If young investors are among your clients you may have your work cut out for you. That work may be well-rewarded, though.

Millennials have low levels of financial literacy, according to a FINRA Investor Education Foundation study, The Financial Capability of Young Adults-A Generational View. In fact, only 37% of respondents were able to answer four or five questions on a five-question financial literacy quiz correctly, and this has been a downward trend since 2009.

"Many demographic groups—including African-Americans, Hispanics, members of the Millennial generation, and those without a college education—are at a disadvantage when it comes to making ends meet, planning ahead, managing financial products, and financial knowledge," according to the authors, "This means that these groups face greater risks and have fewer opportunities to overcome them, making them especially vulnerable."

Here are some ways financial advisors can work with and educate young investors to help them avoid financial pitfalls. (For more, see: A Financial Advisor's Guide to Millennial Clients.)

Budgeting

Almost half (45%) of millennials — or those 18-34 years old — are concerned that they have too much debt. To top that, 18% spend more than their income, the study revealed. Teaching young investors how to live within their means is critical. This starts with helping them track their spending over a period of a few months, which can be an eye-opening experience for most. The expensive morning coffee habit is a classic example of how small expenditures can add up. (For more, see: Money Habits of the Millennials.)

Once spending habits have been revealed it’s time to help young investors put together a budget to live within their means and manage and pay down debt. A popular, free online tool such as Mint.com is a good way for this tech savvy generation to track spending and create and manage a budget.

Planning Ahead

Planning ahead involves saving for a rainy day as well as retirement.

Millennial households are less likely to have retirement accounts, non-retirement investment accounts and rainy day funds than those who make more than other age groups. Generally the trend is that a person is less likely to be prepared for retirement or a rainy day the younger, less education and the less income he or she has. Thirty-six percent of millennials get financial support from family members who don't live with them.

Earlier studies have shown that one in four Millennials is willing to take on investment risk compared to 19% of Generation Xers and 13% of baby boomers. This makes sense given their life stage and bodes well for investing for the long term with time to recover from the ups and downs of the financial markets. Still, 57% of millennials are worried they will run out of money in retirement.

Being financially prepared for the future while paying off debt is always a balancing act. It doesn’t make sense, for example, for a young investor to max out their 401(k) plan at the expense of paying off debt, such as credit card balances with high interest rates. (For more, see: Retirement Planning the Millennial Way.)

The Good News

The good news for financial advisors is that Millennials for the most part not only understand that they need professional help when it comes to managing their finances, they want it. In fact 70% of Millennials wish they learned basic investing in school, according to research conducted by Corporate Insight.

Sixty-percent of the Millennial investors Corporate Insight surveyed said it was “very” or “extremely important” that their brokerage firm offer education on the basics of investing, compared to 47% of Generation X and 40% of Baby Boomers. These results track with an earlier study of DC plan participants where 47% of Millennials said that access to retirement and investing educational content from their plan provider’s web site was “very” or “extremely important” versus 40% of Generation X and 31% of Baby Boomers. (For more, see: How Millennials Use Tech & Social Media to Invest.)

Millennials have annual spending power of $200 billion, which will only increase as they enter their prime earning years and inherit wealth from their Baby Boomer parents, Corporate Insight points out. This presents tremendous opportunity for financial advisors.

The Bottom Line

While many Millennials lack financial literacy they understand that they need professional help and education when it comes to their finances. This awareness is good news for financial advisors who are working with younger investors to put together a plan to avoid financial pitfalls. (For more, see: Five Retirement Warning Signs for Millennials.)

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