Why Aren’t Young People Investing?

by Alyssa Oursler | January 8, 2014 8:00 am

In terms of investing, the circle of life isn’t looking like much of a circle.

[1]Hordes of baby boomers are reaching retirement and pulling their nest eggs out of the market. Normally, this wouldn’t be a problem. Sure, old folks will stop investing with age, but young folks should begin investing … and the circle should continue.

In theory.

In reality, that just isn’t the case — and it’s not necessarily just because there are so many retirees heading out of the market. Generation Y just doesn’t seem keen on heading in.

But why are so few young adults investing? Let’s take a look at some reasons:

‘Forever Young’ Mindset

To start, lots of kids don’t want to be adults these days — I’ve heard plenty of my friends say it (and yes, I may have uttered the words “I don’t want to grow up” a few times myself).

There are countless explanations — and all probably contain some truth. For one, it could be an extension of the not-so-flattering stereotype for our generation: We are a selfish, impulsive, highly indulged bunch — given trophies just for trying and told to be anything we wanted to be.

It could also be that we see fellow twenty-somethings sharing social, fun nights on Instagram (and glamorous young celebrities sharing them on reality TV) and thus think we should be enjoying our youth, too.

In both cases, there seem to be expectations (albeit often unrealistic and romanticized ones[2]) about what being a twenty-something means … and the far-from-sexy world of stocks and mutual funds simply doesn’t fit the bill.

Tough Times

Let’s face it: This economy has not been kind to young people. Many members of Generation Y remain financially dependent on their parents long past graduation — not just because they feel entitled, but because they can’t find jobs, can’t afford to move out and so on.

High levels of unemployment[3], rising costs of living[4], falling wages and record student debt all add up[5] and push back “adult” activities like marriage, home ownership and, yes, investing. Newcomers don’t think they can afford stocks when they’re 22 and already five figures in the hole.

Fear and Distrust

This is also a generation full of teenagers that watched the recession eat up their parent’s life savings.

Josh Brown calls it “The Hot Stove Syndrome[6],” referencing Mark Twain’s saying: “The cat, having sat upon a hot stove lid, will not sit upon a hot stove lid again. But he won’t sit upon a cold stove lid, either.”  As Brown put it, “This generation of investors prefers to avoid the stove [AKA the market] entirely — hot or cold.”

Plus, the fear of brutal losses is compounded by a general distrust for Wall Street — a sentiment hardly exclusive to Generation Y and hardly unreasonable. Between Facebook’s (NASDAQ:FB[7]) botched IPO, the Knight Capital (NYSE:KCG[8]) trading glitch, the JP Morgan (NYSE:JPM[9]) London Whale losses, Bernie Madoff, the Libor scandal and more, the headlines scream of scandal.

In the past year, even investors in the market felt the stock market was a rigged game, as Yahoo! Finance recently reported[10]. All in all, there’s an ingrained sense that the cards are stacked against the little guy, and many young investors either don’t want to play in the same arena as big bad Wall Street, or feel like they will get burned if they bother to try.

Ignorance

Of course, caution is one thing; ignorance is a whole different ball game. Unfortunately, I know far too many young adults who are woefully out-of-step with the world outside, whether through lack of knowledge or incessant apathy.

Countless studies demonstrate eye-popping, unimpressive levels of basic financial literacy[11] for millennials and show that even higher-educated young adults[12] express high levels of confusion when it comes to saving and investing.

As The New Yorker explains[13], this is problematic for Generation Y because, while financial ignorance isn’t new, “the consequences have become more severe, because people now have to take so much responsibility for their financial lives.”

Plus, such ignorance compounds itself. The less you understand, the more daunting the stock market — charts, ratios, numbers, mergers and so on — seems.

To let Josh Brown again sum things up, “As the army of Boomer investors marches into the sunset, their banners tattered but still held proudly aloft, there is no one bringing up the rear. Their children prefer fantasy football to fantasy capitalism.”

---

Like what you see? Sign up for our Young Investors e-letter[14] and get practical investing advice delivered to your inbox every week!

 

Source URL: https://investorplace.com/2014/01/why-arent-young-people-investing/

---