2/3 81% 67% Millennials and money. Key insights. Millennials are optimistic despite a challenging start to adulthood

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1 2/3 Proportion of Millennials who believe they will achieve a greater standard of living than their parents 81% Percentage of Millennials who believe they need to pay off their debts before they can begin to save for retirement Millennials and money Highlights from the 2013 Wells Fargo Millennial Survey Key insights The purpose of this Wells Fargo survey was to gauge the financial attitudes, behaviors, and perspectives of Millennials aged For financial advisors, the findings offer insights to best strategies for reaching this next generation of asset accumulators. Results uncovered six key attributes of Millennials and their relationship with money. In general, they are: Confident in their prospects for the future and feel they are in control. Most concerned about their student loan debt. Still aspiring for higher education, but some question the cost/benefit. Confident in their retirement outlook but use employer retirement plans like piggy banks. More risk averse than Boomers when it comes to investing. Not averse to working with a financial advisor but are skeptical about working with financial institutions. 67% Percentage of Millennials who prefer to work one-on-one with a financial advisor CONTENTS Key findings General outlook... 1 Managing debt Saving and retirement. 3 Seeking financial guidance... 6 About the survey Methodology and background... 8 Millennials are optimistic despite a challenging start to adulthood Millennial Americans entered early adulthood in the wake of the Great Recession and know all too well the effects of a struggling economy. More than half, 54%, of Millennials say debt is their biggest financial concern currently, surpassing day-to-day expenses. And 42% of Millennials say their debt is overwhelming, twice the rate of Boomers who were also surveyed for comparison. Despite concerns about debt, 72% of Millennials have confidence in their future and believe they can achieve their goals: 77% say that if they lost their job today, they have confidence they could find a comparable one. 75% agree the best way to get ahead financially is to work for a company that offers a career path, versus 25% of Millennials who feel the best way to get ahead financially is to break out on my own and start a business. Two-thirds of Millennials believe they will achieve a greater standard of living than their parents. The contents of this report are for information purposes only. They should not be construed as professional, legal, or tax advice or opinions. These can be properly rendered only in the context of specific facts. In all cases, you should consult your professional, legal, or tax advisors if you have questions about your individual situation. Neither Wells Fargo, nor any of its representatives, may give legal or tax advice.

2 Managing debt Debt plays a significant role in how Millennials view their present and future financial circumstances. According to the Federal Reserve Board, the average U.S. household debt for 28- to 32-year-olds from increased from $77,500 to $94,300 (see Chart 1). Average debt for a primary residence increased from $60,300 in 2001 to $66,400 in 2010, and education debt increased by more than $10,000 over the 10-year period. Auto-related debt decreased by $1,800, on average, and credit card debt decreased an average of $400. CHART 1 Average U.S. household debt, ages (thousands of 2010 dollars) $77, $94, CC and other loans Other residential Vehicles Education Primary home Millennials in the Wells Fargo survey cite managing debt as a significant barrier to saving. Millennials who are not currently saving prioritize debt reduction before retirement savings. In fact, 81% of those not currently saving agree or strongly agree that they need to pay off their debts before they can begin to save for retirement Student loan debt is a chief financial concern Just over one-third, 36%, of Millennials cite student loans as their biggest financial concern, followed by non-student loan debt (18%), daily living expenses (18%), retirement savings (17%), health care expenses (8%), and other (4%) expenses (see Chart 2). Almost half, 49%, of Millennials say they would use a tax-free windfall to reduce their student loan debt (28%) and/or other debt (21%). 14% would use a tax-free windfall toward retirement savings. 12% would use it to bolster emergency savings. 11% would use it toward the purchase of a home. Only 3% of Millennials indicated they would use the money to spend or enjoy. Source: Federal Reserve Board, SCF 2010 CHART 2 Biggest financial concerns Other: 4% Health care expenses: 8% Retirement: 17% Daily expenses only: 18% Student loans: 36% Non-student loans: 18% 2

3 Student loan debt vs. the value of education When asked about the cost of a college education and the opportunities a degree provides, two in five Millennials, 43%, rate the value of their education as a great value and 45% say somewhat of a value. About one-third of Millennials, 31%, feel they would have been better off working instead of going to college and paying tuition. More than half of Millennials, 64%, say they financed school through student loans, as compared with only 29% of Boomers who financed through loans. According to the Consumer Financial Protection Bureau, total student loan debt outstanding was more than $1 trillion at the end of More than half, 59%, of Millennials say they paid for school through grants and scholarships, while 46% say they paid education costs by working while attending school. Millennials say financial literacy should be taught in school A majority of Millennials think personal finance should be taught by high school (79%), college (73%), and their parents (70%). The top four personal finance topics that Millennials wished they learned more about in school are: basic investing (70%), how to save for retirement (60%), how loans work (59%), and impacts on credit scores (58%) (see Chart 3). CHART 3 Topics Millennials wished they learned in school Basic investing 70% How to save for retirement How loans work Understanding impacts on credit scores How to acquire credit Insurance topics How to pay for college Household budgeting 52% 51% 51% 50% CHART 4 Average share of financial responsibility for retirement Employer 60% 59% 58% Self 57% 25% Saving and retirement On average, Millennials accept most of the responsibility for financing their retirement Millennials place 57% of the responsibility on themselves when asked, Who should be financially responsible for your retirement? They believe that employers, on average, are responsible for 25% of their retirement and that the government s share is 18% (see Chart 4). Government 18% 3

