Simplicity and user experience

Generation Y has its own priorities when it comes to investment and pension provision. Simplicity and user experience, but also advice play an important role. Banks that meet their demand could open up an important new customer group.

Germany is still the world champion in saving (after all, a title we managed to keep). Although interest rates are as low as never before, deposits with banks and savings banks in the form of time deposits and checking accounts are (unfortunately) still very common in Germany. Given no major interest rate changes are to be expected in the near future, the question arises as to what more needs to happen in order for our citizens to change their investment culture?

Current figures from the OECD suggest, that the conservative investment culture is slowly starting to change. In 2018, around 10 million Germans held shares - the highest level since 2007. It is interesting to take a look at the different generations: Our parents and grandparents (the so-called Generation X and Babyboomers) had generous pension insurance policies with attractive interest rates. This is very different for millennials born between 1981 and 1998, also known as Generation Y. Recent studies show that retirement investment is a key priority for 8 out of 10 millennials. Increasing awareness of the growing pension gap has recently brought the issue even more to the fore. Almost half of millennials believe that private savings will be the main contributor at retirement.

But how does this awareness affect practice? Compared to the older generations, investment is very rare among millennials. Studies show that, as a percentage, only half as many millennials are involved in the capital markets. These numbers are surprising due to the significantly increased awareness and the high importance of pension provision among millennials. Why is that?

How Generation Y imagines investing.

According to the consulting firm Deloitte, 72 percent of millennials are self-deciders, better known as "self-directed investors". Accordingly, a traditional asset manager or robo advisor is not an option for most millennials. Most millennials want to take care of their savings independently. In addition, it should be noted that millennials are not an interesting target group for asset managers (traditional and robo) given they favour a volume-based fee model.

Simplicity and user experience

Another important aspect is how millennials perceive the act of investing. The vast majority find it to be complicated and time-consuming. In the fast-paced world of the Internet in particular, younger generation are used to quickly undertake any action, such as ordering food online or calling an Uber. For investing it is not much different, with recent studies clearly indicating that simplicity, comprehensibility and user-friendliness are features millennials care most about. When it comes to the product side, it is not much different. This is why ETFs are growing in popularity among younger generations. While they are simple and easy to understand, the amount of different ETF types, makes it very challenging for millennials to pick the right product for them. As a result, the large number of millennials indicate that they would like to receive some sort of advice on making an investment decision.

Conclusion: self-determination and advice must be combined

The big challenge in getting millennials excited about the financial world is to develop products that combine self-determination and advice in a way that is pleasant for the user. With over 1,000,000 million ETF savings plans among German brokers, the proportion of self-managed ETF solutions already seems to be significantly higher than managed ETF portfolios such as robo-advisor solutions. The great success of online brokers focused on user experience such as Robinhood and the steadily falling fees in online brokerage will further strengthen this trend in the future. In summary, it can be said that there are good chances that the investment culture in Germany will change sustainably with the younger generations. There is a high level of awareness of pension issues within Generation Y and private pension provision is a high priority.
If the needs of millennials are addressed more on the product side and private shareholding is not disadvantaged by politics, a strong increase in young shareholders can be expected in the next few years.

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