Advisor Resources: BMO Wealth Institute

Generational Perspectives: How Millennials, Gen-Xers, and Baby Boomers save and invest

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Investors are often subject to behavioral biases that can lead to flawed decisions and choices. Being aware of these biases – and understanding how they arise from your background and life experiences – can help you make better investing decisions and achieve your financial goals.

When we make important decisions about the future, we start with the information and data available to us now and rely on our experiences, education and intuition to come up with the best possible answers. When we don’t have the right information up front, or place too much weight on the wrong factors, decisions may not work out as well as we expect.

Similarly, researchers must also try to be objective when faced with new data and changing circumstances in order to avoid drawing conclusions that may one day be shown to be false or misleading. In many fields of study, unbiased judgement is difficult because the interpretation of data is inevitably subjective and can itself result in bias.1 For example, we often place more weight on information that supports our beliefs, and tend to discount factors that contradict them.2

In the United States, public companies from a range of industries in the high tech, automotive, energy and consumer goods sectors have corporate offices or production facilities in smaller cities and towns. In such areas, the company is often the main employer and a major contributor to the region’s economic well-being. Employees and their neighbors often purchase shares in the company for reasons that include their familiarity with the company, the good things that it does for the community and sometimes just because many local people talk about the company. The high level of share ownership is evidence of confirmation bias and, perhaps, home bias. These biases can increase risk, because the decision to invest is based more on local information than on the prospects for the company as a whole.

Infographic bmo wealth institute generational perspectivesOur biases are shaped and reinforced by our experiences. People that have similar characteristics, such as age range, gender or economic background, tend to demonstrate similar biases. This helps to explain why groups such as boomers, millennials and generation Xers have distinct outlooks and tendencies when it comes to investing.

Economic environment shapes generations

The financial crisis of 2007–2008 has left millennials feeling less secure and more cautious about financial matters than previous generations.3 The crisis happened just as they were starting to come of age and take on financial responsibility. This experience has made millennials more fiscally conservative, and as a group they have a strong preference for saving, just like their grandparents and great-grandparents who lived through the great depression.4

Baby boomers, on the other hand, have greater confidence in their investments over the long run. Historically strong average returns have helped them prepare for retirement, and they are now prepared to ride out the ups and downs of the market.5

Investor archetypes

Every investor has a unique perspective on the world. Explore the four investor archetypes and cater your communication style to the investment personality of each of your clients. Listen to our investor archetypes podcast to learn more.

What financial goals do different generations invest forAttitudes, behaviors and financial goals

A survey was commissioned by the BMO Wealth Institute to ask millennials, generation Xers and baby boomers about their attitudes and behaviors around saving and investing.6 When each of these groups was asked about the financial goals for which they are saving and investing, retirement was the most frequently cited response, noted by the majority (59%) of all the individuals surveyed.

While saving and investing for retirement is important for millennials, it was highlighted by less than half of them (47% of respondents) compared to both generation X (66%) and baby boomers (64%). For millennials, shorter term goals, such as saving for a vacation (21%) or to purchase a new home or upgrade an existing home (26%), were also highly cited reasons to save and invest.

Generational differences go beyond retirement goals

The key generational difference of spending priorities between baby boomers, generation Xers and millennials was in part highlighted in a conversation between Malcolm Gladwell, best-selling author and writer for The New Yorker, and Bill Gurley, a significant early investor in car-sharing services, at the 2015 SXSW Conference in Austin, Texas. Gurley asserted that millennials don’t care about cars, that their parents are frustrated they won’t get their driver’s licences, and that millennials view cars as a utility, not as a social statement.8

This is quite a contrast to the baby boomer generation. Boomers buy more sports cars than any other generation and enjoy their cars and the time they spend driving.9 Gurley also noted that these trends have helped lead to the rapid growth of car-sharing services.

It is not that millennials don’t want to own cars; they are just making decisions about spending their limited resources in ways that differ from the decisions that their parents and grandparents made. Rather than forgoing car ownership, many are simply delaying it.10 Economic circumstances have led to other choices that include marrying later,11 obtaining higher levels of education12 and taking advantage of the rapidly developing sharing economy.13

Saving and investing are not the same

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Footnotes
1 Effect of interpretive bias on research evidence. Kaptchuk, T.J. BMJ 326(7404): 1453–1455, June 28, 2003. ncbi.nlm.nih.gov
2 Nine types of research bias and how to avoid them. Sarniak, R. Quirk’s Marketing Research, August 2015. quirks.com
3 Millennials and wealth management: Trends and challenges of the new clientele. Kobler, D., Hauber, F. and Ernst, B. Deloitte.com, 2015.
deloitte.com
4 Why millennials and the Depression-era generation are more similar than you think. Bovino, B.A. Fortune, April 29, 2015. fortune.com
5 What boomers have learned about retirement saving. Kadlec, D. Money, September 28, 2016. time.com
6 BMO Wealth Institute survey conducted by ValidateIt Technologies Inc. between the dates of August 10–13, 2017. The online sample size was 1,006 Americans aged 18–71. The survey has a confidence interval of +/- 3.01% at the 95% confidence level.
7 Respondents in the survey may have selected more than one response, so the percentages in the table do not total 100%.
8 Uber investor: Millennials just don’t care about cars. O’Brien, S.A. CNNtech, April 29, 2015. money.cnn.com
9 Baby boomers are getting too old for sports cars. Welch, D. Bloomberg Pursuits, October 21, 2016. bloomberg.com
10 Millennials and car ownership? It’s complicated. Etehad, M. and Nikolewski, R. Los Angeles Times, December 23, 2016. latimes.com
11 Why are millennials putting off marriage? Let me count the ways. Barkho, G. The Washington Post, June 6, 2016. washingtonpost.com
12 Millennial college graduates: Young, educated, jobless. Goodman, L.M. Newsweek, May 27, 2015. newsweek.com
13 No one is more into the sharing economy than millennials. Kats, R. eMarketer, May 19, 2017. emarketer.com

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