Personal Investment Decisions

What Generation Are You?

Your personal investment decisions: the shake-up in the global economic environment is set to have a profound effect on those generations who have not been exposed to such extreme turbulence before. How should the different generations adjust their investment habits in order to ride out this storm?

Why is it that we often battle to communicate with our parents, grandparents or children about, amongst other things, financial matters? Why is it that we get frustrated with the perceived lack of financial discipline from our children or grandchildren? Why is it that we get despondent or frustrated because our children or grandchildren seem not to follow the lessons we thought we taught them? Often it is not a case of disrespect, although we may perceive it to be. Often it is merely a different generation displaying a characteristic that is quite natural to that generation. If we understand the mindset and the characteristics of different generations, it may go a long way to helping us understand why certain of our family members, or work colleagues, do something that is so intrinsically different to how we would do something.

The Silent Generation (those born between 1930 and 1945) was born during, or just after, the Great Depression. World War II and industrialization influenced their formative years. They saw their parents lose everything. Consequently, they are cautious, self-sufficient, disciplined and abhor waste. They believe in delayed gratification, and respect authority, irrespective of social standing. From a personal investment decision perspective, they feel they never have enough, and are generally happy to invest for the long term. If possible, they avoid credit. They battle to comprehend the investment habits of younger generations, who require instant returns and covet material goods. The silent generation has the correct underlying investment fundamentals to ride out the current economic environment. However, as many of them are retired, they have limited room to manoeuvre, due to a lack of earning potential.

The Baby Boomers (born between 1946 and 1964), on the other hand, grew up in an era of relative prosperity, wealth and freedom. The growth of the individual was paramount, image was important, and optimism abounded. Traditional views were challenged, health improved, and with it life expectancy. Education was a right, not a dream. From a financial perspective, credit became an accepted way to transact. With prosperity, Baby Boomers started to expect increased returns, and focused on equities. Their cash flow management was not their strongest suit, much to the consternation of their parents. With Baby Boomers nearing retirement, the current economic environment requires them to make careful personal investment decisions, to better monitor their cash flow, as well as possibly become more realistic in their asset allocation and lifestyle budgets, especially with the current volatility in the equity markets.

Generation X (born between 1965 and 1980) is the information age, with televisions and computers commonplace. Social, political and economic upheaval was everywhere, making Generation X accustomed to change. Access to information led Generation X to a culture of instant gratification. Generation X is mobile, materialistic and independent, and a generation of entrepreneurs, not scared of failure. From an investment perspective, the availability of information moved Generation X away from focusing solely on traditional investments (equities and bonds) to alternative investments, such as hedge funds, private equity and futures. Generation X also started to manage their own investments, bypassing traditional investment managers. The problem is Generation X has never encountered the environment in which they find themselves now. Habits need to change, and as hard as it may be, they might need to start listening to the personal investment decision advice of their parents or grand-parents.

Generation Y (born between 1980 and 2000) exist in an ever-increasing global village, with the internet a basic part of their life. They are highly confident and optimistic, and are more lifestyle focused than previous generations. The ‘instant’ environment they inhabit makes them more impatient than previous generations. Generation Y is a generation of social networkers, inquisitive and questioning. Respect is relationship based, not authority based. From an investment perspective, Generation Y exhibits a ‘spend now, save later’ tendency. Like Generation X, Generation Y needs to start exhibiting the personal investment decision fundamentals of the Silent generation.

Now, more than ever, we need to understand that there are no ‘Musts’ in life. There are merely choices and consequences. Personal investment decisons are a case in point. Your choice should be to ensure your financial affairs are in order. The global economy is in the intensive care unit, and 2009 is going to be an extremely difficult year. Only the Silent Generation has any experience of this environment. For the rest of us – from Baby Boomers to Generation Y – we may need professional help. Whereas you might go to the GP if you are feeling unwell, there are also professionals to assist with your financial health. One of the smartest moves you could make this year is to enlist the services of a professional financial planner to do a health check on your finances – and ensure you have a plan in place to ride out the storm.

Netto-Jonker, CFP, is founder of Netto Financial Services and was financial planner of the year in 2001. Her business partner Ian Beere, CA(SA) CFP was the financial planner of the year in 2007.

Personal Investment Decisions - What Generation Are You?