David Lebovitz:    Welcome to the Center for Investment Excellence, a production of JPMorgan Asset Management. The Center for Investment Excellence is an audio podcast that provides educational insights across asset classes and investment themes. Today's episode is entitled The Next Generation of Investors and has been recorded for institutional and professional investors.

                              I'm David Lebovitz, Global Market Strategist and Host of the Center for Investment Excellence. With me today is Jack Manley, Global Market Strategist at JPMorgan Asset Management. Welcome to the Center for Investment Excellence.

Jack Manley:         Thanks, David. It's good to be here.

David Lebovitz:    So really interesting and a little bit of a different topic today, talking about the next generation of investors, much ink has been spilled about the Millennials. And I love that you're actually going put some facts and figures around who we're talking about and what some of the challenges they face when it comes to investing over the next 15 to 20 minutes or so.

                              And with that said, let's dive right in and let's start by defining who we're talking about. Let's define the Millennial generation. Can you talk a little bit about, who's included some defining characteristics and what type of issues and things matter to this next generation of investors?

Jack Manley:         I would be happy to, and you're right. I mean, there has been a lot of attention paid to this generation, a lot of complaining, frankly, about this generation, but not a whole lot of information as to who these people actually are, what they represent and what they care about, what their interests and pains may be.

                              Now it's sort of high level kind of laying that foundation what actually makes a Millennial? Well, the technical way to think about this is that if you were born between the years, 1981 and 1986, well, congratulations, you are a Millennial officially. And I think David, that makes both of us Millennials on this call right now.

                              Now there is a generation after the Millennials that we've been spending a lot of time talking about as well. That's going to be Gen Z. The definition there is a little bit more nebulous. We haven't fully figured out exactly what the cutoff is going be. But as of right now, a good kind of way to think about this is between 1997 and 2012 in terms of your birth year.

                              Now I would say kind of as a bit of an aside, don't get too used to calling Gen Z, Gen Z. You may remember David we used to be Gen Y back in the day. We got rebranded as Millennials. So who knows what's happening with Gen Z later, but that's a good kind of way to think about these two generations, right, in general, people born after the year 1981 before the year 2012.

                              Now here's something that I think is extremely surprising to a lot of folks because we spend so much time talking about the significance, the importance of the Baby Boom generation, right? They are a lot of us think the biggest generation in America. But that's actually not the case anymore. And I think a lot of people would be surprised to learn that there are more Millennials in this country at 72.5 million people than there are baby boomers at 71.3.

                              And in fact, there are more Gen Zers in this country at 69.1 million than there are Gen Xers at 66.4. So not only do we need to become a little bit more familiar with how to actually define these generations, but we have to recognize that they are an enormous force for change that is coming down the pipeline. And at least as of right now, they represent more individuals than those other two previous generations, the boomers and the Xers.

                              Now you asked about some kind of defining characteristics here. Let's talk about that for a moment. One of the most important things to point out here is that the Millennial generation is a highly educated generation. It's actually probably the best educated generation going back over a century at least if you measure that by the attainment of a bachelor's degree or something higher than that.

                              Now that educational attainment means I think, first of all, more of a willingness to kind of go at it alone because you think that, you know everything, whether or not you actually do. But it also suggests that this generation has a pretty strong potential for future earnings generation, right?

                              We have typically seen that the better educated you are, the more money you're going make over your lifetime. So let's now kind of remember, not only are Millennials the biggest generation out there, they're also the best educated which may mean that eventually they're worth the most amount of money.

                              Now, some other things to consider on this front, very political individuals and that number in terms of political engagement just keeps going higher. We're seeing issues of social justice, income, inequality, climate change, all of these things kind of coming front and center. And as a direct result of that, there is an enormous interest in ESG style investing.

                              Now, if you actually break down the numbers here and you look at how individuals respond to service about interest in things like socially responsible investing, you'll actually see that the number of Millennials that say that ESG style investing is essential to their portfolio construction is about double what people over the age of 55 would respond. So again, very well-educated generation, very political generation, highly interested in ESG and a pretty big generation just from a demographic perspective.

David Lebovitz:    That was extremely helpful. You know, we attended a session a couple of months ago where they talked about the Millennials and one of the things that they kept on coming back to was that a lot of people just don't understand who exactly it is that they're dealing with. And so I think you did a great job of shining the flashlight around and giving us some perspective there.

                              So now that we know the population that we're here to discuss, let's talk a little bit about how this generation likes to consume content. You know, one of the things that happened during the pandemic when we were all locked up at home was it became very clear that you were either on one side of the line or the other. You were either creating content or you were consuming content.

                              What have you seen with respect to how Millennials prefer to consume content as we continue to really digitize and open an increasing number of avenues for information consumption?

