Join this session to:
- Understand the true mindsets and motivations of the Millennials-and-under crowd
- Integrate the latest brain science to that new, more accurate understanding
- Adopt new practices that build trust and inspire action--so younger customers engage at higher rates
Nathan Place (00:08):
Okay, so I think we're going to get started. So welcome everybody to our session on True Empathy, a new approach to drive engagement up with younger customers. I'm Nathan Place, retirement reporter for financial planning, and our speaker is Anne Lester. Anne was the head of Retirement Solutions at JP Morgan Asset Management for 20 years. She's also the co-founder of the Aspen Leadership Forum on retirement savings and in general, she's one of the country's foremost experts on retirement. So ladies and gentlemen, please welcome Anne Lester.
Anne Lester (00:51):
Have you ever had one of those? What have I done? Moments. I was supposed to be playing quietly in my bedroom while my brand new baby brother and my mom took naps. I can remember nodding my head very seriously as my mother explained what she was going to do and what I was going to do, and I knew exactly what I was going to do. I was going to get my favorite wooden board puzzle down from the closet, the little bo peep one, except I couldn't quite reach it. I could see it at the bottom of a stack of 20 wooden board puzzles sticking out from the shelf, and I stood up and I reached and I pulled it out slowly and the next thing I knew I was on the floor with hundreds of wooden puzzle pieces around me from all 20 puzzles that came down and the shelf came down too. My mother came running into the room, what are you doing? Didn't I tell you to be quiet? My brother started crying and I thought for a terrible moment that my mother was going to start crying too. Didn't we teach you any better? Clearly not. Otherwise I wouldn't have done that. And why wasn't that shelf screwed onto the wall? I got my first job out of college and I got my paycheck twice a month, and every month the money was gone before it ever hit my bank account, rent, utilities, the phone bill. Every month I would hope that there'd be just a little something left and every month there was nothing. Then I got an $800 bonus enough to almost pay off my credit card bill, so I bought a baby grand piano. The varnish was a mess and it wouldn't stay in tune, but I love that piano because it kept my dream of being a musician alive. See, I'd been a really serious pianist as a kid, and I thought if I had a piano, I would practice every day because I'd stop practicing when I left college. And if I'm totally honest, I stopped practicing when I got to college. So having that piano made me feel happy every time I walked by it in my apartment, but the feeling of dread that I had in my stomach every time I thought about my credit card and every time it got declined was constant and it was terrible. I felt such shame and fear over my out of control finances, and I made me feel exactly the same way as I felt sitting on the floor surrounded by all those puzzle pieces. I was faced with a huge mess, one that I had in fact made even if I didn't make it on purpose and just like I felt on the floor, I had no idea how to start cleaning it up or even how to ask for help. I don't know if this is what you were expecting to hear from me today when you were coming to this speech. You might have been expecting for me to start with something a little more formal about why Gen Z and millennials are having trouble saving maybe some pie charts showing you where their disposable income is going, if they have disposable income, and some line graphs showing how much the real cost of housing and apartments has gone up over the last 20 years. Maybe you are expecting some statistics about how Gen Zs and millennials don't trust institutions, and especially not financial institutions, except maybe if those institutions are apps and are run by algorithms and don't involve speaking to actual human beings. I bet most of you were expecting me to talk about the role of social media and how it can help new audiences, help you reach new audiences, even if the thought of that makes you squirm a little bit. And you know what I'm talking about TikTok? I wish I had time to talk about all of those things today, but I will talk about some of them. All of them are important to understand and incorporate as you build relationships with your younger clients and knowing stuff about the economy, about portfolio construction, asset allocation, mutual fund share classes, ETFs, all of this is knowledge and expertise that you will apply to your clients' individual circumstances so you can help them build the financial future that they want. You see in this industry, we are really comfortable with expertise and we sign up for conferences and breakout sessions so that we can learn from other experts. Our clients hire us for our expertise. That's what they're paying us for. And when I retired from JP Morgan Asset Management three years ago, I felt very, very safe in my role as an expert. You could have asked me questions on all kinds of things from portfolio construction to behavioral economics, savings and spending patterns of Americans, the Bayesian optimizer we used in our target asset, in our active asset allocation process. And I would know the answer or at least be able to start you tackle the problem. But here's the thing. Our expertise may be what our clients and prospects say they want from us, but expertise alone is rarely enough to gain their trust. And that is even more true for Gen Z and