Ameritrade Banks On Young Parents Driving Growth As Business Recovers

Ameritrade (NASDAQ:AMTD) will be adjusting its marketing strategy to focus on the younger generation, as a survey conducted by the company revealed that “Generation Z,” consisting of up-and-coming investors, aged 13 to 22, are well aware of the importance of securing their financial future. ^[1]

Gen Z young adults have seen their parents struggle with paying off their own student loan debt while providing for their families during the uncertainty prevalent in the markets in recent years, and are hence wary of the effects of bad financial habits.

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Younger, Brighter, Better

The 13 to 22 age group might seem too young to be concerned about finance, which has long been cast as a “grownup topic,” but a surprising 39% of the respondents in the age group listed a large student loan balance as their top concern. A similar number of respondents cited affording college as their main priority. As the job market continues to remain stagnant and tuition costs continue to rise, parents and their children are concerned about their financial future. Unemployment was cited the top most concern by the parents in the survey.

Gen Z is not taking the financial anxiety face down, but is rather proactive in developing a savings and investment strategy early on, with more than two-thirds (67%) of the respondents with good budgets having extensively discussed money matters with their parents.

Ameritrade offers various tools such as WealthRuler to help parents and kids plan their financial future. The company, along with other brokerages such as Charles Schwab (NYSE:SCHW), will be encouraged by the response from the younger generation, as trading volumes on their platforms have been declining, largely due to volatile market conditions, particularly in Europe.

We expect trade volumes to gradually pick up as the European sovereign debt crisis reaches its conclusion. The region’s economy approaches a pivotal moment with a pro-austerity result in the Greece elections ^[2] and an inevitable Spain bailout. ^[3]

Even though Ameritrade’s trading activity has been declining over the past few years, the company continues to build its asset base. It added $11 billion in new client funds during the first quarter of 2012 to offset low interest rates. (See Ameritrade Earnings Decline on Low Volumes And Interest Rates)

Even though the Federal Reserve has stated that interest rates will be near zero until 2014, the increase in assets should drive the brokerage’s net interest income earned by investing client assets in money market accounts. Interest on money market balances account for 35% of our price estimate, and we forecast the company’s client money market balances to exceed $70 billion by the end of the Trefis forecast period.

We have a price estimate of about $20 for Ameritrade’s stock, which is about 20% ahead of the current market price.

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1. TD Ameritrade Survey Uncovers the Next Generation of Investors — Gen Z, Press Release, June 20^th, 2012 [↩]
2. Greece election results: Pro-bailout parties look to forge coalition, Economic Times, June 18^th, 2012 [↩]
3. Spain full-blown bailout all, but inevitable: Analysts, Economic Times, June 21^st, 2012 [↩]