?Spend Mentality? Vexes Wealth Managers

It’s not just the unstable stock market and unsettled credit crunch troubling today’s wealth managers. Young professionals’ propensity to spend and lack of interest in saving for the future have many investors looking for ways to get those under 40 on the savings bandwagon. 

Coleman Ward, first vice president for Morgan Keegan’s Private Client Group in Northwest Arkansas, said baby boomers are the backbone of Morgan Keegan & Company’s business but young professionals are becoming objects of the firm’s focus.

“From the standpoint of our business, 55 to 60 percent comes from serving the older generations,” Ward said. “From the standpoint of time and energy, 34 to 45 percent is spent focusing on our younger generations.”

Ward said most of his new clients start getting serious about investing at age 30, a number he would like to see decrease.

“I always remind people of Albert Einstein’s quote ‘the most powerful force in the universe is compound interest,” Ward said. “Even if its just contributing one percent to your 401K. Get started as early as possible.”

Ward said he uses a simple investment example to illustrate the power of compounding interest.

If a person has an initial investment of $1,000 and adds an additional $100 per month for the next 45 years, their return will be approximately $935,000 with a 10 percent return.

If that same person waits to begin investing and put in their initial $1,000 but only adds $100 per month for 35 years, their return decreases to $353,000.

Because young professionals are not making investing one of their top priorities, brokers and investors with wealth management firms throughout Northwest Arkansas are beginning to make changes to their business practices to better handle the changing needs and demands of young professionals.

“It’s become more and more important for us to reach out to [young professionals],” Ward said.

Morris Vickers, president and owner of Financial Security Advisors in Bentonville, said he has begun taking steps to educate the younger generations on the impact and importance of getting a head start with investing.

Vickers said he attributes the change in outlook to a “spenders’ mentality” that is increasing among young professionals.

“The ‘I deserve this’ mentality reflects advertisers saying ‘you deserve this now,'” he said. “That then results in the purchase of cars, houses, cell phones and other creature comforts. The monthly payments for those purchases do not leave them with the ability to save for their future.” 

Ward also attributes young professionals’ lack of interest in investing to the information and data overload caused by the media and Internet.

“I am finding that those from the younger generations are coming in and disclosing all their information and basically asking for someone to hold their hand,” Ward said.

David Lobb, owner of Richmond Wholesale in Fayetteville, said it took becoming  a business owner to understand the benefits of investing.

“I started my business with $1,500 on a credit card,” he said. “It now has a net worth of over $500,000. I have never put more money into the business; it has grown strictly from reinvestment. Time really is the most important aspect of investing.”

Lobb started investing in his 30s but said starting earlier would have only benefited his current financial situation.

Ward said he and others with Morgan Keegan are using education to reach young generations to help them understand the importance of investing and its impact on their financial future.