Without irony, a woman who seeks to change the world of financial services gives us an interview in a conference room named after her by Warren Buffet, who does not trust new technologies. She lists applications that have changed the way she communicates with the world for her generation: Uber for transport, Tinder for dates, and even Washio for laundry and dry cleaning. “By pressing the buttons on our phones, we can do whatever we need when we feel comfortable,” says a thirty-year-old New Yorker with a name more suitable for an eighty-year-old baroness.
Alexa von Tobel is sure that the world of financial services has ripened for the landing of young people with gadgets. And her company LearnVest has already begun an invasion of the area. Von Tobel has created a website and an app with which you can manage your money just as easily as we download music or shop on Amazon. For five years, she raised $ 72 million, including from Accel Partners Fund, Jim Breyer, one of Facebook’s first investors. During the April $ 28 million round, LearnVest was valued at a quarter billion.
And von Tobel is not the only one. According to CB Insights, over the past three years, more than $ 1 billion has been invested in high-tech personal finance management companies, only in the second quarter of 2014, investments reached a fantastic level of $ 261 million. Particular attention is paid to startups designed for young investors using convenient, Cheap, mobile-friendly software.
What are these startups? For example, Wealthfront, which helps young tech employees convert options into a diversified portfolio of exchange traded funds (ETFs). Betterment, automating the accumulation and placement of assets. Motif Investing, which allows small investors to invest in a business idea (for example, in the Chinese Internet or in cyber currency), and not in specific securities. “The generation of the millennium cannot be said:“ Trust us, go to sleep and let us manage your money, ”explains Motif Hardip Valia, 41, founder and CEO of Motif. “We want to attract them to our business.” All these companies have one thing in common: they are practical.
All of them require thoughtful leadership, long-term planning and the use of new technologies to reduce costs.
“I do not want to invest in only one company or in one sector. At the same time, I don’t want to devote all my efforts to managing my money, ”says Christina Cordoba, a 26-year-old Stanford graduate who invests with Wealthfront and forces the startup where she works to offer her a retirement plan. Maybe this is a manifestation of one of the few good consequences of the crisis that gave rise to the greedy generation, knowing the price of each dollar and the need to save at least one from the salary.
The stakes are very high. Public attention is drawn to people in their twenties returning to live in their parents’ home, or Lena Dunham and her part-time workers and mourning her fate as a girlfriend from the TV series Girls on HBO. Financiers see completely different representatives of the generation. According to Wealthfront, the millennium generation, which includes young people born after 1980, controls approximately $ 2 trillion in liquid assets. And this amount will grow significantly in the future, since it is precisely this generation that is now reaching the age most favorable for making money. In addition, a massive transfer of money to them begins from their parents, who belong to the baby boomer generation.
“We are influential people”
Financial startups and actively competing companies specializing in the management of inherited property, not only consolidate the savings of the millennium generation in their hands, but are also going to use this generation’s way of thinking for online innovations in the field of budgeting, planning and money management, which in turn will change the investment industry worth more than $ 30 trillion.
People in their fifties today gobble up Netflix online TV shows, send text messages, informing them that they are late, and trolling people on Facebook is no worse than their children. “The tipping point has already been passed,” says von Tobel about his generation. “We are the decision makers, we are influential people.”
And, as von Tobel is constantly convinced, – its stake in LearnVest theoretically costs tens of millions – those who help the millennium generation to gradually create small states can very quickly create several large ones.
Stephanie Halligan graduated from college in May 2009 and is a living confirmation of all the stereotypes about her generation: she clearly had no one needed a diploma (international relations), she received too expensive a private education (at Boston University), because of which she ended up in debt ($ 30,000) without any hope of employment (due to the financial crisis and the worst situation on the labor market since the Great Depression).
But at that moment, when it seemed that she had years of preparing frappuccino in Starbucks near her parents’ house, an interesting thing happened. In her final year at college, she volunteered at a charitable foundation in Boston, organizing personal finance classes for refugees, and she was invited there for an internship with a scholarship of $ 1,000 per month. In the fall of 2009, thanks to this experience, she got a job in Washington for $ 47,000 a year and began developing educational programs on cash savings for the poor. In 2012, she switched to a higher-paying job at EverFi, an educational high-tech company whose investors include Amazon founder Jeff Bezos and Twitter co-founder Evan Williams. A year ago, Halligan paid her tuition loan and accumulated enough money and self-confidence to engage in private practice as a financial advisor. “I got rid of debt because I wanted freedom,” says Halligan, who already has $ 50,000 in her retirement account, and this amount continues to grow.
Helligan embodies everything that makes the millennium generation such a grateful audience for the financial industry. Baby boomers grew up in abundance in post-war America and are used to constantly spending money. The cynical generation X (people born between 1965 and 1980) perceptively realized that neither the government nor business would take care of them, and therefore began to take risks very early. The generation of the millennium was spoiled by its caring parents, and then immediately frightened by the crisis.
