The Generation the Industry Forgot

By: Lisa Schneider

Over the past few years, I’ve been asked to present research Greenwald & Associates has conducted with younger consumers at various industry events and for various industry leaders. Mostly, I’m asked to focus on the financial needs and state of Generation Y (born 1981 to 1999, by our definition, and often called Millennials). And for the past 30 years, Greenwald has been tracking and discussing the Baby Boomers (born 1946 to 1964), their retirement readiness (or lack thereof), and how the financial services industry can help them.

But, whoops! Somewhere along the way, we – as an industry – forgot one.

Generation X (born 1965 to 1980) is about 65 million strong, and in 2015, the oldest Gen Xers turn 50. Gen Xers tend to be married with children under 18. They do not have the luxury of focusing on a single financial goal. They are paying off their own student loan debts and mortgages while trying to save for their children’s education. They are trying to save for their own retirement while increasingly taking on caregiving responsibilities for their parents. Gen X is (or should be) the financial services industry’s target market. Yet, we’ve already moved on to the Millennials.

On the bright side, the financial services industry doesn’t appear to be the only ones overlooking Gen X. In an article posted about a year ago, Pew Research calls Gen X “America’s Neglected Middle Child” and asserts they are “often missing from stories about demographic, social and political change.”

Although it hasn’t been clients’ primary focus, Greenwald & Associates has been tracking the financial outlook and state of Gen X for some time. Our first significant study was conducted on behalf of AARP and the American Savings Education Council in January of 2008. In that study, we found that just one in four Gen Xers felt “on track” when it came to saving for retirement. Compare that to the 42% who felt on track in 2014. Yes, it’s an improvement, but it leaves nearly half of Gen Xers still feeling behind – with only 15 years to catch-up.

Debt was and remains the primary obstacle. More than half of Gen Xers reported having credit card debt in 2014. One in four reported having current student loan debt, while another 3 in 10 had dealt with student loan debt in the past. Even though more than 9 in 10 say saving for retirement is an important goal, not surprisingly, many say their debt has had a negative impact on their ability to save.

But I believe something very interesting is about to happen with Gen Xers. Four out of every five Gen Xers say that paying off their debt will prompt them to save more for retirement, specifically within employer-sponsored retirement plans. They think this will take about 5 more years on average, but about a third think it will take less. If, and it’s a big IF, Gen Xers do what they say – over the next five years, Gen Xers should start redirecting funds away from debt payments and toward their retirement savings plans. Contributions should go up. Their focus will shift away from debt reduction and toward retirement savings.

Gen Xers have focused on one goal at a time – debt first, then retirement savings. It isn’t an ideal approach. They’ve missed out on the growth they could have realized by starting younger. But they are about to get very serious about retirement savings – they are turning 50 after all.

And I believe they’ll also be thinking about retirement income. In our 2013 study, more than 3 in 4 Gen Xers suggested they would seek a financial product that helped them create a “personal pension” (74%) and one that would provide a “regular stream on income in retirement” (85%). As they prepare to focus more of their attention on retirement savings, they won’t just want to talk about accumulation. They’re already thinking ahead to income.

Timing, of course, is everything. If we assume, as an industry, that it’s not too late to target this overlooked generation, we need to hurry up and get one step ahead of them. Engage them at the key points in time when the debts are all but gone and remind them to do what they know they should – redirect that “found” money to retirement savings. Encourage them to take advantage of catch-up contributions. And we need to be ready to talk to them, not just about increased saving, but about saving sufficiency and retirement income.

And about those Millennials…

What I find most interesting about the Millennials, or Gen Y, is that many of the stereotypes we hold as truths about these young consumers do not show up in our survey results.

For one, retirement is on their radar. Their awareness is heightened by what they perceive is a very wobbly three-legged stool. Few express confidence that Social Security will provide them with benefits comparable to what retirees receive today. Sizeable shares lament that they do not have the same pension benefits as prior generations. More than two-thirds believe that saving for retirement is harder for their generation than for prior generations. Despite this, Gen Yers have not put their heads in sand.

As early as 2008, about half of Gen Yers had given at least some thought to their own retirement and already felt behind. In 2014, more than 4 in 5 said saving for retirement was an important goal. The challenge then, as most already know, becomes driving action. Gen Yers aren’t saving as much as they should, and both we and they know it. They do not have to be primed to take retirement seriously; they already do. They struggle, however, to take action.

To take action, Gen Yers need and want help. Few are currently working with a financial professional they consider a primary advisor, but a majority prefer to work with companies that offer a chance to build a relationship with an advisor. That’s right, not an avatar, an advisor. We tend to think of Gen Yers as being very high-tech, and they are, but they are also very high-touch. Gen Yers don’t want to be your (Facebook) friend. Of course, they are online and Google searches are among the most widely used sources of insurance and retirement information, right up there with their parents. Social networking sites, like Facebook and Twitter, are seldom used for this purpose.

Gen Yers too are faced with debt issues that they believe prevents them from saving more. We need to make sure that they do not take the same approach as Gen Xers (or the Boomers, for that matter). They cannot focus on debt first, then savings. They need a balance; they need to do both. And someone has to show them how, so that their young age and time remains on their side.

This industry is on the verge of a major opportunity with Gen X and Gen Y. We need to refocus and understand Gen Xers now, before it’s too late, and continue to track the financial needs and communication preferences of Gen Y (within financial services) to capture the opportunities ahead.

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