Jack Manley:         Yes David, I think that's a really good way to think about this. And I would say that our generation, the Millennial generation got really good at figuring out how to consume content. And this next generation, Gen Zers have kind of perfected it. I mean, you know, this is not a literal statement, but figuratively, these people were born with smartphones in their hands, right?

                              I mean, I'm sure you remember your first cell phone. I remember my first cell phone. I remember when the first smartphone came out. That's not something that people ten, 15 years younger than us remember. That wasn't a defining moment of their childhood or adolescence. These things were just kind of taken for granted when it comes to these younger generations.

                              And so when we think about how these younger people like to communicate, I think the first thing to point out here -- and it is extremely important is that perhaps embarrassingly as a Millennial myself I'll tell you -- there is a massive amount of anxiety surrounding interpersonal communication, particularly as it relates to phone calls.

                              So when you're thinking about communicating with a younger individual, especially from a financial perspective, right, this idea of cold calling door knocking, it just doesn't resonate as well with these younger people. And I know myself, if I get a phone call from a number, I don't know, it goes straight to voicemail. And I think that a lot of people feel that way as well.

                              Now some other things to kind of take away from this other kind of interesting statistics, put a little bit more meat on the bones here when it comes to how we consume content. The time spent consuming news is around a quarter of that spent by adults, even over the age of 38. So you see this huge generational gap even among younger Americans when it comes to how much attention we pay to the news.

                              And so if you're trying to communicate with us, you better get straight to the point, right? You have to get to the point, you have to be pithy, you have to be punchy. I'm not going sit there and soak in an hour's worth of content if it could be delivered to me in 15 minutes.

                              And kind of in that vein and especially considering the rise of smartphones and high speed Internet and that sort of thing, most information right now is consumed digitally. Not a lot of us are watching TV. Not a lot of us are reading old school print, journalism. Almost everything we are consuming. We are doing it through our smartphones, frankly. And so that I think has pretty significant implications in terms of how you want to communicate with this generation.

                              But one of the interesting things that I learned through my research and talking to some of these individuals is that while all of those things generally resonate, it does not mean that all communications have to be digital only, that all communications have to be very quick. It's just that initial point of contact has to be textual rather than over the phone. It has to be digital first. It has to be quick, punchy to the point.

                              And once you get the hook in there, that's when these individuals are much more willing to have a longer in depth conversation over more traditional channels, whether that's a phone call, an in-person meeting or nowadays, you can even do that over Zoom. So kind of interesting way to think about this generation, certainly a big shift away from how older Americans are used to communicating and consuming information.

David Lebovitz:    Well for our younger listeners, we should try to keep this short, sweet to the point I guess, is the takeaway from your comments just there. But having talked a little bit about who the Millennials are, what matters to them and how they prefer to consume content that is sent their way let's talk about some of the challenges that they face and some of the, you know, I would view them more as opportunities to engage with this generation and provide them with additional information. But what are some of the headwinds that you see when you look at Millennials, particularly as it pertains to things like investing?

Jack Manley:         Yes again, a very important question here. And I think one of the issues that we're dealing with is that given this idea that we all have access to all the information in human history at our fingertips, that we wouldn't really need advice, right? Because we can pull out our phone and open up our search engine of choice and type in whatever the question is and boom, there's an answer, right? I'm done. I've learned a little bit,

                              But the Internet has kind of been a double-edged sword on this front because information overload is a real thing, right? Sometimes you get too many answers to your question and they sometimes maybe contradictory. There's also a lot of false information, just kind of floating around out there, particularly as it relates to financial advice. So while you would think the Internet would be a helpful tool, it isn't always as helpful as it probably could be.

                              The things I was learning from some of these younger individuals, two big pain points jumped off the page sort of left at me in these conversations. One of them is going to be the student debt burden. The other one is going to be planning for retirement. And I'd say the student debt burden is more of an active concern. I mean, people are panicking about student debt. The retirement problem is more of a passive concern in the sense that some of these individuals don't even realize that they aren't adequately planning for retirement.

                              So let's dig in just a little bit on this. When it comes to student debt, there is this I think, misconception out there that Millennials feel like they are the only ones with student debt. Now this is a newly created problem. And that of course is just patently not true. I mean, student debt has existed for a very long time.

                              But what is true here is that if you look at these demographics broken out in terms of percentages of populations, the number of Millennials that have student debt is twice the number of Baby Boomers when they were of that sort of Millennial age. And when it comes to the level of debt that debt to income ratio is four times the size of that of boomers for Millennials.

                              So Millennials have more debt and more Millennials have debt. And what that's resulted in is actually a deterioration of what we call the mean wealth income ratio for this age group over the last 30 years. Basically everybody in America has gotten richer over the last 30 years unless you're under the age of 35. And you actually haven't been. You kind of buck the trend and a lot of that has to do with student debt. And so trying to manage paying down that debt while simultaneously saving and investing is a big challenge. And I think that a lot of younger individuals don't realize that it's entirely possible to pay down debt and also invest.

