Young Investors: A Growing Force

Young people are investing more than ever before. In fact, 70% of retail investors are under the age of 45. This shift has been driven by a number of factors, including the increased availability of financial information online, the rise of no-fee trading platforms, and a desire to secure an uncertain financial future. However, despite this trend, financial literacy rates among young people remain low, hovering below 50% globally. This has led to calls for better financial education to ensure young investors have the tools they need to make informed decisions.

Young people are investing more than ever

Growing Wealth

Many young people view investments as a trampoline to grow their wealth. They are becoming more focused on growing their wealth due to feelings of uncertainty about their financial future.

Access to Financial Information

Innovations in technology, such as no-fee trading platforms and increased access to financial information via the internet, have contributed to this trend. While securities trading has historically been used by wealthier individuals, markets are beginning to democratize, making investments more accessible to young people.

Technology Innovations

Additionally, innovations in technology have played a significant role. No-fee trading platforms and increased access to financial information online have made it easier for young people to enter the world of investing.

Global Perspective

This trend is observed globally, with notable examples from China, India, and Europe. In China, over 90% of university-educated citizens aged 22 to 32 consider investing a key part of their life plan. In India, between 2019 and 2023, over 120 million individuals became retail investors, with the majority between 22 and 35 years old. Europe has historically had low retail investment rates, but the European Commission has implemented a plan to empower retail investment for enduring financial resilience.

Financial Literacy

While young people are investing more than ever, there is a need to improve financial literacy and access to financial information and education. Financial literacy rates among young people globally hover below 50%. Enhancing financial literacy can empower individuals to make more informed investment decisions, leading to higher returns, lower debt levels, and improved financial well-being.

In summary, young people are investing more than ever, driven by a desire to grow their wealth and enabled by technological innovations and increased access to financial information. However, improving financial literacy rates among young people is crucial to ensure they have the tools and knowledge to make informed investment decisions.

Young people need better financial education

Young people are investing more than ever before. However, many are doing so without the necessary tools and knowledge to make informed decisions. Financial literacy rates among young people globally are below 50%, and only 33% of adults worldwide are financially literate. This is a problem because financial literacy can help individuals make better financial decisions, which can lead to higher investment returns, lower debt levels, and improved financial well-being.

Financial education is essential for young people to make informed choices about their money and avoid falling into financial traps. Without it, they may end up making bad decisions that can take decades to fix. Early-adulthood financial decisions can have lifelong consequences, and a lack of financial knowledge can lead to cycles of debt and economic insecurity. For example, poor spending and borrowing habits can result in low credit scores, contributing to higher financial insecurity.

To address this issue, financial literacy should be taught at a young age, even as early as elementary school. This will help children develop healthy, lifelong financial habits and give them a head start in building a secure financial future. Financial education can cover topics such as earning, saving, investing, protecting, spending, and borrowing. It can also include lessons on credit management, asset building, and how to reduce debt and avoid scams.

In addition to formal education, parents and guardians can play a crucial role in teaching children about money. This can be done by involving them in household financial decisions, such as shopping trips or bill payments, and having them listen to conversations with financial professionals. Another way to teach children about money is by allowing them to earn money through chores and contributing to household bills.

By providing young people with the necessary financial knowledge and skills, we can empower them to make informed decisions, improve their financial well-being, and break down economic barriers.

Young investors can benefit from starting early

Secondly, young investors have a higher risk tolerance due to their age and years of earning potential ahead of them. They can afford to take on more risk in their investment portfolios and absorb potential losses, as they have time to recover. This enables them to build more aggressive portfolios that can produce larger gains over time.

Thirdly, young investors have the advantage of time to study and learn about investing. The financial landscape is complex, and investing has a lengthy learning curve. Starting early gives young investors the opportunity to educate themselves about the markets, refine their strategies, and make and learn from their mistakes.

Additionally, young people today are more tech-savvy than ever, with access to online trading platforms, analysis tools, chat rooms, and educational resources. They can leverage technology to their advantage, staying informed and making data-driven investment decisions.

Finally, investing early enables individuals to take control of their financial future and ensure they are on track to meet their retirement goals. By starting early and investing consistently, young investors can benefit from compound interest, which maximizes the growth of their retirement savings over time.

In conclusion, young investors who start their investment journey early will be able to take advantage of the power of compounding, higher risk tolerance, increased learning opportunities, and improved financial literacy. These benefits will enable them to build a strong financial foundation and work towards their long-term financial goals.

Young people are ideal investors

Time is on their side

Young investors have time on their hands in more ways than one. Firstly, they are more likely to have free time available in their day-to-day lives, which means they can dedicate more time to researching the best investments and tracking current trends. Secondly, and more importantly, any money they invest now will have more time to grow before they need to withdraw it. It's much more beneficial to invest a smaller amount of money now than a larger amount later to generate the same return.

They can build better financial habits

If young people are focused on investing, they are less likely to fall into reckless spending habits. Taking the time to research and carefully invest will make them more aware of money coming in and going out.

They are in the best place to take a leap

Investing is a great way to build long-term wealth, but it's inherently risky. Therefore, it's best to take that risk when you're young and can bounce back relatively quickly if things don't go to plan. Once you have more financial responsibilities, you're more likely to become risk-averse.

They can bounce back

As mentioned above, investing can be risky. If an investment fails, starting young means you have time to regroup and try again. Many successful entrepreneurs will tell you that they only learned by making mistakes, and the same goes for investing.

A few things to keep in mind

Even though time and circumstances make young people the ideal investors, it's still important to invest responsibly. If you have high-cost debt, such as credit card debt, it's a good idea to tackle that first. It's also wise to build a financial cushion to fall back on in emergencies – three to six months' worth of living expenses is ideal.

With debts paid off and a safety net in place, it's time to invest! When you're young, you have the whole world ahead of you and a lot to potentially gain.

Young investors should be mindful of risks

Young people are investing more than ever, with 70% of retail investors under the age of 45. However, financial literacy rates among this demographic are low, hovering below 50% globally. This demonstrates the need for better financial education to ensure young investors are mindful of the risks involved and can make informed decisions.

Young investors should be aware that the financial landscape is complex and constantly evolving. It is important to have realistic expectations and avoid speculating or gambling on investments. Taking on too much risk can lead to significant losses, which may discourage future investing or impact financial resilience. While young investors can afford to take some calculated risks due to their longer time horizon, it is crucial to diversify investments and only take on risk aligned with one's goals and risk tolerance.

Leverage is another aspect that young investors should approach with caution. While it can amplify returns, it can also magnify losses. A large drop in portfolio value due to excessive leverage may discourage investors and lead to overly risk-averse behaviour in the future. It is essential to understand the risks and potential consequences before employing leverage.

Emotions and social factors play a significant role in investment decisions, especially for younger investors. The thrill of investing and the status associated with owning certain investments can cloud judgement and lead to impulsive decisions. It is important to separate emotions from investment choices and make decisions based on thorough research and analysis.

Additionally, young investors should be cautious of falling into the procrastination trap. Starting to invest early allows for the power of compounding to work in their favour. By investing consistently over time, young people can build substantial wealth for the future without sacrificing their current lifestyle.

In conclusion, while investing is a great way for young people to grow their wealth, it is crucial to be mindful of the risks involved. Education, diversification, realistic expectations, and emotional discipline are key factors in navigating the investment landscape successfully. Young investors should seek knowledge, understand their risk tolerance, and make informed decisions to build a solid financial foundation for their future.

Frequently asked questions