Sandwiched between the baby boomers and the millennials, a generation of young families is juggling a slew of financial demands. Reaching out to help clients in this age cohort could pay off in the long run.

Generation X, composed of those born between 1965 and 1979, represents more than six million Canadians, according to Statistics Canada’s most recent census. Members of this generation, currently in their 30s and early 40s, are managing the hefty costs associated with raising children and maintaining full households. Gen Xers also carry substantial mortgages and other debt, and with growing pressure to begin saving for retirement, most could benefit from professional financial advice.

These young adults represent an underserved market with a distinct set of financial needs. By understanding what makes Gen Xers tick, you can begin to develop long-standing, mutually beneficial relationships with them.

“When you look at this stage of life that [members of Gen X] are in, there are a lot of demands on them,” says Lee Anne Davies, head of retirement strategies with Royal Bank of Canada in Toronto. “I think advi-sors can offer a lot to them as they go through each stage of their lives.”

But as much as Gen Xers could use your help, almost two-thirds of people in this age group don’t have a financial advisor, accord
ing to Toronto-based Environics Research Group Ltd. Many financial services firms and advisors tend to be more focused on the vast baby-boomer generation, leaving Gen Xers underserved.

“They tend to be overlooked by many planners right now, who are trying to focus on the higher net-worth boomers,” says David MacDonald, financial services group vice president with Environics. He points out that about two-thirds of the nine million-strong baby-boom generation work with a financial advisor.

It is a good idea, MacDonald says, for advisors to begin fostering relationships with Gen X clients. As Gen Xers’ incomes rise and they begin building nest eggs for retirement, they will need financial guidance in the decades ahead.

“Long term, they are an attractive generation,” says MacDonald. “They represent a great opportunity — one that advisors can start to build practices around.”



> A Generation In Transition

Many Gen Xers, with so many demands on their money, are likely to feel as though they haven’t accumulated enough assets to begin working with an advisor. Half of the members of this age group have accumulated less than $50,000 in financial assets, Environics says. And that includes about 20% of the age cohort who have less than $5,000.

Two-thirds of Gen Xers have children, and about half have a mortgage. And, for 30% of this population group, liabilities add up to more than $100,000, according to Environics. For many Gen Xers, their liabilities are still far greater than their assets.

But this “generation in transition,” as MacDonald describes it, could see its financial circumstances turn around pretty quickly in the years ahead. As Gen Xers gradually see their debt loads shrink, their children get older, their expenses decline and their incomes rise, they’ll find that they have more money to invest.

Sizable inheritances could also be in store for many members of this group, whose Second World War-generation parents have been prudent savers for most of their lives, according to MacDonald: “Generation X will be very shortly inheriting quite a lot of wealth.”

Not all Gen Xers are facing tight financial circumstances. In fact, Environics says, a quarter of them have already accumulated financial assets of at least $100,000.

As the net worth of this generation continues to climb, members are expected to begin seeking out financial advice in much larger numbers.



> Attracting Generation X Clients

One way of tapping into the Gen X market is to ask your older clients whether their grown children need help in managing their financial affairs. Offer to sit down with your clients’ children to help them get started with the investment process.

Another strategy is to gear your marketing efforts toward events and communities in which members of Gen X are likely to be found. Since this generation is largely made up of young families, look to neighbourhoods with a high concentration of elementary schools and parks. Says MacDonald: “You are going to find them through events that are family-oriented.”

Hold educational financial seminars aimed at the young-parent crowd, MacDonald suggests. For instance, offer seminars on such topics as investing for a child’s education or tax credits for families. These efforts are likely to resonate with this well-educated and Internet-savvy generation, which avidly consumes information and embraces opportunities to learn, according to MacDonald.

“They have a more questioning mindset than the previous generation,” he says. “The advisor who helps educate them along the way will go a long way toward building a deeper relationship with them — building their trust and building their confidence.”



> Engaging Generation X Clients

The key to engaging this younger crowd in financial planning is to make the process as simple and as time-efficient as possible, experts say. Gen Xers have little spare time.

“In order to reach out to these clients and help them,” Davies says, “you have to connect with them with the right message quickly.”

A lack of time is a key reason that most members of this generation haven’t sat down with an advisor to create a financial plan. Often, Davies says, they think the process is long and cumbersome.
@page_break@To engage Gen X clients right away, begin by asking about their goals and priorities, and assure them that the planning process is simply about helping them to meet these objectives.

“Talk to them about the things that are important to them,” says Davies. She suggests inquiring about their children, their career goals and their thoughts about retirement. Then tie these factors into a plan.

Adds Davies: “You want to be able to create a plan very quickly.”

In many cases, Gen Xers haven’t stopped to think about their goals or their plans for retirement. But many advisors find that these clients embrace the opportunity to clarify their goals and create a road map for achieving them.

“More often than not, there’s a great sense of relief for the clients when they actually start doing that,” says Geoff Howard, a financial consultant with Charles Schwab & Co. Inc. in Roseville, Calif. “They add more structure to their lives.”