millennial clients who have grown up in a world where information and expertise, at least perceived expertise is just a click away. I've spent the last three years taking all of my expertise about how to save and invest for retirement and all of the expertise about how people approach their finances from a behavioral perspective to write a book aimed at Gen Z and millennials so they can avoid all of the mistakes I made when I was their age. And I've got to tell you, it has been an extraordinarily humbling experience, and it took me a long time to figure out two really important things. First, we need to communicate differently. Right now, I believe we are all coming across like the teacher in Charlie Brown and nobody hears what we're saying. We are talking over our audience's heads and completely unaware that they just don't care. The second thing I learned is how important it is to meet people where they are and to help them accept the fact that they aren't failures because they're struggling with money. How did I figure this out? Well, I first spent a year and a half writing hundreds of pages filled with expert advice, telling my audience what to do and how to do it, and then I asked a few friends and former younger colleagues to read them and they were polite. My 23 year old son said it was interesting, that's what he said back in high school when he took a bite of something to eat that he didn't like because he'd finally learned that spitting it out on his plate was a bad thing to do. Interesting. That comment drove me back to the drawing board and I did a survey of a thousand Gen Z and millennials about their financial situation, but more importantly how they felt about their financial situation based on how well they were prepared for retirement. And I learned some fascinating things from these focus groups. There was one very small group out of this thousand that had saved enough and knew they were saving enough. There was a very large group of people, 50% of the people who were not saving enough and knew it. And then there were the two really interesting groups, one that didn't think they were doing everything but were and another group that thought they were doing everything right and weren't. So what I heard from those folks, focus groups really surprised me. I heard a few success stories from that group that was doing everything right and knew it. They skewed very mail, and I call them the crypto bros. They were geeking out on everything they could find on the web. They loved the jargon, and I always think that they reminded me of the kids I knew at high school who were really into baseball statistics, right? This was really interesting numbers stuff, and I heard a lot of stories from that group about the role that strong financial mentors played in their lives, especially when they were young. But from all the other groups, what I heard were stories about stress, fear, and anxiety. I heard stories about how they knew what they were supposed to be doing but didn't feel like they could make themselves do it. I heard a lot of stories about the system and the banks and how alienated they felt from the people in those systems and banks that were trying to help them.
(10:25)
I heard a lot of stories about how they felt stupid and ashamed, so stupid and ashamed that they didn't know how to start cleaning up their financial mess or even how to ask for help. It reminded me a lot of how I felt as a three and a half year old sitting on the floor surrounded by all my puzzle pieces and how I felt after I bought that piano. So how do we communicate differently so that we can break through that mistrust and build genuine relationships with our clients, one that will help them reach their goals and thereby help us reach our goals? Gen Z and millennial audiences are skeptical. They've been marketed to since they were born in a much more sophisticated way than I was as a kid when I watched Kool-Aid ads on tv. They've grown up in an online digital world that has been serving them individually targeted ads since they first picked up a smartphone, whether that was in middle school, high school, college. No wonder they feel like they are more likely to listen to someone on TikTok or Instagram than they are to a financial expert because their peers have instant credibility in their eyes. So what do we need to do differently instead of starting from our comfort zone, from our place at the top of that mountain comfortable with the certainties of our expertise? We need to flip the script instead of starting with what we want to tell them, we need to start with what they want to tell us. We need to listen, truly listen, and we need to make our conversations and our relationships safe so that our clients feel comfortable opening up to us without fear of being judged. And that requires us to open up to them like so many of their peers do on social media. That's why I start my book and my speeches with some of the stories that I shared with you at the beginning of this talk. The second thing I learned, well, we need to meet people where they are. That means acknowledging that saving money is really, really difficult for many people because of the way our brains are wired. Understanding why we do things that we later regret is the best way, I think, to help people create guardrails that help them change their behavior. And this is important. Take the emotional pain of failure off the table. And here's what I tell them. You might have heard this statistic that 60%, six in 10 people wouldn't be able to come up with a thousand dollars to pay for an emergency like a car