The $30T question that financial literacy can solve

by AM admin on April 27, 2017

By Thomas J. Holly, US Asset & Wealth Management Leader –

If you were one of the beneficiaries of a $30T windfall, would you know what to do with it? How much would you spend, save, give away or keep? And how would you prepare to plan, preserve and protect those assets?

Millennials are facing this exact challenge (among others), as it’s expected that, over the next 30 years, they will inherit an estimated $30 trillion. This once-in-a-generation event will likely never happen again, as it accounts for approximately 50% of all investible assets in the U.S. changing hands over a period of several years.

For an event of this magnitude, the first question is relatively simple and conversely profound: do millennials have the tools and knowledge to manage their new wealth?

This question is also changing the dynamics of wealth planning—with a greater focus on financial education.

While studies show that millennials are better educated than previous generations, their financial literacy is somewhat questionable. According to a 2013 study on millennials conducted by Wells Fargo and a 2015 survey conducted by U.S. Trust on UHNW individuals, 70% of millennials wish they had learned more basic investing in school and only 20% of parents believe that their children are prepared to handle inherited family wealth. And, as of last year, only 17 states require a personal finance class to graduate high school, according to the Council for Economic Education. In spite of considerable resources at their fingertips, they still hold 40% of their assets in cash—earning next to no interest.

Many millennials came of age during or after the financial crisis, so it’s no surprise that they express deep distrust in banks and other financial institutions. These digital natives have essentially grown up with a sense of authenticity and trust when interacting with technology companies—and it’s what they’ve come to expect when working with their financial services firms. Recent research by Forbes crystallized this point by highlighting how this age group is widely open to financial goods and services from companies outside the traditional financial sector, from the likes of Google, Apple, Facebook, Alibaba and Amazon.

Against this backdrop, wealth managers and tech players have an incredible opportunity to capture the attention of millennials and help them bridge the gap between knowledge (financial literacy) and the responsibility (stewardship of $30T) placed on their shoulders. The solution for both lies in creative, responsive and dynamic financial education that blends their digital native perceptions with real-life and real-time examples.

Historically, educational content was limited and static but we are now seeing wealth managers and emerging tech players competing to deliver increasingly tailored digital learning programs.

The players that provide the best learning resources and platforms have a competitive advantage in winning business from millennials. A few of the industry’s best practices include:

    • Articles and videos organized around life events such as going to college, growing wealth, buying a home and saving for retirement.
    • Unique content based on individual goals and comfort with managing and investing their money.
    • Content partnerships with learning partners such as Khan Academy and financial thought leaders like iShares, Investopedia, Forefield, and Morningstar
    • Gamification to enable learners to practice setting goals and making decisions in a simulated life journey while adjusting their behavior based on the outcome, creating an environment where it’s OK to fail and learn through experience.
    • Behavioral science and social groups to become part of a community and see how others are learning and achieving their goals.
    • Connecting learning with services by teaching financial concepts while showcasing the institution’s services and platforms as part of the end-user experience—transforming learning modules into sales leads.

Earlier this year, Wells Fargo launched a game called “Retirement City” to close the engagement gap that workers have with their companies’ retirement plans.  They are blending gamification with rich learning experiences via quizzes, videos, mini games, scoreboards, calculators and an online source library, among other elements, to teach basic retirement concepts. The game takes players through a simulated journey to retirement where they are asked to make choices impacting their financial wellbeing.  As players learn retirement concepts, they’re able to benchmark themselves against other players—adding a sense of good natured competition that blends finance and literacy.

This month is National Financial Literacy Month, which highlights the importance of financial literacy and to teach Americans how to create better money habits. Perhaps it’s our call as an industry to put this into play, every day.

As I mentioned in “A Revolution Both Loud and Quiet, it’s vital that wealth managers get the trust equation right given the shifting demographics and transfer of wealth. Educational programs and engaging digital learning content are key to this equation—and can enable financial players to create strong relationships with their future clients.

Which players do you think will be most successful? And, what does success look like?

I’d love to hear your thoughts.

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