of the generations


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THE CLIENT

THINKING

GEN X

What you need to know about the too-oftenoverlooked ‘middle child’ of the generations by OLIVIA MELLAN and SHERRY CHRISTIE

t may be fitting that the group nestled between baby boomers and millennials is labeled “Generation X,” since its members are more of an unknown than the generations before and after. Their elders, the boomers, have virtually owned popular culture since the Beatles landed in the U.S. in 1964. Their kid brothers and sisters, the millennials, are applauded for their tech use, social consciousness and entrepreneurial gusto. As a 2014 Pew Research Center report (“Generation X: America’s neglected ‘middle child,’’’) put it, this generation is like the middle child in a family, underappreciated for how its members behave: hard-working, tech-savvy, intelligent and independent.

30 INVESTMENT ADVISOR MAY 2017 | ThinkAdvisor.com

don’t Look now, But You’re Being stalked

Gen x photo: John Hope

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Moreover, they have a tremendous need for financial advice as they move through their peak earning years. For this second installment in IA’s series on generational differences, we asked financial planning industry gurus Kol Birke, Angie Herbers, Michael Kitces and Cam Marston how advisors can “think Generation X” to reach this smart but cynical cohort.

Gen Xers aren’t as focused on being “part of the pack” as millennials are, generational change expert Marston told us. “Millennials are more social, more herd animals. They tend to be influenced by what the pack does.” By contrast, Gen Xers are more likely to learn on their own. They’re comfortable with online research and will study websites and social media to form first impressions. “They want to know, ‘Do I like you? I want to know who you really are,’” says Marston, founder of Generational Insights. “They’re stalkers of people and information.” Unlike boomers, who had the good fortune to live through years of strong market performance, Xers experienced a tech boom followed by a tech bust, followed in turn by a real estate

The SerieS So Far This is the second in a series of articles in Investment Advisor that explains what advisors need to know about the three major generations of prospective — and current — clients. In March 2017, “Thinking Millennial” explored, in the words of Olivia Mellan and Sherry Christie, the generation aged 19–35 that “may seem a foreign species if you’re used to clients nearer your own age.” In this issue, we explore the “middle-child” Generation Xers, aged 36–51, who are in their prime working years and grappling with serious debt amid fears that Social Security will fail them in retirement. In a future issue, we will “Think Boomer” for the baby boomer generation, aged 52–70. Think you’re an expert on this cohort, which likely accounts for the bulk of your clients? You may be surprised at what we found. For more, visit ThinkAdvisor.com and search for “Thinking Generations.”

