Every day, more and more young people are entering the investment markets for the first time. A quiet wave of investors is growing in force, and it appears that their priorities are different than those that preceded them.
Contrary to popular belief, Gen Z and millennials have more economic power than any previous era. They earn more and contribute earlier than all previous generations. According to Fortune Magazine, “For millennials, 31% started investing before age 21, compared to only 9% of baby boomers and 14% of Gen X. Not only are millennials the largest workforce in U.S. history but they, together with Gen Z and women, are poised to be on the receiving end of a wealth transfer of tens of trillions of dollars, which is already underway.”
This trend can be largely attributed to having easier access to information and the rise of social media. The youngest of the Gen Z cohort was 5 years old when the first iPhone came out, making them digital natives. Not only are they expected to be the most educated generation, but they are also the most likely to have college educated parents.
It is important to point out, however, that the two generations saving more and investing earlier does not directly correlate to keeping pace with retirement savings. Compared to their elder cohorts, they are behind on retirement savings. According to Angie Chen, assistant director of savings research at the Center for Retirement Research at Boston College, there are several major factors explaining this scenario, but the most prominent is student loan debt.
A significant number of millennials graduated around the dot-com bubble during the early 2000s along with the great recession of 2008. These economic downturns can impact new graduates negatively when it comes to finding good jobs. Studies have shown that by their late 30s, millennials will have caught up to older generations because of a higher labor force participation rate and because they are higher earners.
Knowing that young people are going to be a driving force in the market, the question that should be asked is: Why is this important?
It is important because young people are likely going to continue reshaping the market. Identifying trends to participate in and highlighting any areas that young people focus on can position a portfolio to surf the incoming wave of capital. Among millennials who save, one in four has more than $100,000 in their account. They are investing with a different set of expectations than their parents when they use that money.
According to Author Jean Case at Fortune, 95% of people say they wish to invest in socially conscious companies. Two-thirds of this group report having shares, and 57% say they have sold stock when they felt the corporation was not acting in the interests of the community or the environment. Their enthusiasm for investing in environmental, social, and governance (ESG) issues has contributed to the 10x increase in ESG inflows from 2015 to 2020. If we consider women of all ages, the potential impact of these youthful generations on the finance sector is remarkable. Their financial strength is also on the rise with similar perspectives on how they want to deploy their money.
Compared to older generations, both Gen Z and Millennials do not share the same deep trust in the institutions that their parents did. They are more willing to embrace the proliferation of new investment platforms like Public, Acorns, and Robinhood. These platforms allow for anyone to invest small amounts from an app without the need for a middleman, and without a minimum. The same thing applies to their willingness to participate in decentralized currency offerings. A poll done by The Motley Fool found that almost 60% of them own cryptocurrency and/or stocks, with cryptocurrency edging out as the most held over stocks.
Debate regarding approaches to environmental, social, and governance style investing will continue. The point of this blog is to illuminate emerging trends to provide perspective on current drivers affecting the market. It is not clear how this will play out in the long run, but it can be said that Generation Alpha (Born 2010-2024) will most likely be more educated, invest even earlier, and carry with them a new set of principles that will disrupt the status-quo. Regardless of when that time comes, our goal at WGCA will be to continue paying attention to what interests them, listening to what they have to say and supporting their financial planning goals with curiosity.
Associate Financial Advisor
This is not an offer or a solicitation to buy or sell securities. The information contained in this post has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
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