Why don’t millennials invest?
A couple years ago I returned from my first overseas holiday to Italy with a few key takeaways. Firstly, being the youngest person on my tour by at least 25 years, it became readily apparent that my fellow under-30s tend to opt for holidays in areas like SE Asia where their limited cash, or credit as the case may be, will get them further and for longer.
My second takeaway came while I was enjoying my umpteenth dinner out in Rome with a business-savvy baby boomer, whom I asked ‘How should I invest?’ He told me to invest in myself, just as I was doing – travel, learn, grow my bank of experience before worrying about my bank balance.
It was a reassuring answer that confirmed my choice to dip into my savings to see the world. But it left me wondering: at what stage should I start making investments in things like shares, a house or contribute extra to my super?
We millennials are not known for having huge investment appetites, especially with riskier options like stocks. But many economists will tell you it’s about ‘time in the market not market timing’. And our generation has nothing if not time on our side, with life expectancy increasing (a somewhat daunting prospect alongside the worst climate change predictions).
According to information released in July by US investment website Bankrate.com, just 1 in 3 American millennials have money in stocks. In Australia, young single people (who are generally our poorest demographic) have seven times as much money in the bank as in shares, compared to our richest demographic (couples aged 55-64) with a ratio of less than 3:1.
We could blame our apparent #YOLO lifestyle, or we could look at how the world is simply a different place for those of us born between 1980 and 2000. According to most theories, the reasons for not investing are the inability to afford it (lower incomes, less jobs) combined with not having an adequate understanding of how the market works.
Alongside these findings, research also shows that millennials save more cash than previous generations. According to Jason Murphy at news.com.au, this trend can be put down to trauma.
“If you’re under 35, like me, chances are you’re traumatised ... You were in your prime years when the global financial crisis hit in 2007. You were old enough to pay attention to what happened to the stock market. And what you saw was an inferno consuming people’s life savings.”
He goes on to say: “The lessons we [millennials] got are different to the ones previous generation parents learned.”
In the US, millennials also have the excuse of unprecedented student debt leaving them little chance to think about shares or a mortgage as they struggle to pay off the investment they made into their own (increasingly uncertain) job prospects. In Australia, our generation is not short on justifications either.
We grew up with rapid change as the norm
Millennials have grown up in a time of change and technological progress, and represent the first true ‘digital natives’. This has led to a pretty dramatic shift in priorities compared to older generations.
According to this Goldman Sachs Infographic we are putting off marriage, home ownership and children until later in life; and access to goods is valued above ownership ie. more of us are choosing to become members of car-sharing companies in place of owning a car.
“It’s not just homes: millennials have been reluctant to buy items such as cars, music and luxury goods. Instead, they’re turning to a new set of services that provide access to products without the burdens of ownership, giving rise to what’s being called a “sharing economy,”’ as stated in the infographic.
The ‘sharing economy’ offers a chance to hold off on larger outlays of cash and investments.
Investment in health
Another difference noted by Goldman Sachs is millennials’ attitude towards spending on health. For baby boomers, health was about not being ill; for millennials, the emphasis is more on active wellness pursuits through a greater commitment to eating right, exercising and maintaining a healthy lifestyle.
Studies show that millennials are more willing to spend money on these things over a mortgage or share portfolio, as they represent a long-term investment (which pays its own non-monetary dividends) viewed as increasingly important as we look to live longer lives than our forebears.
Baby boomers helping out
An additional factor for this generation’s slowness to enter the share market is the percentage of baby boomer parents willing to provide financial support as millennials enter their adult years.
Research shows that, generally, both generations are happy with this set-up which can play out as adult children remaining at home for longer or parents assisting their adult kids to buy their own.
With all of these factors in mind, the millennials who are more switched on to growing their wealth are more likely to be content with simply outpacing inflation with lower risk options. In the low interest rate economy we currently find ourselves in, this will increasingly require some form of investing.
Time is of the essence
If these trends are down to millennials having less money, less trust in the stock market, lower investment literacy, but more financial help from their parents to compensate, should we be worried?
Larry Luxenberg, a financial advisor at Lexington Avenue Capital Management put it this way: “I find that people are overly pessimistic about the stock market and long term investing. That’s a shame, because for younger people especially, their greatest resource is time.”
In his news.com.au article Murphy claims the history of the All Ordinaries is very positive, along with the history of almost every stock index in the world. “In this context, 2007 looks more like a blip,” he wrote.
Provided a millennial has held down a paying job at some point, they are already in the share market through their super fund anyway. Super offers a kind of compulsory introduction to investing – but younger generations have a history of showing little to no enthusiasm on the topic. Avoidance could be costly, though.
Many decades from now, when the GFC is a distant memory and millennials begin to retire, we might feel the pinch of our hesitancy to invest during our prime earning years. If we identify this as a problem, and not just a generational difference, the answer is certainly not to tell millennials to invest, and it’s not to condemn their approaches towards money either.
Rather, it might be to suggest that they take greater interest (literally!) and make conscious money choices that reflect their unique priorities and the very different future they’re likely to face.