May 2017 Investment AdvIsor 31

The ClienT boom and then a worldwide financial crash, points out Kitces, the co-founder ‘i’m Never GoiNG To STop WorkiNG.’ SouNd Familiar? of XY Planning Network, an organiza“I don’t have to plan for retirement,” a Gen Xer told generational consultant Cam tion of fee-only advisors who specialize Marston, “because I’m not going to quit my job.” This may be a rationalization of in Gen X and millennial clients. As a an inability to save, but Gen X’s heavy burden of short-term obligations can make result, this middle generation is much it hard to plan for something 20 or 30 years in the future. less confident about the markets and In fact, Xers grappling with debt, child or parental support (or both), and college financial institutions than either boomtuition are at their most expensive stage of life. “Even if they put just a little away, ers or millennials. it’s important for the habit to get started,” Marston says. “Hopefully, the saving In contrast to the axiom “Trust, but habit will continue as they acquire more assets.” verify,” as the president of their childKol Birke sees more Gen Xers choosing to enjoy today in lieu of saving for hood, Ronald Reagan, famously coined, retirement. Instead of deferring gratification, they want themselves and their chilGen Xers believe in “Don’t trust, validren to enjoy the good things of life now. “They’re also more likely to be conscious date,” Kitces says. “They will vet you of how to make their retirement meaningful and fulfilling by being with family, in three or four places online, so before volunteering or diving deeper into a hobby or passion,” he adds. they ever meet you they’ll know what Michael Kitces cautions that it may be too soon to freak out about a future train you do, what you say you do and how wreck. “Boomers never saved enough for retirement,” he notes. “Maybe it’s not much you charge. If you say something realistic to expect Gen X to save, either.” on your website that’s wrong or misleading, you’ll lose their trust forever.” Many advisors aren’t comfortable being vetted so thortions, is high risk. Over the past two decades, there has been oughly. “It can feel annoying to be challenged,” Kitces says. a surge in business growth, innovation and new technologies “But after being burned by 15 years of market stagnation and across all industries. But the result is that while Gen X is makvolatility, Gen Xers want to know how trustworthy you are and ing more than their parents, they are risking more and have what you can do for them.” less wealth than their parents did at their age.” According to that same Pew Research report, the average Insecure Investors Gen X household earns about $12,000 more than their parents’ household did at the same age, even adjusted for inflation and Gen X investors lost close to 40% of their net worth between household size. In other words, Xers are working harder than 2007 and 2010, according to the Census Bureau. Those who Mom and Dad did (so much for the slacker myth). ignored their investments or had the stomach to “let it ride” However, fewer than 50% of Xers have as much wealth as learned that good things can come to those who wait, says Kol their parents did at the same age. Blame a delayed entry into Birke, a senior vice president and financial behavior specialwork life due to a lengthier education, along with a lower savist at Commonwealth Financial Network. For many others, ings rate and less cooperation from the market. An important though, the widespread devastation fed a belief that somepoint for many members of this generation, for “lower savtimes nowhere is safe. ings,” read “higher student debt.” This painful experience often makes Gen X reluctant to As for market balkiness, in contrast to boomers, whose portinvest for the long term. In his book, “The Gen-Savvy Advisor: folios were goosed by the S&P 500’s 15.4% real annualized return Advising the Generations in the New Age of Uncertainty,” between 1985 and 2000, Gen Xers saw returns of only 1.9% from Marston cites a 2016 Transamerica study reporting that four 2000 to 2014, as reported by Noah Smith on Bloomberg View. out of 10 Gen Xers still felt uncomfortable with stocks, while almost seven in 10 said they didn’t know as much about investThe secret World of Money ing as they should. Kitces agrees. Gen X’s fundamental risk tolerance isn’t very There’s a deeper issue, according to Herbers. A Gen Xer herself, different from boomers’, he says, but they are more skeptical she says, “Our generation is indifferent to talking about money,” about the markets. They may be open to taking risks in a difunlike “boomers who avoid talking about money” and “millennials ferent way, such as by investing in their own business or in who talk all the time about money.” real estate. This doesn’t mean Gen Xers don’t care about their finances. “We do care,” Herbers says. “It’s just that we often don’t know Too Busy To Admit needing Help what to do about money or where to turn, which is where we really need help.” Investment Advisor columnist and ThinkAdvisor.com blogger She believes that this lack of knowledge explains why Gen X Angie Herbers, founder of Angie Herbers LLC, believes that tends to be unprepared in many financial aspects of their lives. the real “risk” question should be about financial security. By “Research shows that they’re underinsured; they’re underthat measure, she says, “Generation X, unlike the other genera32 Investment AdvIsor May 2017 | Thinkadvisor.com

funded for retirement; they’re not teaching their kids anything about money,” she points out. “In general, they have no confidence about money because their unfamiliarity with it makes them feel it’s insignificant.”

What do They Want To Hear? There’s a clear distinction among the messages these different generations like to hear, Herbers says. “Baby boomers like straight talk. Millennials like messages that make them feel in motion. Gen X like messages that give them meaning. “Finding meaning is the best way to overcome indifference,” she explains. “To get them out of indifference and to care more about money, you have to ask them, ‘What does money mean to you?’ Unlike millennials who find meaning in social causes and baby boomers who made money their meaning, Gen X needs help finding the meaning for their money.” So what advisor message would resonate most strongly with this generation? “Anything with purpose,” Herbers replies.

Most Important: Trust Trust inspires strong loyalty among members of this generation. Although Xers tend to act on their own, Marston emphasizes that they do have friends

pay aTTeNTioN To GeN X WomeN “The Generation X woman has become the apex consumer in our marketplace,” Cam Marston asserts. In the new edition of his book, “The Gen-Savvy Advisor,” he explains why. She’s a discerning buyer, typically with more education than her male counterpart, and is catching up in pay — factors that tend to make her the household CFO. Kol Birke adds that Gen Xers’ tendency to marry later in life (or not at all), coupled with higher divorce rates, leads to more self-sufficiency among women. “This presents some new challenges, in that tension can arise when one partner feels the need for financial independence from the other,” he observes. “On the other hand, both genders are more likely to work towards good spending and saving habits.” Bottom line: “Advisors need to court Gen X women, whether married or not,” Marston says. “Even if the husband is more vocal in your office, the wife will be the one who says yes or no.” Since women tend to be more active in the community, she can be an excellent referral source if she likes and trusts you.