                              And then when it comes to the retirement problem I think again, it's because there's just so much information out there that it almost becomes a black hole. A lot of young people that have access to employee sponsored retirement plans like 401(k)s don't realize that there are two different vehicle types that you can be investing in, right? You are defaulted into a traditional pre-tax vehicle, but maybe it makes more sense for you to be in a Roth post-tax vehicle.

                              A lot of them don't realize that whatever they're contributing on a monthly or annual level is significantly below the maximum contribution amount and maybe they should be increasing that number there. So these are the two big pain points. I think that these individuals feel there are two among many, but when you're talking about opportunities for how to have these conversations, those are two of the most important ones I think that we're dealing with right now.

David Lebovitz:    You've done a great job of highlighting some of the challenges that this generation faces. Let's talk about a potential solution. You know, one way of dealing with this is obviously investing. And you make a great point about the traditional taxable 401(k) versus the Roth. Most people will be taxed at a higher rate when they are at the end of their career, as opposed to the beginning of their career which suggests that there is value in taking the approach of a Roth.

                              But let's dive into that investing issue. Let's talk a little bit about what this all means for Millennials as investors, do they invest? How do they invest and what are some of the risks as well as the opportunities that this behavior in general has created in your opinion?

Jack Manley:         So I would say, first of all, this is a generation that loves to invest. You know, it's hard to paint with broad brushstrokes on this one. You never want to make overly simple generalizations. But in general, this generation does very much like to put money into the market.

                              We see that looking at, say some of the Chase data that we have access to massive outflows to brokerage accounts from Chase savings accounts, particularly for individuals under the age of 30. The data very clearly support that this generation is disproportionately interested in investing relative to older Americans.

                              But the way that they go about investing is going to be a little bit different, right David, to your point. I mean, we are seeing very large volumes in us equity markets that are being driven mostly by online brokerage platforms. Investing has kind of become democratized over the last few years. It's easy to be an investor. You don't really have to know a whole lot. You don't have to have a whole lot of capital to be an investor.

                              And when you're looking at some of these platforms that don't have any sort of trading fees or commissions, it's not particularly expensive or cost burdensome to be an investor. So you're seeing a lot of interest in that, kind of do it yourself mentality using an online brokerage platform now in terms of what they like to invest in.

                              Well, some of this has to do with the rise in meme stocks. That of course we heard about over the last couple of years, thanks to a certain online forum and some investing advice, if you will. I'm not sure if I'd call it that, but that's how they would probably frame it.

                              But we also see large exposures to single securities, large exposures, to cryptocurrencies, large exposures, to options which are pretty aggressive, pretty complicated for your average investor, especially since a lot of these people don't have any sort of formal educational background or training when it comes to trading options, right? You are handing young people without their driver's license the key to a very expensive super car by allowing people to buy these complicated opaque assets, if you will, on the Internet with very little oversight.

                              So I would say there's a lot of risk there, right? I mean, all of that sort of sounds risky, big single security, single positions online without a whole lot of guidance. But I think there are also some opportunities here as well.

                              One of the reasons I would say that we have all this interest in single security exposure in crypto in options is because there is sort of a sense of nihilism almost if you will, in these younger generations, right?

                              I mean, you and I kind of came of age during the financial crisis. The Gen Zers kind of came of age during the COVID pandemic, right? We are entering two of the worst job markets we've seen in the last hundred years. It's kind of hard to get excited about the system. You know, it's kind of hard to get excited about demand when you're entering a system that seems to be stacked against you.

                              And so, you know, I think a lot of the mentality here is, well, you know, I'm 25 years old, I'm going be working for the rest of my life. There's no way I'll ever be able to retire at 65. I have all this student debt. So I haven't been able to save up a whole lot of money. Why not go to the casino and bet it all on black, because if I hit, I come back a millionaire and if I don't, well then who cares right? I'm basically back to where I started.

                              And so working to kind of reeducate on those sympathies, that idea of working people back into the financial system maybe through something like ESG style investing is very much an opportunity. But the other thing that I'd say here, that's kind of interesting is that younger investors are much more interested, much more likely to go global. They're much more interested to look at those companies, those names that other older investors might not be particularly interested in.

                              This is a very interconnected generation. Everybody knows everything about everything. And so there is I think more of an opportunity in the financial services industry to serve these younger individuals with a broader set of options, rather than your traditional kind of 60/40 portfolio that's worked pretty well in the past, but probably isn't going work as well looking forward.

David Lebovitz:    Well Jack, this was fantastic. Thank you so much for joining us on the Center for Investment Excellence and I'm looking forward to having you back again sometime soon.

Jack Manley:         Thanks David.

David Lebovitz:    Thank you for joining us today on JPMorgan's Center for Investment Excellence. If you found our insights useful, you can find more episodes anywhere you'll listen to podcasts and on our Web site. Thank you. Recorded on October 18, 2022.

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