By Beth Pinsker
NEW YORK, Aug 4 (Reuters) – When Josh McFarland graduated
from Stanford he owed $40,000 in student loans and couldn’t
fathom a way he’d ever pay it off and have a future for himself
– not unusual for the typical young adult these days. Then he
went to work for Google.
As a product manager, he got stock options and cashed them
in over the five years he worked there. He married a fellow
Google employee, so she had stock too. Then she moved on to Yelp
, and he quit to launch TellApart, which provides
technology solutions for e-commerce sites.
Now 33, McFarland has a 3-year-old and a newborn and no
longer has to think about his student loan: His company has
$17.75 million in venture capital investment. While he doesn’t
consider himself retire-now rich, his piece of the company
affords him what he calls “breathing room” and what other people
might call wealth.
McFarland is on the starting end of Generation Y, the cohort
born in the United States after 1980 that is typically portrayed
as saddled with massive student debt, underemployed and
underpaid. More than a third of the 80 million group of
so-called millennials live with their parents, according to the
Pew Research Group.
But McFarland is part of the sizeable minority that is doing
quite well: 12 million Gen Y-ers make more than $100,000,
according to the Ipsos MediaCT’s Mendelsohn Affluent Survey.
Many of them, in technology fields, live frugal work-based
lifestyles and are not saddled with the six-digit student debt
held by doctors and lawyers.
Raised on the Internet and disheartened by having watched
the older generations suffer through the tech bubble of 2000 and
the recession of 2008, these young adults are viewing their
quickly accumulating wealth differently. For one thing, they do
not seem as interested in the trappings of wealth, nor are they
concerned about stuffing traditional retirement accounts. They
see money as a path to career freedom, where they can pick up
and start again at will as soon as a more interesting offer
comes along.
Increasingly they turn to Web-based wealth management firms
or choose do-it-yourself brokerage accounts. Consider the
typical clients at Wealthfront, an online investing broker that
has amassed $300 million in assets under management by catering
to a demographic that is comfortable doing most of their
business online. These are people in their early 30s with
$100,000 to invest, mostly above and beyond any tax-advantaged
retirement plans like 401(k)s and IRAs. Chief Operating Officer
Adam Nash estimates that Gen Y techies control about $100
billion in assets.
“The whole idea from the 80s – that you’d make some money
and use that money to make more money – this current generation
isn’t looking at money that way,” says Nash. “The typical
software engineer isn’t dreaming of the day he can quit the rat
race. They use their money instead to gain a little bit of
control over what they work on and what they do.”
INVESTING IN THEMSELVES
The money, when it comes, is for breeding new success, not
tucking away until old age. Trip Adler’s path is typical: He
graduated from Harvard in 2006 with an idea for Scribd, a
community-driven e-book publishing platform, and pursued it
relentlessly – living with his partners in a tiny apartment in
San Francisco on $12,000 in seed funding from the venture
capital fund Y Combinator. Scribd took off and now has millions
of dollars in funding and deals with major publishers.
Adler, 29, who has profited nicely from all of this, says
his biggest splurge is probably angel investing, mostly in
companies his friends are starting. “Probably one in five will
be a good payoff, but that will pay off the rest. The amount of
money being lost is small,” he says.
For TellApart’s McFarland, long-term planning also focuses
on entrepreneurship. He considers himself a terrible stock
investor but a good businessman, and intends to make the bulk of
his money by developing great companies. (For that reason he’s
reluctant to start so much as a college-savings plan for his
kids, though his wife disagrees.) What he does squirrel away he
wants in low-cost index funds, managed as minimally as possible.
He is a Wealthfront client.
For the financial firms handling the core of Gen Y’s wealth,
this no-fuss attitude can present a challenge. Merrill Lynch
private banking wealth adviser Rich Hogan says his clients have
their own interests to pursue – especially focusing on green
technologies and doing social good with their investing – and do
not necessarily focus first on performance.
NOT THAT INTO STUFF
These children of the boom 90s also aren’t so into
conspicuous consumption. “Where I grew up, if you had money, you
spent it on toys – all-terrain vehicles, McMansion, and all this
stuff,” says McFarland. He doesn’t think his peers have the same
appetite, and says his biggest splurge currently is a night
nanny to help with the new baby.
Adler still drives his mom’s old car and has only recently
stepped up to rent his own apartment. “I don’t really have
ambitions to make a lot of money just to spend it,” he says.
Merrill Lynch’s Hogan says this echoes what he hears from
his ultra-high-net-worth Gen Y clients. They don’t even want to
buy houses, because they don’t have the time or desire to take
care of them.
Where the wealthy young are spending their cash is on
experiences – food, wine, even intergalactic travel. Hogan says
more than a few of his clients have bought seats on the Virgin
spaceship at a couple of hundred thousand dollars a pop. “Those
are the kind of cool things that they think about. It’s
discretionary income to somebody with millions,” he says.
Wade Eyerly, 33, has built a millennial-run startup around
providing such luxury experiences with SurfAir, which rents out
seats on a fleet of private jets. “The thing that sets the
millennials apart is travel patterns. They think nothing of
going to from Los Angeles to San Francisco for a few hours and
then coming back,” he says.
Also, there’s a bit of a focus on cars, but in a smart way.
Merrill Lynch’s Hogan says, “I had a client come in and say that
he bought a Tesla car – but he had also bought shares in the
company. And he told us that he made enough profit on the shares
to cover the cost of the car.”
(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance.
Editing by Linda Stern and Prudence Crowther)
