By David Bird, Head of Proposition Development, at LifeSight
Hotly debated by the media, millennials area lot of things: from the generation of ‘me me me’ which obsessed with social media, to the people who hop jobs too often. But, generally they are not thought of as a generation of investors.
One of the explanations for this is that the need for instant gratification often associated with this generation also extends to their savings.With millennials putting money aside for holidays and short-term goals, rather than saving for their retirement. As the more ‘traditional’ goals of their parents – such as marriage – don’t interest them in the same way investing just isn’t as much of a priority. What’s more, as many grew up during the financial crisis and saw their parents suffer they have a more risk-averse attitude.
So it’s no massive surprise that only one third of millennials currently invest in the stock market. Deloitte predicts that by 2020, aggregated net worth of millennials across the globe is set to grow to around $19 – $24 trillion meaning that the industry urgently needs to get them on board.
The media has endless suggestions as to why millennials don’t save their money. But, we need to move on from understanding it to find a solution that will encourage millennials to save for their retirement, as well as ensuring the sector’s own survival.
The fintech effect
The need to better engage this generation is especially pertinent for asset managers as the fintech industry is increasingly nipping at their heels.Millennials are particularly open to using technology to manage their finances. Arguably this ‘competition’ will only intensify when Generation Z – the generation to have never known a world without internet – reach investment age.
Asset managers that fail to adapt business and operating models to attract this next generation of wealth may risk losing a substantial pool of future investments. Encouragingly, the industry has woken up to this need, with Wealth-X finding that 81% of managers want to become more attractive to the younger generations.
For many millennial technology has been present throughout much of their lives and so using technology to learn comes more naturally to millennials than many other generations. So, is this the answer?
Gamification, defined by Merriam Webster as “the process of adding games or game-like elements to something (such as a task) so as to encourage participation” may be one way for asset managers to engage and educate future investors.
In fact, one startup, Bux, is already drawing on games to make investing in the stock market easier, and more fun. The app, which has over a million users, gives people the opportunity to trade in ‘funBUX’ to try their hand at trading with no risk involved. Once players have had a taste of it, they can start trading with real money. The benefit to millennials is that it serves as an educational tool for them to learn about trading without feeling overwhelmed by the real stock market.
Surveys are out; games are in
Games can also be much more instinctive and better at simulating real life experiences than the (complicated and often flawed) questionnaires that are frequently used to understand an investors profile.
Neuroprofiler is one example of a risk profiler that uses gamification techniques to assess an individual’s investor profile. The potential investor plays a 5-minute interactive game where they make choices from different scenarios. Through this they are assigned to different profiles depending on the results from the game, meaning they are given more tailored products, rather than a one-size-fits-all investment option. For millennials, this personalisation is especially important as generic versions of products will notwork for a generation that has the option to customize so many aspects of their lives.
By using games to understand an investor’s risk appetite and personality, asset managers can identify early warning signs of negative behaviour not just at the initial point of investment, but throughout the investment lifecycle. In a gamified setting, this could allow for the reinforcement of positive behaviour through rewards and appropriate penalties for negative behaviour. This will lead to improved outcomes for both the investor and manager in the long term.
Make it visual
Games not only make it easier to gather information but also help people visualise scenarios, with the added benefit of being able to add various types of information to work out different potential outcomes.
This is exactly how gamification can help with pensions – by bringing it to life. With retirement seemingly so far away, many people, and particularly millennials, struggle to understand the relevance of their pension savings to their life at the moment. But everyone gets old, and even if the concept of retirement is not one they want to grapple with at the moment, most know that they want to stop work at some point.
To capitalise on this interest, at LifeSight we created the ‘ageOmeter’.
This is a simple online tool which educates members on the age at which they can afford to take their pension savings, and how they can influence that age through contribution and investment decisions. We found this helps engage people with their retirement savings, because being told you can afford to retire at 61 means something whereas being told you will have a fund value of £250,000 when you are 65 does not.
Helping the generation that lives for the now to understand what their investment can mean to them in later life and learn from achievements and mistakes, can go a long way to making sure that they are making better long-term savings decisions.Gamifying the investment process in this way also has the added benefit of aiding asset managers in keeping their future pool of investment fresh.