Young Investors: Why The Apathy?

Young people are investing more than ever, but many are not taking advantage of the opportunities available to them. Financial literacy rates among young people are low, with less than half of young Americans investing in stocks. This may be due to the 2008 market crash, which saw younger generations lose trust in the stock market. Other factors include student debt, credit card debt, and a lack of financial education in schools. However, investing while young has its advantages, such as establishing good savings habits and allowing more time for investments to grow.

Young people are put off by the 2008 market crash and the market's volatility

The 2008 financial crisis, also known as the Global Financial Crisis (GFC), was the most severe economic crisis since the Great Depression. It was caused by a combination of factors, including predatory lending in the form of subprime mortgages, excessive risk-taking by financial institutions, and the collapse of the US housing bubble.

The crisis had a significant impact on young people's investment behaviours and attitudes. According to a Gallup poll, less than half of young Americans were investing in stocks following the 2008 market crash. This hesitancy to invest in the stock market among young people can be attributed to several factors, including:

• Memory of the 2008 Market Crash: The 2008 financial crisis resulted in a significant decline in stock ownership among young adults. According to the Gallup poll, 52% of adults under 35 owned stocks in the seven years leading up to the crash, but this number decreased to 37% by 2017-2018. Young people who witnessed the financial turmoil and stock market volatility may have developed a cautious attitude towards investing, preferring to avoid potential losses.
• Perception of Risk and Volatility: The stock market is often associated with risk and volatility, and young people who experienced the 2008 crash may perceive it as a risky investment option. They may prefer more stable and less volatile investment options to avoid potential losses.
• Loss of Trust in the Financial System: The 2008 financial crisis revealed vulnerabilities and unethical practices within the financial system, leading to a loss of trust among young investors. They may have concerns about the stability and integrity of the financial markets and prefer to allocate their funds elsewhere.
• Increased Financial Literacy and Awareness: The 2008 financial crisis highlighted the importance of financial literacy and awareness, particularly among young people. They may have become more cautious and informed about investment risks, seeking more stable and secure investment options.
• Shift in Investment Priorities: The financial crisis may have caused a shift in investment priorities for young people. They may have reevaluated their investment strategies and sought more diverse investment options beyond traditional stocks and shares.

The impact of the 2008 financial crisis on young people's investment behaviours is complex and multifaceted. While some young people may have been deterred from investing due to the volatility and risks associated with the stock market, others may have become more interested in investing and sought to educate themselves about financial markets. It is important to note that individual factors, such as personal financial situations, risk tolerance, and investment goals, also play a significant role in shaping young people's investment decisions.

They are focused on the present rather than the future

Young people are increasingly focused on growing their wealth, with many feeling that they face an uncertain financial future. However, conflicting priorities can make it difficult for young people to invest. For example, over one-third of members of Generation Z born between 1997 and 2002 have student loan debt, and the average millennial owes about $4,930 on credit cards. Debts like these often take priority over investing for the future.

Many young adults don't take the time to understand how to invest wisely. This is often because they are concerned about the present rather than the future. However, by investing consistently when you are young, you will allow the process of compounding to work to your advantage. The amount that you invest will grow substantially over time as you earn interest and receive dividends, and as share values appreciate. The longer your money is invested, the wealthier you will be in the future and at the lowest possible cost to you.

For example, investing $1,000 in Apple 10 years ago would be worth more than $7,000 today. A $1,000 investment in Amazon would be worth more than $19,000. You don't need to pick individual stocks, either. Putting your money in mutual funds or a 401(k) could even help you become a millionaire in as little as 18 years.

Young people are also becoming more interested in investing due to innovations in technology, such as no-fee trading platforms and increased access to financial information via the internet. While involvement in securities trading (investing in stocks, bonds, etc.) has historically been used by wealthier individuals in the US and Europe, markets are beginning to democratize. Many young people now see such investments as a trampoline to grow their wealth.

