A lavish retirement is something that every person dreams of…and millennials are no different. Yet, while baby boomers and generations of the past steadfastly believed in making lucrative investments to enjoy superior life quality after retirement, millennials have exhibited a strong, deep-rooted distrust of the stock market.
This distrust partially stems from the failure of the education system to teach the value of financial management and the long-term efficacy of the stock market. While some millennials focus on real estate investments or prefer buying over renting, many also rely heavily on credit cards and unconsciously accumulate debt with every small or big purchase.
Inflation is rising at a heightened pace, and the life quality that we afforded for a few hundred dollars back in the 70s and 80s now costs us thousands of dollars. The costs of living are increasing dramatically, so if you’re a millennial and you believe that a million dollars would be sufficient for you to enjoy a comfortable retirement, prepare to be disillusioned.
A survey by Bankrate found that Millennials are more inclined to invest in the real estate market, cryptocurrencies, and even forex trading, but they are less likely to invest in the stock market.
Is it because of the volatile nature of stocks and the influence of political and economic upheavals? Or is it because of the deep-rooted fear of economic downturns and recessions?
In the context of this article, we will attempt to understand if millennials are afraid of exploring investment opportunities in the stock market and why.
Shell-shocked from the 2008 financial crisis
Millions of millennials witnessed the financial crisis of 2008 just as they were transitioning from post-secondary schools towards high school education. They have vivid memories of how investment portfolios collapsed, and adults around them suffered as millions disappeared from their portfolios.
As millennials were cementing their understanding of investments and finances, the adults around them were busy discussing the ramifications of a crumbling housing market and a crippled stock market. These discussions—even if they were just had in an adjacent room—have sowed distrust in the stock market for many millennials.
Lack of financial education
The fear of the stock market’s volatility can be compared with aerophobia, the fear of flying. Flying is considered the safest way to travel across the world by many; however, many are afraid and seek treatments and counseling to overcome this fear.
Similarly, the fear of market volatility can be overcome by seeking education and training in the dynamics of the stock exchange.
Education systems have failed to instill the concepts of financial management in millennials. Millions of millennials prefer holding onto cash instead of investing it in the stock market, which will prove devastating once they enter their retirement years…and eventually have to return to the job market to supplement their income.
According to Investopedia, over the last 92 years, the leading 500 stocks in the United States have exhibited historical returns of 10% per market capitalization rates. On average, the returns amount to 7% as we account for inflation and heightened costs of living. This is a sizable rate of return that cannot be ignored.
As a generation, Millennials are more inclined towards saving cash than investing it and receiving lucrative returns. This mistrust and fear of investing stems from a lack of education. Holding onto cash is equivalent to financial suicide in this day and age, where the value of money is continuously diminishing.
There is a great need for educational curriculums to focus on financial planning and management. Millennials must take the initiative of gaining insight into the lucrative investment opportunities opened up by the stock market.
Reduced wages; heightened expenses
As millennials began entering the workforce after completing their education, the cost of living continued to rise, and inflation increased at a dramatic pace. Most millennials joined the workforce with a burdensome amount of student loans and debt, which had to be paid off before they could make substantial savings.
The exorbitant upsurge in inflation and cost of living caused salaries and wages to become flat, and many millennials had to resort to taking up part-time jobs and freelance positions to supplement their monthly and yearly earnings. Those who were steadfastly saving towards accumulating money for a substantial down payment instead looked towards rental accommodations.
However, it is essential to note that millennials actually prefer rental accommodations that are centrally located near corporate ecosystems and major attractions to enhance accessibility and reduce transit expenses.
Naturally, these preferences increase their average cost of renting and other living expenses, which is a reason why a portion of millennials struggle to save money that they could allocate towards their future.
Millennials who are struggling to pay their debts and bills, and have taken out mortgages for homeownership, find it increasingly challenging to save money. As the costs of living, renting, and taking out a mortgage loan continue to increase, millennials are increasingly burdened with their present expenses and, therefore, do not focus heavily on future savings and retirement plans.
Many rely on 401Ks and other savings plans introduced by their employers instead of making investments independently.
As we account for heightened costs of living, we must also note that the costs of healthcare have also increased alarmingly, leaving little room for substantial savings that can be invested.
The kids prefer cash
It comes as no surprise that young people are more inclined to hold on to cash than invest large amounts of money that are untouchable for several years. It is highly unlikely that they are going to explore investments that will tie up their funds for decades.
While making investments, millennials are more focused on immediate and prompt returns, which is why they are more inclined towards bitcoin and cryptocurrency investments. Even real estate investments are a viable opportunity for millennials, as they can understand the immediate benefits associated with homeownership.
They are more inclined towards real estate investments as they eliminate rental expenses, enhance life quality, and offer opportunities to rent out and open passive income streams to supplement their financial wellbeing. However, when it comes to long-term investments that will require several decades to reveal pay-offs, millennials are highly unlikely to take the risk.
A report shows that 41% of millennials do not have any retirement savings, and only a quarter of the participants felt that they are on the right track towards saving for a comfortable retirement.
As a millennial, it is crucial to understand that saving cash is not sufficient to create a substantial nest egg that will allow you to lead a comfortable life without having to work. Real estate can help you create multiple passive income streams, but saving cash is not the ideal route for a secure retirement.
Millennials must tap into the potential of compounding provided by stock market investments to increase their generation’s savings and financially safeguard the future. With each passing year, the rising pace of inflation reduces the buying power of each investment. To preserve buying power, millennials must continue to strive towards earning and saving more.
The stock market may be volatile and riddled with dramatic short-term fluctuations, but it also has a proven track record of large pay-offs and lucrative investments.
Today, the investment industry is powered by numerous technological advancements and innovations. Millennials can benefit from tech-savvy platforms, apps, and online databases to cultivate their acumen and skillset and build a robust portfolio in the stock market.
Besides being afraid of stock market investments, millennials do not have that grounded mindset of saving for the future that is prevalent in older generations. Baby boomers were inclined to save and ensure a comfortable retirement, alongside aiding their children with college educations and leaving a sizable inheritance.
Millennials think differently, and they are more focused on their immediate needs, life quality, and expenses. Many young people are more inclined to use their savings to travel the world or open up a business instead of saving up for the future. The bottom line: this needs to change immediately.
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