Saving Grace

On the whole, financial planners say younger investors are savvier and more willing to take charge of their own finances than any previous generation. This group, like those that came before it, will certainly face challenges. But it is in many ways better-suited to meet them, say the experts, because it is better-informed and has, for the most part, a no-fear attitude when it comes to wealth.

Pat Grenier, a financial planner with BRP Grenier based in Springfield, has been practicing for 22 years and said she’s seen a notable shift in how people approach money, and the saving thereof, in that time.

“Twenty years ago, if a young couple came to see me — which was rare — their outlook was much different,” she said. “They were looking at specific investment ideas, because the wide variety of options that we have today wasn’t available.

“Now,” she continued, “people are looking not for a product, but a plan, to create the financial future that they envision.”

Several factors contribute to this shift in financial planning trends among younger clients, said Grenier, among them a lack of confidence in Social Security and an increased awareness of money-management issues, thanks in part to the preponderance of free information now available on the Internet.

“Many people don’t believe Social Security will be in place when they reach retirement age,” Grenier said. “They have some knowledge, and usually have retirement plans at work, and many of them have also learned what not to do because their parents haven’t saved enough. They’re seeing firsthand the costs that can be incurred at an older age, especially when a parent is sick, and that’s prompting them to take action.”

Grenier isn’t alone in this assessment; many financial planners see the under-40 set, and Generation X in particular, as the most savvy of all constituencies when it comes to saving and investing, and also a group that is moving to the forefront of the country’s financial picture.

See How, Know How

Jeff Tomaneng is a financial planner affiliated with the Waltham-based Financial Planning Assoc. of Mass. (FPA), who, at 36, sees saving and investing trends developing among his peers as well as his clients.

“In general, there is a greater awareness of financial planning issues such as asset protection, insurance, retirement planning, and estate planning,” he said, adding that as recently as three or four years ago, if he attempted to address those issues with many of his younger clients, most would react with skepticism.

“Many would have thought I was trying to sell them something,” he said. “But now, there’s enough press out there to make people aware of the diversity of financial issues. Five or 10 years ago, specific financial information was only easily available to people with high net worth. Now, just about every type of information is available to everyone.”

Online resources such as Yahoo! Finance and Fidelity’s MyPlan are largely responsible for that new level of awareness, said Tomaneng, and for the younger set’s comfort level with finding and processing that information. It’s an awareness that wasn’t there for Baby Boomers during their earlier years, he noted.

“Baby Boomers didn’t see financial planning as important early on, and many figured it out during a mid-life career change,” he said, noting, however, that Generation Xers, those born roughly between 1963 and 1979 (the parameters have never been specifically defined), started investing, saving, or researching one or both earlier. “I find it easier to speak with Gen-X clients because of that awareness. They’re comfortable finding information on their own and presenting their ideas to me, and they’re more comfortable with the various software programs that can help them implement their own financial planning.

“As early as five years ago, people were still saying ‘I can do this later,’ but I’m not hearing that as much,” he continued. “Today, I’m starting to see college students opening their own IRAs.”

Tomaneng agreed with Grenier that there are social as well as political and economic reasons for the shift. But he said a common thread among many of his clients is that they’ve received somewhat of an early wake-up call, by seeing their older relatives struggling.

“It’s less about lessons learned than it is about learning what not to do,” he said. “Many people under 40 see their grandparents with nothing, and that, in turn, has led them to understand the importance of having a nest egg, and also having legal documents in place.”

Risk Takers

That’s not to say there aren’t some challenges for people under 40 in addition to this new mindset.

Molly Keegan, a registered representative and CPA with New York Life in Northampton, said this group has grown up largely in healthy economic times, and while that allows them to see the benefits of capitalism in general, it also leads them to spend more.

“These people have grown up in wonderful economic times, so they want nice stuff,” she said. “Their life costs are much different than those of older people, and therefore it’s easier for them to get trapped in a debt cycle.”

But Keegan added that Gen-Xers are also more prone to take financial risks than their parents and grandparents, and while debt coupled with risk is a real danger for many, she said those who are actively taking charge of their own financial futures by managing their cash flow and saving both pre-tax dollars — through a Roth IRA, for instance — and after-tax dollars are doing well.

“It boils down to behavior management,” she said. “These people are in their building years, and high-wage earners and good savers are not always the same thing. Those who will be financially secure in the long run are those who will practice cash-flow management, save early and often, save for the long term and the short term, and avoid debt.”

That advice resonates even more when some of the lifestyle choices of this age group are further examined, said Grenier. In addition to noting the effects of poor or tardy planning among older investors, other societal trends factor into the financial planning decisions of people under 40, such as having children later in life.

In that case, Grenier said, more people than ever are saving for college and retirement at the same time, a scenario that serves as an apt example of the financial pressures that could emerge as people age, but may be alleviated by making saving and investment decisions earlier.

“I approach it like building a house,” said Grenier of her work with younger clients. “I tell people to take care of their basic needs first — look at your cash flow, determine what any liabilities are, contribute to a retirement plan, and increase those contributions over time.”

She also recommends investing in life and disability insurance, “so the other plans don’t fail because of catastrophe,” and accruing and saving at least four months of living expenses as a general rule of thumb.

Beyond those steps, she said, the bulk of young professionals will then ask for assistance with creating a strategy to save for retirement, and for the most part are reaching that point armed with more knowledge — and wealth — than previous generations.

A Matter of Trust

But there are also some specific changes to the financial planning landscape in this country that specifically affect the under-40 set, among them the advent of one of the largest wealth transfers in history.

Boston College’s Social Welfare Research Institute (SWRI) estimates that $41 trillion is expected to change hands in the U.S. between 1998 and 2052; $25 trillion of that is expected to pass from decedents’ estates to their heirs, while the remainder will go to estate taxes, charitable bequests, and estate-settlement expenses, according to the SWRI’s findings. Of the $25 trillion slated to move from one generation to the next, the majority is expected to pass to the children and grandchildren of Baby Boomers.

That phenomenon, which was first reported by the SWRI in 1999 and updated in 2003 following a downturn of the economy, joins other variables that will impact younger investors, such as complicated tax law changes, dwindling numbers of defined benefit plans (being replaced by more versatile defined contribution plans), and the ever-fragile future of Social Security.

Together, they create a climate in which younger investors are more likely to take charge of their own destiny, rather than depend on employers or governmental bodies.

Robert Ostberg, a registered investment adviser with Eagle Strategies Corp. in Northampton, agreed with the notion that people under 40 are, in general, more financially literate and more willing to take risks than other generations, and that has an impact on their saving and investment habits.

“The impact of the tools available today is significant,” he said. “Generation X is comfortable doing research, they’re self-reliant, and the information available to them, often for free, is more substantive than ever before.”

Ostberg added, however, that the increase across the board in financial education also puts the onus on financial planners to be more progressive, in order to meet a new set of demands.

“People under 40 are generally interested, and want to participate,” he said. “They’re more sophisticated in their demands, and they want more for less — they’ll shop price and will pay for personal service, so there’s an entrepreneurial challenge for us there.”

Have No Fear

But overall, most financial planners who spoke with BusinessWest agreed that the higher level of awareness concerning financial issues among clients is a positive. And even with all of the pressures and changes affecting those clients, Grenier concluded that, for the most part, these investors are not afraid of the mighty dollar, or of using it to their advantage.

“People under 40 aren’t afraid of wealth,” she said. “They’re not embarrassed or apologetic. Most work to aspire to a lifestyle, they remain philanthropic, and to them, that’s the purpose of business.”

Jaclyn Stevenson can be reached at[email protected]