with whom they share good advice and recommendations of people they trust. Their loyalty can disappear in a flash, though, if they feel they’ve been deceived. As Gen Xers become more knowledgeable about their finances, their behavior changes. A 2016 Transamerica Institute study found that 52% of Xers who worked with advisors had at least $100,000 in retirement savings. Only 27% of those without an advisor had saved that much. Greater money savvy can benefit this generation’s children, too. “Much as they knew to buckle their kids’ seatbelts and put bike helmets on them, this generation has started to become aware of the danger of staying silent about money,” says Birke. “While it’s still an uncomfortable conversation for those who don’t feel they have a handle on the topic themselves, many more parents seem to be prioritizing money conversations with their kids than their boomer parents did.” However, he adds, “Money is still an intimate, taboo, and for most, scary subject. The more this generation can take the plunge into forming healthy money habits and being transparent with their friends and loved ones, the better off they’ll be. In my opinion, this is the single biggest gift they can give their kids.” To achieve that cross-generational benefit, Gen Xer Herbers says, the

WhaT makeS your GeNeraTioN uNique? MIllennIAl

Gen X

BooMer

Technology use 24%

Technology use 12%

Work ethic

Music/Pop culture 11%

Work ethic 11%

Respectful 14%

Liberal/Tolerant 7%

Conservative/Traditional 7%

Values/Morals 8%

Smarter 6%

Smarter 6%

“Baby Boomers” 6%

Clothes 5%

Respectful 5%

Smarter 5%

17%

note: Based on respondents who said their generation was unique/distinct (n=1,205). Items represent individual, open-ended responses. Top five responses are shown for each group. Source: Pew Research Center survey, Jan. 2010. N=2,020 U.S. adults

May 2017 Investment AdvIsor 33

The ClienT

The ‘middle kid’ SouNdS oFF Like the middle kid in a family, Gen Xers often feel they never got as much respect as other generations. “We grew up being told we were ‘slackers’ and ‘cynical’ and ‘lazy’ and only cared about money and hated our parents. I could go on,” Angie Herbers reports. Some Xers are still sore about it, as these reader responses to a Pew article, “Generation X: America’s neglected ‘middle child,’” make clear:

“I am a Gen Xer and I for one am very tired of the disrespect. It is high time that the all-consuming baby boomers step out of the way and let us get things done right. They have made a disaster of this world and my generation is the one with the insight and knowledge to clean it up. I am about to seriously kick some ass if they don’t get out of the way.” “I am Gen X (born 1966). My single mother started leaving my sister and me alone when I was 6 and she was 3. I learned early to cook, clean, and teach my sister to talk, learn the alphabet, etc. I was a ‘latchkey kid’ until I graduated high school. I paid for my own college education and worked my rump off. Now I’m in a company that has a median age of 55, thanks to the number of baby boomers that can’t or won’t retire.” “We [Gen X] as a generation have been tossed from one financial crisis to the next, always being told we’d never succeed, never own a home and were lazy slackers. In the late ’90s, all of the adults (boomers) who had stomped on us for so long suddenly decided it was time to praise the new generation of young people. For about a decade, all you ever heard was how amazing millennials were.”

GeN X STaNdS ouT For iTS peSSimiSm abouT reTiremeNT % saying they are not confident about having enough money for retirement (2012) Millennials 35% Gen X 44% Boomers 40% Source: Pew Research Center, 2012. Millennials include only their adult population ages 18 and older.

GeN X: STuck iN The middle When it comes to technology use and adoption, Gen Xers find themselves again in the middle. % saying they have shared a “selfie” on social media* Millennials 55%

“[Millennials] think they’re so technologically savvy because they have graphic user interfaces and can touch buttons on screens. We had to know DOS! We had to memorize commands and manually type in directories! File sharing was NOT such a simple thing, and it took forever!”

Gen X

“As a Gen Xer, I can’t stand the ‘me, me, me’ millennials and their sense of entitlement.”

Median number of Facebook friends (among Facebook users)

24% Boomers 9%

Millennials challenge for advisors is clear. The Xers may be a smaller cohort than either of their sibling generations (an estimated 65 million Xers versus 77 million boomers and 83 million millennials), but she says, “If there’s a generation that will define financial advice, it will be this generation. And if there is any generation that needs help with money, it’s us, the Gen Xers, right now.” Olivia Mellan and Sherry Christie are co-authors of “The Client Connection: How Advisors Can Build Bridges That Last” and “The Advisor’s Guide to Money Psychology” as well as three books to help individuals and couples attain financial well-being. Olivia, a psychotherapist, speaker, coach and business consultant, offers money psychology teleclasses and facilitates intergenerational retreats for wealthy families. Email her at [email protected]. Sherry, a freelance financial writer, numbers several independent advisory firms among her clients. She can be reached through www.sherrychristie.com.

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250 Gen X 200 Boomers 98 *Respondents who answered “yes” when asked if they know what a “selfie” was were asked if they had ever shared a selfie on a photo sharing or social networking site such as Facebook, Instagram or Snapchat. Source: Taylor, Paul. The Next America. Public Affairs Press, 2014 and various Pew Research Center surveys. Data are for 2014 or 2013 unless otherwise noted. Millennials include only their adult population ages 18 and older.