repair or a medical bill. This is reality in America today. So if you are one of those six in 10 people who would struggle with this, you are not alone. In that survey that I conducted in the summer of 2021, over 80% of the respondents said that they were anxious or very anxious about their overall financial situation, and 70% said that their savings for retirement were somewhat or far behind where they needed to be. And contrary to what you might think as people's income levels went up, their levels of anxiety stayed the same. Honestly, they should be concerned about retirement because only 20% of them really were saving enough to be on track. Four out of five people need help. And if you are starting to panic because you have trouble with money and you worry that you'll be one of those four out of five people who aren't saving enough, listen up. If you're having trouble saving, it's not because you're lazy or stupid or irresponsible or a bad person, you're probably having trouble saving because you live in an expensive city. You have student loans to pay, and literally everything around you is designed to get you to spend whatever money you have in your checking account on what is in front of you right now. Your brain is really happy to go along with this too. It's not wired to make rational long-term financial decisions. Your brain is wired to help you grab whatever is in front of you right now and run before the saber tooth tiger eats you. Your brain doesn't have decision making guardrails. It isn't spend proofed to stop us from tapping our credit cards or our phones or swiping and getting what we want right now when we want it. Just like there wasn't any childproofing in my closet when I was three years old. Bottom line, it means that what is happening right now is far more important than something that will happen at a future date, and there's a term for that. It's called future discounting. Future discounting is what happens when you finally, finally get a chance to relax. In the evening after you've done all of your work and you've cleaned up the kitchen, you actually have time to sit down and watch that series that you started over the weekend. You settle down and watch an episode, and as it ends, you look at the time, 10:15, huh? Next episode starts a new hit skip intro. Watch the second episode. Wow, that flew die. What time do I have to get up? You go and check your work calendar and realize that you've got an eight o'clock call on Zoom, but it's a group call and you're not going to actually have to say anything. So you watch the next episode, next time you check it's 11:45. Damn, I've only got two more episodes to go. I'll feel like crap tomorrow if I try to get up for a run. But that's tomorrow's problem. Just like that, you have fallen victim to future discounting. That is what is going to happen in the future. Tomorrow morning is far more important, is far less important than what is happening right now. And that is one of the reasons why today guy will do things that tomorrow guy will regret. Behavioral economists have identified literally hundreds of factors that contribute to decisions that you will kick yourself over later. And future discounting is one of the most important reasons behind why we make decisions that make us feel happy in the present, but bad in the future, like eating a second or third piece of cake and then wondering why your jeans don't fit or finishing your Netflix series and not being able to get up for your run the next morning or buying a baby grand piano instead of paying off your credit card bill. No wonder we all struggle with temptation from time to time. Understanding why we behave the way we do can be key to stopping the cycle of shame that so many people feel when they think about their finances. When you can help your clients understand this, you will be able to ask. Your clients will be able to ask for and get your help in building new finance, their new habits for financial success. And there is actually a little bit of good news here too, despite all of the grim stories I just shared with you, according to the Pew Research Center, Gen Z and millennials actually aren't doing as bad as we all tell each other they are. If they work for a company that offers a 401 K plan, their savings rates are actually ahead of prior generations, probably because of one of those guardrails, auto-enrollment, and they are much more aware of the importance of saving than their parents were, even as they feel overwhelmed by the complexity of their own financial lives. So as you leave this session and this conference, there are two things that I invite you to think about. First, think about how you communicate. Do you sound like Charlie Brown's teacher? Are you asking questions and really listening to the answers? Are there stories that you can tell from your own life and experience that make their clients feel safe in sharing their own struggles with you? That they can hear them, they can tell you their stories without shame and without fear of judgment. Second, help your clients understand why it can be so hard to save and how they can make rational financial decisions by giving them permission to talk about how and where they struggle, so that together you and they can develop the guardrails that are going to help them achieve the financial future that they dream of. Thank you. We have time for questions if you guys have questions. And there's one right there. You shout it out. The mic may show up, but you can go ahead and shout it out. Yep. Can it, well actually get the mic so everybody else can hear you too. Okay.