It has become a generation of drives
Of course, those young people whose education was limited to high school are today in the worst situation for all the last decades. But here is an amazing statistic: according to the Pew Research Center, in 2013, 34% of people aged 25 to 32 had at least a bachelor’s degree compared to 25% of bachelors in generation X and 24% of baby boomers of the same age. Despite the catastrophic situation in the labor market over the past five years, college graduates from the millennium generation earned more than generation X graduates at their age – according to the Pew Center estimates, $ 45,500 in 2013 versus $ 43,663 in 1995.
Of course, student loan payments have increased, and university degrees will certainly slow down the growth of capital for the millennium generation. But in May, in St. Louis at a conference on personal budgeting issues, speakers seemed more concerned about the situation of Generation X, who was buying houses at the peak until the collapse of the real estate market. Conclusion: well-educated representatives of the millennium generation are the “premium customers” desired by all financiers.
One of the reasons for the desire of young people from youth to save money is the desire to be confident in their future. Few of them believe that they can get anything from the social security system. In addition, they appeared on the labor market just at the moment when the US Congress facilitated the introduction by companies of an automatic mechanism for implementing the 401 (k) pension program in 2006 (according to Aon Hewitt, today about 60% of employers use this program).
Result: many of the millennials began to think about retirement when they were in their twenties, while baby boomers began to delay on average at the age of 35.
Ironically, this generation that has grown up in the digital world understands the breakdown power of new technologies and is therefore in the best position in the history of mankind to launch powerful business projects (as a result of which the zuckerberg brands and kevins of the systroma have been incredibly rich). But in general, these people are too afraid of risks to leave a good job for the sake of a risky enterprise. Last year, when the labor market began to recover, and the number of “compelled” entrepreneurs began to fall, the number of start-ups started by people aged 20 to 34 was less than in any other age group. And two times less than people aged 45 to 54 years.
“They don’t want to live, constantly thinking about making money,” says Neil Hove, probably America’s largest generational theory specialist.
Certainly, Halligan took up private practice primarily because she wanted to be her own mistress. This summer, she spent six weeks in Africa and, in particular, climbed Mount Kilimanjaro. She has been saving money for this journey since 2012. Slow but sure climbing a mountain is how most people in the millennium generation make money. And this opens up many opportunities for the financial services industry.
So what should be the financial services for the millennium generation? Maybe you should start by making the investment process look like a computer game.
New York-based brokerage firm Kapitall allows you to invest in securities using an interface worthy of an arcade. “If you want to understand current financial services, you will need a master’s degree in this field, or you won’t understand anything at all,” says 52-year-old executive director Jarret Lilien, who previously managed an online trading company. “That’s why financial services depress people and appear to be accessible only to the elite.”
Today, people who are over twenty, two times more likely than representatives of older generations to play computer games. But it is not easy for them to deal with securities. A recent UBS study showed that investors between the ages of 21 and 36 hold only 28% of their assets in stocks, and more than half in cash. Representatives of older generations hold 46% of assets in shares and 23% in cash. Here is one of the possible solutions proposed by Kapitall: stocks that can maximize growth are represented using icons reminiscent of iPhone icons, and each sector of the economy is painted in its color to visualize diversification. To date, this company has 15,000 broker users (plus 250,000 virtual trading accounts).
At the heart of the Upstart model is another attractive concept for young people: crowdsourcing. This site, where people can lend money to each other, determines the creditworthiness of potential borrowers not only by their short traditional credit histories, but also using a special algorithm that uses information about the school that these people visited, about their grades in college, about diploma, previous work places and even the results of tests for testing academic abilities. Upstart was created in April, it considers requests for loans with a fixed interest rate from 6% to 17.5% and takes a commission from 1% to 6%. He has already funded around 400 loans.
“Some of these people will be very rich and make a wonderful career, you just need to understand who it is,” explains one of the creators of Upstart, 23-year-old Paul Gu, who studied economics and computers for two years at Yale, and then received one of $ 100,000 scholarships given by billionaire Peter Thiel to those who have left college to pursue entrepreneurship. Created in collaboration with former Google executives Dave Jiruard and Anna M. Kaunselman, Upstart raised $ 7.7 million from the star cast of venture capital firms – in particular, Thiel’s Founders Fund, Khosla Ventures, First Round Capital, Kleiner Perkins, New Enterprise Associates, and Google Ventures . The next investment round is expected at the end of this year.
But most startups, often called “consultant robots,” such as Wealthfron, Betterment, Future Advisor, and SigFig, combine algorithms and easily accessible interfaces to create cheap ETFs, while using modern portfolio theory based on the age and goals of specific investors. “Fifteen years ago, investors thought: I need a guru who could surpass the market. Today, most people no longer think so, ”explains Bill Harris, a financial computer technology veteran who was Intuit and PayPal’s executive director in the 1990s and founded Personal Capital focused on the high-end market.