One reason why members of this generation may have avoided long-term financial planning is an assumption that doing so will force them to cut back drastically on their spending habits.

“They don’t want to sacrifice their lifestyle, even though they’re going to be sacrificing a lot more in the future if they don’t start planning,” says Todd Morin, a regional director with Investors Group Inc. in Ottawa.

To help Gen X clients feel less intimidated by the planning process, emphasize that putting aside even a small amount of money each month can make a big difference in the level of savings they’ll have in retirement.

“It doesn’t have to be budget-breaking amounts,” Howard says. “The message is that something is better than nothing.”



> A Comprehensive Planning Approach

Individuals in their 30s and 40s have not yet reached the point in their lives at which they are accumulating assets, so their needs, extend far beyond investment advice.

Debt management, for instance, is a top priority for many Gen X clients. Help them determine how to allocate their cash flow effectively between debt payments and RRSP contributions.

Insurance is another key area to address. At an age at which Gen Xers are raising children — and are already facing tight financial circumstances — it’s important for these clients to be protected with life and health insurance.

Some Gen X clients might have insurance coverage through employee benefit plans, but it’s important to look at the specific level of coverage they have in each area. Clients of this age often fail to pay attention to the details of their coverage and, in many cases, it turns out to be more limited than they realize. Many Gen Xers have inadequate disability insurance, for example, Morin says. That’s why it’s a good idea for you to take a close look at all your Gen X clients’ life and health insurance plans to ensure they are appropriately covered.



> Encourage Saving

The good news, according to research, is that Gen Xers recognize the need to save — even if they are not acting adequately on that recognition. A recent survey by RBC revealed that members of Gen X contribute to RRSPs in higher proportions than any other generation. The question is: are they saving enough?

“Even though they’re busy, they have not lost sight of long-term planning,” says Davies. “They really do have insight into the need to continue to invest for the future.”

The problem is that Gen Xers are having trouble saving as much as they feel they should. The same RBC study showed that Gen Xers feel less confident than any other age group about their retirement savings. And more than one in five members of this generation has not yet started saving at all.

Those who are averse to saving are prone to the reckless spending habits common among members of this generation, who have a greater tendency than older generations to spend more than they can afford and accumulate high levels of debt.

“Most Generation Xers have been consumers since Day 1,” says Howard. He points out that this group grew up during the 1980s and ’90s, a period during which economic growth was fairly robust.

“They spent their formative years in one of the best periods imaginable,” Howard says. “Those years did not really instil a sense of the importance of saving, budgeting and planning for the future. I think that’s what’s going to take a lot of work for this generation in general.”

Often it’s necessary to be blunt with Gen X clients about the dangers of failing to save for the future, says Morin. It’s important, he says, to help these clients differentiate their needs from their wants. He also recommends helping these clients understand the impact their current spending habits could have on their standard of living in the future.

“Sometimes, we basically have to hit them on the head with it,” Morin says.

One way to get the message across to your Gen X clients is to calculate the amount they are on track to have saved by the time they reach retirement age, and compare that to their projected expenses — including utility bills, property taxes, transportation and recreational activities. When Morin conducts this exercise, he says, he often finds that Gen X clients’ savings are set to fall short of basic living expenses, let alone travel or other discretionary expenses.

This approach is often effective in prompting Gen X clients to begin a more aggressive saving program, Morin says, because it shows them — in specific dollar figures — the impact of their overspending.



> Help Allocate Their Funds

Once you have convinced your Gen X clients of the need to plan, the next step is to help them determine which tools are best for them:
Pensions. For retirement savings, ensure that Gen X clients are making full use of any employer-sponsored pension plans available to them — particularly when their employer is matching contributions. If your client has a defined-contribution plan, advise him or her to make the highest allowable contribution.
RRSPs. To maximize RRSP contributions, urge your clients to make monthly deposits — even if it’s only a small amount at first. Once the savings habit has been formed, you can get them to increase their monthly contribution amount gradually.
“It’s very effective for this age group, because they don’t have to worry about having the money at the end of the year to make that RRSP contribution,” says Davies. “If they can just keep up with regular investing, and keep that habit of investing for their future, they’ll do quite well. They’re still relatively young, so they have a lot of compounding ahead of them.”
Davies adds that this approach also lets clients ride out market fluctuations through dollar-cost averaging.
RESPs. For Gen X clients with children, the registered education savings plan is extremely popular. Ensure your clients are familiar with the benefits of RESPs — such as the Canadian education savings grant, which can add up to $7,200 per child.
TFSAs. For shorter-term goals, tax-free savings accounts represent another effective savings vehicle. Encourage your Gen X clients to open TFSAs for more accessible savings that could be used for purchases such as vacations, new appliances or emergency home repairs — so they won’t be tempted to dip into retirement savings.
Home Buyers’ Plan. Gen Xers are often prime candidates to benefit from the Home Buyers’ Plan, which enables first-time home buyers to withdraw up to $25,000 from their RRSPs and put the funds toward the purchase of a home.

IE