4 Millennials don t expect Social Security to be a significant income source when they retire Only 5% of Millennials expect Social Security to provide more than half of their income in retirement, while 37% expect that Social Security will not be available as a source of income for them in retirement (see Chart 5). As a result, Millennials anticipate the need to be more self-reliant when it comes to their retirement income than Boomers. When it comes to saving behaviors, reality and perception are not fully aligned Despite their stated self-reliance, only 49% of Millennials say they are currently saving for retirement (see Chart 6). More than half, 54%, of those who say they are saving are men, compared with 43% of Millennial women. CHART 5 Expected (or actual) share of retirement income coming from Social Security More than half One-fourth to one-half Less than one-fourth None/Social Security won't exist I have no idea 5% 8% Millennials 16% 14% 17% 20% 21% 29% Nonretired Boomers 34% 37% While less than half are currently saving for retirement, 61% label themselves as savers (see Chart 7) and 72% of all Millennials (savers and nonsavers) say they are in control and are confident they can reach their financial goals, compared with 56% of Boomers. The remaining 28% of Millennials express a less confident view, saying that no matter how hard they work, other factors the economy and the country s leadership threaten to undermine their future, compared with 44% of Boomers who share the same fears. CHART 6 Less than half of Millennials are saving for retirement No: 51% Yes: 49% Of the early savers, when asked what was their biggest trigger to start saving for retirement, one in three Millennials, 34%, say they realized that starting early can result in a bigger nest egg down the road, and more than onefourth of Millennials (29%) indicated that the presence of a workplace retirement plan was the motivation. CHART 7 61% of Millennials label themselves savers For the half of Millennials (52%) who haven t started saving, the median age they predict they will start saving is 30. They strongly agree that reasons for not saving are that they don t have Spender: 39% Saver: 61% 4

5 enough money to save right now and will start saving when they have more money (52%), they need to pay off their debts first (48%), and they have more immediate things to save for (39%). 401(k) uses and abuses Priorities concerning debt management and the need for greater financial education may both play a role in how Millennials view their 401(k) or similar employer retirement plans. With Millennials believing they are responsible for generating 57% of their income in retirement themselves, attitudes and behaviors among those currently saving for retirement may threaten to undermine their efforts. For the subset of Millennials with various retirement savings vehicles: 72% say they are in employer-sponsored retirement plans, 40% say they are in an IRA, and 33% say they are in a bank savings account. Of those Millennials who have accumulated retirement savings and are currently saving, almost half (47%) are saving between 1% and 5% of their income for retirement, 31% are saving 6% to 10%, 14% are saving more than 10%, and 8% are no longer saving. Millennials are willing to use their 401(k) as a piggy bank Unlike Boomers, many Millennials use their 401(k) for financial hardships (63%); job losses (45%); paying down debt (23%); paying for a child s tuition (20%); and big-ticket items like a home (19%), a wedding, or a new car (12%). Only 19% of Millennials say it is never appropriate to borrow from their 401(k) accounts, versus 34% of Boomers (see Chart 8). CHART 8 Appropriate scenarios for early cash-out of workplace retirement plan Financial hardship Job loss Pay off debt (loans, credit cards) Pay for child's tuition Down payment on a house Pay for wedding or new car None/ never appropriate 1% 5% 8% 23% 20% 19% 10% 12% Millennials 19% 31% 34% Boomers CHART 9 Terminated employees taking cash distribution by age 53% 44% 41% 45% 52% Average: 42% 32% 32% 31% 63% Cashing out a 401(k) when changing jobs is particularly common among younger investors According to a 2011 Hewitt study, Millennials also tend to view job changes as an opportunity to cash out a 401(k). More than half of Millennials say they have cashed out a 401(k) when changing jobs, compared with just over 30% of those aged 50 and older (see Chart 9) Source: Hewitt,