Audience Member 1 (20:06):
Okay. I'm wondering if there are some barriers that you think that just cannot be overcome just by understanding that exist beyond that.
Anne Lester (20:16):
Yeah. So question about are there barriers that can't be overcome by understanding? I think, well, so I think in all honesty, one of the big challenges for people is they don't feel like they have any spare cash to save. So we can understand the problem all we want and be empathetic and make it easier to talk about. But I do think that one of the things I talk about as I'm working with younger people, or I'm talking about in my book, is really the importance of having a, to start saving. Because when you're in your early twenties and starting out, you, many people don't have any spare cash. So what are the rules and the guardrails you can set up to start increasing your savings rate as you move along? I don't know if that answers your question, but some tips like save half of your raise, right? That's auto escalate. For any of you who work with 401 K plans. I think many of us in the industry have watched auto enrollment really take off and getting people saving. But one of the things I heard in my focus group that scared the pants off of me was that the people who were in the group that thought they were doing everything and weren't, were actually being auto-enrolled by their employers, and they were saving three or 5%, and they told me, well, I'm going to be okay because that's how much my employer told me how much I needed to save, and I know it must be the right answer, or I'm doing what everybody else is doing, and therefore I know it's the right answer. So some of these barriers are, I think, because again, especially when people are young, but also because of expensive cities and student loans, it's hard to find that cash. I think also one of the things I keep talking about is having that plan so that you don't get used to consumption creep and allowing your expenses to go up as your income goes up in even level, which I think probably most of us have done in our lives. Wow, I just got a raise. That means I can afford a new car. The pleasure from that new car wears, a new car wears off instantly, and you've got the rest of the payments to make. So managing that balance is really important, but if people don't feel comfortable, are feeling stupid and ashamed to even bring you the problems, you can't start strategizing about ways to address them. Thank you. Great. Yeah. Question. Oh, here comes the mic.
Audience Member 2 (22:47):
Hi, Anne. Janet, I work for TIAA. So a lot of this resonates very, very clearly with me. One of the things, we've done a ton of research in this space, especially on getting on track or being off track, and one of the things that we're trying to work through, which I'd be interested in your opinion on is when somebody, it's not a good message to tell them that they have to continue to put $1,200 a month into their retirement account in order to achieve their goals. And so trying to balance that, are you truly on track? But if you're so off track, how do you surface more acceptable levels of things that can ladder them into becoming on track? Do you have any thoughts there?
Anne Lester (23:33):
Yeah, and it goes back to that escalation thing, and I don't want to start talking about markets and inflation rates, although we can, but I do believe inflation will be coming down. I really don't think we're going to be at 4.6 or wherever we are forever. And as inflation starts coming down, I do think you'll be seeing, especially for younger workers, that possibility of raises, allowing them more room to start increasing their savings rate and actually be saving more money. So I think that's one real way to do it, but that really is most effective for people in their twenties and thirties. And I think where things just get really, really difficult. In full disclosure, it's one of the reason I'm writing my book for 20 and 30 somethings because a much easier message than for 40 and 50 somethings who are really far behind that. The brutal reality is that you're either going to have to work a lot longer or start cutting your lifestyle now to increase savings. And that's just a hard conversation. And I don't know if it's framing things in the taking care of your future self. All the stuff that we've learned about how that future person is a stranger to us, we don't actually recognize if we think about ourselves in 10 years time, the part of our brain that lights up is the part of our brain that thinks about strangers. So there are many ways that people have studied that raise that sort of emotional connection with your future self. One of them is that photo aging app that you can do. Another one is simply to ask people to imagine their life in retirement, or imagine an older person that they know. I'm now in my late fifties, and I got to tell you, I'm watching my parents deal with some pretty rough stuff right now, and they do have enough money, but at one point, my dad leaned over and said, can you imagine how much this would suck if we didn't have any money? And I was just like, whoa. So some of it is just maybe I go back to storytelling, and I think we underrate as an industry the power of story, and we want to maybe because our compliance departments all encourage us to want to have footnoted graphs that demonstrate things, and people don't connect with charts. Most people, some of us do. Most people don't connect with the chart, but they connect with the story. And so I do think storytelling is another way to try to create that connection for people to want to take care of themselves, because that's really what saving and investing is at the end of the day. Yeah. Question down here. Yes. Total change of track. All right. Inflation. What's the fed going to do?
