your plans? What is your current portfolio?” By asking these questions, he shares that financial advisors will be able to understand their client’s behavior better and discover the true purpose of their goals, and hence decide the best possible strategy to achieve them. 

Managing millennial clients 

Understanding the behavior of millennials will help financial advisors easily spot the fundamental mistakes they make as they plan their finances. Tong reminds that financial advisors should not only focus on selling products but look into what are the clients’ needs and wants, and not just selling what we think is good for them. 

He also shares that a two-way communication between financial advisors and clients is crucial and should always be encouraged, as it would be beneficial in helping financial advisors tailor a better financial plan for their clients. “The quality of advice that we give is based on the quality of information that we get from our client,” Tong states.

Contact: MDRTeditorial@teamlewis.com