They don't have enough money

Young people are increasingly investing in capital markets, with 70% of retail investors under the age of 45. However, many young people do not have enough money to invest. Financial literacy rates among young people globally hover below 50%, and many individuals are not equipped with the knowledge to make informed financial decisions. This is a result of financial literacy programmes being historically absent from school curriculums.

Financial literacy can help individuals make better financial decisions, such as investing with higher returns, having lower levels of debt, and achieving better overall financial well-being. It can also help young people develop healthy financial habits early on and encourage them to plan their first life milestones with financial knowledge. For example, investing early gives the magic of compounding more time to work. If a person starts investing at 25, they can be a millionaire at 60 with investing only half as much (each year) as someone who starts at 35.

However, young people often face financial constraints that limit their ability to invest. They may have lower incomes, be starting their careers, or be dealing with student loan debt, making it challenging to set aside money for investing. Additionally, the cost of living has been rising, and young people are facing an uncertain financial future. As a result, they may not have the financial means to invest or may choose to focus on short-term financial goals instead.

To address this issue, financial institutions, employers, communities, and policymakers can work together to provide accessible and engaging financial education. This can take place in schools, higher education institutions, workplaces, or community gatherings. By improving financial literacy and providing the necessary tools and knowledge, young people can be empowered to make more informed decisions about investing and their financial future.

They don't know how to invest

Young people are investing more than ever, but many don't know how to invest effectively. Financial literacy rates among young people globally hover below 50%, and only 18.3% of young Americans can answer basic financial knowledge questions. This lack of financial education can make it difficult for young people to navigate investing, retirement planning, and debt management.

One key reason why young people may not know how to invest is that financial literacy programmes have traditionally been absent from school curricula. As a result, many young people lack a strong foundation in financial knowledge and may not have the necessary skills to make informed investment decisions.

Another factor is the complexity of the financial landscape. In recent decades, there has been a surge in new financial products and a shift from pension systems to employer-backed retirement plans, increasing the burden on individuals to understand and prepare for retirement. The financial information available can be jargon-filled and inaccessible, making it challenging for young people to navigate the stock market confidently.

Additionally, young people may be more focused on short-term spending and immediate gratification rather than long-term investment goals. This is often due to a lack of financial education and the influence of peer groups.

To address this knowledge gap, financial education should start in schools to help young people develop healthy financial habits early on. Employers can also play a role by offering financial education resources in the workplace, making it more accessible and convenient for individuals to improve their financial literacy.

Furthermore, innovations in technology have made financial education more affordable and accessible. Gamified financial education platforms, for example, can create a less intimidating approach to learning about investing. Additionally, the growth of financial information aimed specifically at young people across various media outlets can help improve financial literacy and encourage investing from a younger age.

They have student debt

Student debt is a significant burden for young people, impacting their ability to invest, buy homes, and build wealth. The high cost of education, coupled with increasing student loan debt, has resulted in a significant financial burden for young people, affecting their long-term economic prospects.

A Federal Reserve study found that student loan debt was a significant factor in the decline of homeownership rates among 24 to 32-year-olds. The study revealed that while other factors contributed to the decline, about 20% of the decrease in homeownership could be attributed to student loan debt. This burden has led to a much lower level of homeownership over the past decade, impacting the financial stability and wealth accumulation of young people.

The impact of student debt extends beyond homeownership. High debt burdens and low credit scores limit the purchasing power of young people, hindering their ability to invest and participate in the economy fully. Student debt disproportionately affects young people, who have lower incomes and are more likely to have recently completed their education. As a result, they may face challenges in accessing credit, obtaining mortgages, and building wealth through traditional means such as homeownership or entrepreneurship.

However, it is important to note that young people can explore various strategies to manage their student debt and build their financial future. Refinancing student loans to obtain lower interest rates can reduce monthly loan payments and free up funds for investments. Additionally, seeking advice from financial advisors can help young people make informed decisions about weighing interest rates against investment returns.

Improving financial literacy among young people is crucial to empower them to make informed financial decisions. Initiatives to integrate financial education into school curricula can help establish a strong foundation of financial knowledge, enabling young people to navigate complex financial landscapes effectively.

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