Retirement industry professionals might soon see a significant shift toward emergency savings accounts as millions of workers struggle to make ends meet as a result of the COVID-19 pandemic.
This rings especially true for the Millennial workforce, which has now experienced three major market downturns—the dip in 2001, the Great Recession in 2008 and the downturn due to the coronavirus pandemic, says Kevin Boyles, vice president and business development director at Millennium Trust.
“For people under 40 years old, because of the scar tissue that will come from this event, emergency savings might become the most important thing savers are thinking about going forward,” he explains. “Once the dust settles, there’s going to be a shift in mindset, especially for Millennials.”
Similar to previous generations, the Millennial workforce—which includes those between 25 and 40 years old—is currently wedged between multiple financial concerns. Millennials are paying off ballooning student loan debt, covering the cost of children and handling other expenses such as a mortgage payment or rent. As layoffs and furloughs will continue over the coming months, and potentially into the next year, these workers are feeling the effects of scarce savings.
“The challenge for many of these workers is that their emergency savings accounts couldn’t even cover two months of living expenses, and certainly not many months or longer,” says Jason Dorsey, a global researcher with an emphasis on the Millennial and Generation Z workforces at the Center for Generational Kinetics (CGK). “What we’ve seen is that many Millennials have drained their emergency savings accounts, and if they have retirement funds, they’re figuring out how to tap into those.”
On top of emergency savings, Dorsey expects Millennials to place an emphasis on core workplace benefits—not the pet insurance and catered lunch perks typically associated with the younger workforce.
“When people go through times of tremendous emotional, physical and financial stress, it becomes clear what’s actually important,” Dorsey says. “In the long term, benefits will be a decisive characteristic of the types of companies that Millennials will want to work for.”
As the global workforce moves past the pandemic, Boyles and Dorsey anticipate, Millennials will immediately pursue rebuilding their emergency savings account at an aggressive pace to ensure their finances won’t be depleted again. Financial advisers, the experts say, will be expected to move along with them.
To do so, advisers will first have to adapt to tech-based platforms and digital communications and put an emphasis on self-service. Additionally, advisers will need to alter what financial wellness means to them, Boyles says. Saving for retirement is a vital step toward an employee’s financial wellness, but it’s not the be-all and end-all. “Retirement plan advisers need to understand that it’s this holistic concept,” he continues. “It’s not all about retirement, where you secure only that and then take the ancillary steps.”
Instead, it’s important to note what financial wellness means for every participant in each generation, especially if the adviser is not of the same age group as the worker. The priorities of a Baby Boomer are different from those of a Generation X worker, which can radically contrast those of a Millennial or Gen Z employee. Understanding the distinctive qualms, and integrating these notions into their practice, will set advisers apart.
“Advisers who choose to adapt to how these workers communicate, and place benefits and emergency savings accounts higher up, will likely succeed,” Dorsey says.
It’s also important to look at the severity of the situation at-hand: COVID-19 and its unprecedented effect, at least in living memory. While the global economy has faced downturns from the dot.com bubble bursting and the 2008 stock market crash, none have been attributed to a pandemic.
“The truth is that nobody working right now has been through a situation like this before,” Dorsey says. “We don’t want to just take a playbook that worked before and apply it blindly again.”
Therefore, it is imperative for advisers to look through the lens of their clients, to understand how the crisis is affecting them and how an emphasis on emergency savings, if possible, complements their well-being.
“We need to take a step back and look at the uniqueness of the situation,” Dorsey states. “Look at the uniqueness of the people going through this, and how you can best serve them.”
Transitioning into this new normal, it’s likely that the financial industry, like most of the workforce, will come out scathed and transformed, Boyles says. “You’re going to see profound impact on how people spend and save,” he concludes. “The financial services community need to begin to adjust their thought process for the other side, because everyone will come out of this changed.”