Could millennials, still grappling with the fallout of the Great Recession, emerge better prepared to address all the personal financial challenges confronting them than the rest of us?
Some intriguing new research from UBS suggests that these young people, now ranging in age from 21 to 36, could just pull off that feat.
Previous surveys have labeled members of the generation who have come of age in the 21st century as broke, spendthrift and narcissistic. Others argue that they have short attention spans, demand instant gratification, and are slow to become independent.
But they may posses some traits that will stand them in good stead, financially speaking, in the decades to come.
The just-released UBS survey reveals that in spite of their willingness to be entrepreneurial and to embrace bleeding-edge technological innovations, when it comes to managing their money, this group might have more in common with their Depression-era great-grandparents. Consider the millennial attitudes to cash.
In the recent market environment, and in spite of last year's big US stock market rally, cash remains a kind of comfort blanket for many investors. But even by those standards, millennials stand out. UBS's survey revealed that this group kept, on average, 52 percent of their holdings in cash, compared to 46 percent for a control group of non-millennials.
"They are very, very conservative when it comes to managing their money," says Emily Pachuta, head of investor insights at UBS, which commissioned the study to help the bank's team of financial advisors understand what drives the group that is likely to make up a growing share of their client base in years to come.
The survey is based on responses of 1,069 members of an affluent sub-group of millennials. Those under 30, for instance, have an income of at least $75,000 or investible assets of $50,000. But Pachuta believes their responses are pretty typical of middle-class members of the generation as a whole, since the same events have shaped their outlook.
"They are becoming a generation of savers, having been frightened watching what has happened to their parents during the Great Recession," Pachuta adds. It hasn't helped that their own generation has struggled with job security issues. If you're under 30, you're twice as likely to be unemployed as you were before the 2008 financial crisis.
The good news about being nearly frightened to death in their formative years is that millennials have become not only a generation who love to save, but who are wary of falling into some common traps, like trying to chase after the market returns.
As any financial adviser worth her salt will tell you, trying to beat the S&P 500 or any other market barometer is a mug's game. What is much more important is achieving your personal financial goals.
Sure, it's nice to be able to brag that you did better than the market, but relative outperformance is a double-edged sword. It doesn't matter much whether you beat the S&P in a year when it falls 15 percent -- not if you lost money, anyway. So, the millennial's emphasis on meeting personal goals rather than beating the market (only 17 percent wanted to try to do that) is a good thing.
Millennials also win kudos for their emphasis on saving and living frugally. The UBS survey revealed that 45 percent thought that would be key to achieving their life objectives, compared to 39 percent of the rest of us. So far, so good.
But millennials, spooked by the events of 2008 and their aftermath, also need to realize that they still have something to learn from their elders. Specifically, that there is such a thing as being too conservative, especially when they're as young as they are today. "You don't want to see someone who has worried themselves into paralysis," says Pachuta.
Tellingly, the UBS survey shows that only 28 percent of millennials view long-term investing as an ingredient in their success, compared to 52 percent of baby boomers and others.
Cash may be a great security blanket, giving you a kind of psychological go-ahead to take risks with the rest of your portfolio by investing in stocks and other securities that don't offer any guaranteed returns but that historically have outperformed over long periods of time. But after taxes and inflation, cash actually generates a loss.
When you're as young as 30, you should probably hold less cash, not more. You have time on your side, in all senses. Gains from taking investment risk will have the biggest impact on your long-term returns and, if you lose some of those gains in the market, you've got more time to recoup the losses than you will when you're in your 40s and 50s. At 30, you've got decades to achieve your goals, not a few years.
If millennials can combine their focus on saving with an ability to take prudent risks and seek out long-term investment returns, they may earn an entirely new moniker: the Wisest Generation.
When it comes to managing their money, this group might have more in common with their Depression-era great-grandparents.