6 Seeking financial guidance CHART 10 Sources for advice or guidance when investing Millennials first ask parents for investment advice but will consider many sources More than half, 57%, of Millennials say their parents had the most influence on them and the way they view money. According to the Wells Fargo study, 79% say they learned a great deal or somewhat from their parents about personal finance. In fact, Millennials ranked their parents at the top for seeking out investment advice (see Chart 10). Parents or other family Friends Professional investment advisor/broker Investment firm (mutual, brokerage) 17% 27% 41% 38% 38% 38% 51% 60% When it comes to guidance from financial institutions, 63% of all Millennials say they have no idea which firms know how to best provide financial services to their age group (see Chart 11). Millennials expressed skepticism about working with financial institutions, with 35% saying they expect to be disappointed when dealing with financial institutions, compared with Boomers at 24%. Over half, 57%, of Millennials believe financial institutions do not act in the customer s best interests, compared with 54% of Boomers. Among the reasons for their skepticism, Millennials share the following perceptions: Online sites Bank Millennials 14% 20% 27% Boomers 37% Millennials are more likely to consider banks. CHART 11 Types of firms that best know how to provide financial services to Millennials No idea/all the same 63% 57% feel that financial institutions are more focused on making money for themselves and not helping customers. 28% believe the recent recession was caused by irresponsible practices by major financial institutions. 8% fear potential security breaches affecting their accounts. Nonetheless, Millennials have specific preferences regarding financial advisor relationships and the manner in which financial services are delivered. While 11% believe banks are best positioned to provide them with the financial services they need, fewer believe that registered investment advisory (RIA) and brokerage firms, mutual fund companies, and online brokerage services know how to meet those needs. Banks RIA firms Full service brokerage Mutual fund companies Online brokerage 11% 10% 7% 5% 4% 6

7 Millennials lack confidence in the stock market and are more risk averse than Boomers Despite being further from retirement, Millennials are more risk averse than Boomers. More than half of Millennials, 52%, say they are not very confident or not at all confident in the stock market as a place to invest for retirement. This is particularly true for Millennial women 67% are not very confident or not at all confident in the market versus 38% of Millennial men. For those saving for retirement, one-third of Millennials are not sure how much of their savings are invested in stocks or mutual funds. Nearly one in five (18%) of Millennials say they are invested 100% in stocks/mutual funds, 14% say 75% stocks/mutual funds, 10% say 50% stocks/mutual funds, 15% say 25% stocks/ mutual funds, and 11% say they are all in cash/ bonds (see Chart 12). Millennials favor experienced advisors Only 8% of Millennials say they currently work with a financial advisor. Within that group, 76% report using a seasoned, experienced advisor, while 12% describe their advisor as someone with less experience but who is up on trends. An additional 12% are working with someone closer to their own age. The remaining 92% of Millennials were asked to describe the ideal advisor for them. More than half, 57%, say a seasoned, experienced advisor would be preferable, while 22% would be comfortable with an advisor with less experience who is up on trends. An additional 21% say they would prefer to work with someone closer to their own age. Millennials prefer face-to-face financial relationships When asked how they prefer to interact with financial institutions or advisors in the establishment of a new investment account or financial plan, a large majority of Millennials and Boomers were on the same page, both CHART 12 Percentage of retirement savings in stocks/mutual funds* 32% 18% 14% 10% 15% 11% Millennials Not sure 100% mutual funds 75% in stocks/funds 42% with at least half of assets in stocks/funds Significantly higher difference *Percentage excludes not sure responses 19% 20% 24% 16% 13% 8% Baby Boomers 50% in stocks/funds 25% in stocks/funds No stocks/mutual funds opting for face-to-face engagement. More than two-thirds, 67% of Millennials and 70% of Boomers, prefer to work one-on-one with a financial representative to set up a new investment account, and 74% of Millennials and 79% of Boomers prefer the same method for establishing a financial plan. Only 21% of Millennials expressed a preference for online engagement in the new account setup process (versus 15% of Boomers), and 15% preferred online engagement in establishing a financial plan (versus 11% of Boomers). Less than 10% of both groups say they prefer phone or when establishing accounts. No more than 3% in either generation chose snail mail for establishing a new investment account or a financial plan. 60% with at least half of assets in stocks/funds 7

8 About the survey Methodology On behalf of Wells Fargo, Market Probe, a full-service global marketing research and consulting firm, conducted a survey of just over 1,400 Millennials (aged 22 32) and 1,009 Baby Boomers (aged 48 66) to gauge savings and investing attitudes and behaviors among today s young Americans. Baby Boomers were included in the survey for comparison purposes. All respondents reported being the sole or joint financial decision-maker for their household. The online surveys were completed via survey panels provided by Ypulse Inc. (for the Millennial sample) and Research Now (for the Baby Boomer sample) between February 6 and February 15, Background This survey was a collaborative effort across many Wells Fargo divisions, including Retirement; Wells Fargo Advantage Funds; and Wealth, Brokerage & Retirement Marketing, Communications, and Market Research. We are focused on producing timely and relevant research and insights on topics of critical importance to advisors and their clients. Convert these findings into asset-gathering opportunities Call your regional director at Strength. Expertise. Partnership. Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of our investors is built on the standards of integrity and service established by our parent company, Wells Fargo & Company; the expertise of our independent investment teams and rigorous ongoing investment review; and the collaborative level of superior service that is our trademark. Carefully consider a fund s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, call your investment professional or visit wellsfargoadvantagefunds.com. Read the prospectus carefully before investing. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company. FOR INSTITUTIONAL INVESTOR USE ONLY NOT FOR USE WITH THE RETAIL PUBLIC Wells Fargo Funds Management, LLC. All rights reserved. FAEE