Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Some Funds Unravel X Factor' of Young Investors

Get em while they're young and keep em for life. They have a longer time horizon. They only get richer as they get older. And they want financial advice. It seems simple enough.

So the question remains: Why aren't more funds targeting this promising, younger age bracket? Perhaps it stems from the ambiguity of the term young people itself. Who are they? The term young people includes Gen X, ages 23 to 35, and Gen Y, ages five to 22.

But more importantly, how does who they are translate into a potentially great untapped market? And how can funds attract these individuals?

A new report, "Gen X Professionals, Financial Services and the Web," conducted by Celent of New York found that 42% of the GenXers surveyed had a financial planning provider, and an additional 15% said they planned on finding one within the next 12 months. Moreover, a recent survey conducted by the MainStay division of New York Life Investment Management of Parsippany, N.J., found that GenXers, on average, had a net worth of $117,000. The survey also found 35% put money into a savings or investment account several times a month.

Gen Y, on the other hand, spans a more diverse age range, with its oldest members now graduating from college and its youngest still fascinated with Big Bird. Michelle Porif, associate director at Yankelovich of Norwalk, Conn., said the difference between Xers and Yers is not so much generationally driven as "life-stage driven." By that she means that these individuals are motivated by where they are in their lives.

Porif said Gen Xers are predominantly in their "prime career years, potentially moving into their peak earnings years of their careers." She said Xers are rational, pragmatic and realistic, realizing that in terms of finances, investments "might not [turn out to] be what they had hoped for."

Porif went on to say Gen Yers are also very pragmatic, but not at a phase in their lives to be worrying about their future. The Yankelovich Youth Monitor found 67% of Yers talk to their parents about saving money, but found that nearly half of the mothers (47%) said that getting their kids to save money was a big challenge for them.

"Gen Y is in a live-in-the-moment kind of phase, not as concerned about saving money for the long-term, and more willing to indulge," Porif said.

Moreover, a Teenage Research Unlimited of Northbrook, Ill., study finds that they have the money to satiate these fancies. The study found the personal annual income was $1,664 for 12 to 15-year-olds, $4,940 for 15 to 17-year-olds, and $7,852 for 17 to 18-year-olds.

Moreover, according to Stein Roe Mutual Funds of Boston, approximately 20% of students in grades eight through 12 own stocks or bonds. But what about the remaining 80% who aren't investing?

Christina Mus-

son, 21, a student at New York Uni-

versity, seems to capture the sentiment of many people her age. An investor in mutual funds for three years now, she admits to leaving the details to her financial adviser, a family friend whom she trusts. However, she also says the reason is not due to a lack of interest, "I have the interest. I think it's something a lot of people neglect. It's just a language I don't understand," Musson said. A key factor in the low participation rates seems to be the lack of financial know-how.

Bob Bacarella, president and portfolio manager of Monetta Financial Services of Wheaton, Ill., noticed this lack of interest in his own kids and started his Monetta ExpressKids Program a couple of years ago to teach children and young adults about investing and give them "financial life skills." Barcarella said kids today lack the discipline and incentive to save and his program can make them informed investors by the time they are 23. Wait, by 23? "Yes," he replied, "For financial life skills, Gen X is old. They gotta do a little catch-up." The MainStay study, however, found that GenXers put away, on average, 16% of their income as opposed to their predecessors, who only saved 13%. It seems Gen X just may have these "financial life skills."

Smart Kid

O.K. Young people may need some educating. From a practical perspective, funds should start educating and targeting this latent market from a young age to start building trust, familiarity, and rapport. After all, the young don't stay young, or so trusting, forever.