Millennials may be making same money mistakes as their parents

By Sizwe Dlamini Time of article published Jun 18, 2017

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The stark reality is that 94% of South Africans are unable to retire comfortably, and a recent survey by 10x Investments reveals worrying insights into the saving habits of young South Africans.

Although their financial behaviour differs from that of other generations in some respects, Millennials may still be in danger of making the same mistakes as their parents when investing and planning for retirement.

The aim of the survey, which had more than 2 200 respondents aged 25 and over, was to obtain insight into the financial behaviour, views and attitudes across different demographic groups among the economically active population.

Steven Nathan, the chief executive of 10X Investments, says that, in addition to highlighting that South Africans do not start to save early enough for retirement, another alarming finding was the lack of knowledge about how fees affect investment values.

“While the majority are aware that they are paying fees to financial services providers, most people are unaware of the exact level of fees or the impact that these fees are having on their investment value.

“In total, 42% of Millennials don’t know what fees they are paying their service providers, and a further 51% think they are paying less than 1% in fees, which is far below the current industry average of 3%. This is alarming when one considers that paying 2% more in annual fees can leave investors with 40% less over a 40-year investing period.”

When asked about the impact of fees on their investments, he says that 83% of Millennial respondents grossly underestimated how fees can erode investment outcomes, with 28% saying that fees reduce investment values by only 2%.

“These findings suggest that Millennials, despite witnessing their parents’ poor financial decisions and retirement misfortunes, have still not realised that fees are the most important predictor of success.

“At the end of the day, it comes down to awareness and understanding that total fees of more than 1% of the investment balance will have a considerably negative impact on long-term savings,” says Nathan.

He says it is important to recognise the financial behavioural traits and trends of Millennials, and how these differ from those of previous generations, because the immediate future of saving and investment in South Africa depends on this demographic.

“Our findings reveal that the financial behaviour and attitudes of the typical Millennial investor, who is defined in the survey as anyone aged 25 to 35, differs in various ways to those of previous generations,” Nathan says.

“While, in some instances, we are seeing mistakes being repeated across generations, the evident shifts in perception that are happening offer valuable insight into the economic future of South Africa.”

Another major trend among Millennials that Nathan says was highlighted by the survey is the growing dependency on the internet for information and an inclination towards doing daily tasks and activities online where possible.

“When asked which sources of information about financial investments are used, Millennials – particularly males, and even more particularly black males – rely more heavily on the internet than they do on their financial adviser. The tendency to conduct personal research in this regard is likely driven by the growing accessibility and immediacy of information which has characterised the Information Age.

“This ties into the finding that Millennials consider the ability to manage their investments online to be one of the most important characteristics of an investment company – as important as the company’s ability to offer low investment fees. This contrasts significantly to the views expressed by older investors, who place greater significance on having a well-diversified portfolio and lower fees than online capabilities when it comes to choosing an investment company.”

When it comes to why they save, Nathan says Millennials and their parents are in agreement on some objectives, but not all.

“For the older generation, by far the most important objective is to maintain their lifestyle when they retire. While this is also ranked number one for Millennials, they appear to place greater importance on educating their children and leaving an inheritance to their children than their parents do.”

Nathan says that, although a shift is occurring in the mindset of South African investors, high fees and underperforming fund managers can erode investors’ long-term investment returns.

“Even as financial behavioural traits and trends change, the formula for a successful retirement remains simple: put away 15% of your salary over a 40-year period in a high-equity fund with total fees of less than 1%, and let time do the work.”


Looking back at her teenage years, Happy Ngale, a financial well-being consultant at Alexander Forbes Financial Planning Consultants, shares with today’s Millennials some of the rands-and-cents advice she would have given herself.

• Learn how to budget. “Getting into the habit of healthy money management early is key. The pocket money from my parents could have been a great start in terms of learning how to manage my finances. This would have prepared me for when I started working and earning a salary, because if the habit of good money management is built from a young age, it is easier to apply these principles when one starts to earn larger amounts.”

• Avoid spending money on things you cannot afford. Teenagers experience peer pressure, which means wanting what your friends have. But the lesson to be learnt is: if I can afford what my friend has. If I can’t, I have to learn to wait until I can afford it.”

• Start a savings account. “I would recommend that teenagers open a bank account with a savings feature, as this teaches you to start putting some money aside. We need to embrace the concept of saving from a young age, to learn the gratitude which goes into earning interest and being able to buy what we want for ourselves.”

Ngale said the Millennial (Generation Y) mindset differed from those before them, namely the Generation Xers and the Baby Boomers, because Millennials “prefer to earn their money to spend it now. If they want to buy an item now, they will make a plan to have it, whether they can afford it or not”. Baby Boomers on the other hand, tend to buy on loan and develop a payment plan. “They spend most of their working life paying off debt.” Gen Xers are very conservative with their spending and prefer to save.

“Millennials strategise their spending. They are usually committed to getting what they want and will earn that extra cash to buy what they want. Millennials are not lazy to take on an extra job to fund the sports car they want.”

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