Audience Member 4 (26:07):
What do you think of the financial independence? Retire early crowd?
Anne Lester (26:11):
Oh, what do I think about financial independence? So everybody in the room know what fire financial independence retire early is. Okay. So it is a movement that started, I think by a guy named Mr. Money Mustache who was blogging about this 10 or 15 years ago, who advocates saving like 50% of your income, saving up a million dollars, and then living on $40,000 a year for the rest of your life. So you get out of school, you live on $40,000 a year, you stay living on $40,000 a year, and there's a whole online community of people who clipping coupons and trading tips and telling each other how to buy real estate that will generate income. And I think it's Again, just that little crypto bro group in my focus groups, which was about 11% of the people in my survey. There are people for whom that message resonates and they're really into it. I personally think that it's very dangerous if you kind of blindly go down, if I have a million dollars I can live on, okay, who wants to live on $40,000 a year? I do not. Secondly, the real risk that I see is you have a bad run in the markets and that money is not going to last. That's going to, inflation will take a big bite out of it. You aren't going to be able to live on that money. And if you truly step out of the workforce, which I will admit, many people in the fire movement don't want to step out of the workforce completely. They just want to do giggy things or do what I'm doing right now and writing books and talking and not being in a corporate job. But I think the real danger is you stop working in your thirties or forties and then you decide you're bored or you follow fire because you hate your job, not because you actually want to retire. You're solving the wrong problem, and then maybe you're left with no skills. And then it's really tough to kind of reenter the workforce after 10 years out. So I think it's a great concept in that the more you save, the less you have to work in a formal job. And I think that's a hundred percent good math to understand. I do think there's been a big blowback by people who tried and failed to live that lifestyle or did it and then really decided they didn't like what happened to them afterwards. So it's a long, and I mean, let's not even start on the 4% rule and how to think about managing a post-retirement portfolio, but I, it's very dangerous, I think, because it will lead to people not understanding what they've signed up for. Yes.
Audience Member 3 (28:40):
Hello. So I know you were talking earlier about creating a safe space and also fighting instant gratification. So how do you keep your clients accountable with them still feeling like they're in a safe space?
Anne Lester (28:51):
Well, so I dispense advice. I'm not working as a financial advisor myself, so I'm now just get to be a talking head, which is, I don't have a compliance department, which I love. Again, so much of it is just, I think the ability to approach a client or an individual, and this is true with colleagues and coworkers or your children or your spouse as it is with your clients, and have a spirit of genuine inquiry. You really have to want to know what they think and say, right? And that's a shift you need to make in your own head from, I have these things that I need to tell you because I'm the expert and I've done all this training and I'm really smart. And I remember doing that 20 years ago. I mean, walk into a client's office, even selling mutual funds, and I mean, how smart we are. We're really smart. I mean, that doesn't really work very well for most people. They feel really disrespected and alienated by that approach. And I think if you sit down and say, wow, what are you trying to accomplish? How can I help you? What do you need to know from me that's going to help you get where you want? Let me tell you about ways I think about things and invite you to share. It's this invitation to share information and treat people as fundamentally as equals. And I just think we get so caught up in the intellectual, most people who are in this industry are really interested in geeking out on the numbers. Cool. And it's fun, and let's do the fun stuff and let's pick some good funds and let's build some cool portfolios. And I can run these simulations and it's fun. Except literally we don't stop and understand if our clients care. So I'm not, maybe we can pick this up offline. I don't know. I mean, it's a longer, more complex answer, but I think it fundamentally starts with not focusing on what I need to tell you, but focusing on what I think you need to hear because you've told me something about the problems that you're facing.
Nathan Place (31:04):
Yeah.
Anne Lester (31:05):
I think it's our PHD thesis that we can do on that.
Nathan Place (31:08):
All right. Well, we are just about out of time, but I'd like to thank our speaker and Leicester, Thank you so much. And thank you all everyone for coming. Yeah.