5 Ways Millennials Are Investing Differently Than Their Parents
It’s not easy to overlook the financial divide between the millennial generation and those that came before them. One can see the differences most clearly when examining the way millennials choose to invest.
Millennials, in many ways, are more reluctant to invest in the stock market or other fluid properties than earlier generations. However, exploring the reasons behind Gen Y’s stock market fears makes the reasoning behind their investments a little clearer.
- Smaller, More Conservative Investments
The term “millennial” refers to all people born between 1981 and 1997. While the specific years bookending the millennial generation vary, the years when the word “millennial” was synonymous with “teenager” have long passed. Nowadays, most millennials are between 25 and 40 years old. That being the case, they’ve lived through an unprecedented series of financial crises, and those crises have changed the ways they invest.
For example, all millennials endured the Great Recession of 2008, when 15% of all employees in their 20s were out of work. As of 2021, millennials now face one of the most significant gaps between their average income and the net worth of their employers. Inflation in the millennial age has gone effectively unchecked, leaving the cost of living all but unmanageable in some parts of the United States.
Consequently, most modern millennials are far more conservative with their money than their parents. As a result, their investments tend to be on the less substantial side and with safer stocks. Even alternative options viewed as less risky than the stock market, such as investment properties and real estate crowdfunding, are still largely dominated by older generations, if only due to those generations’ financial flexibility.
- Investing Later in Life
There’s a difference between credit card debt and debilitating, long-lasting expenses. Of all generations, millennials face a debt crisis that appears unparalleled to date, lending further to their financial frugality.
Experian 2020 State of Credit elaborates on the average amount of debt the average millennial has to manage. This study finds that most millennial consumers have to contend with $27,251 in debt, not including any mortgages they may take on.
Millennial debt is delaying the generation’s financial growth. As these professionals strive to fend off the worst of that debt—most of which originates from student loans—they find themselves lacking the funds to invest. In turn, many millennials aren’t able to invest until their thirties or later in life.
These investments, which will vary based on a millennial’s financial stability, won’t have the same growth as those previous generations made in their youth. The combination of more conservative investments and a lack of financial mobility make for much smaller returns than other generations saw.
- Online Liquid Asset Management
On a lighter note, millennials who are investing use new means to make their money work for them. The rise of social media and digital technologies has drawn many millennials to online tools to manage their liquid finances.
Exchanging information about strong stocks is no longer such an in-person event. Instead, millennials have turned to platforms like Reddit and Twitter, along with more dedicated stock assessing sites, to determine which stocks are most worth their attention. These influential platforms include:
- Tip’d Off
- Wealthfront
- SigFig
- Mint
- Robinhood
The benefits accompanying these platforms are endless, especially for a generation grown used to frequent updates on global change. Millennial investors can inspect stock growth daily instead of waiting for trade reports. Similarly, they can engage in near-immediate sales and purchases courtesy of their phones and computers. The speed with which millennials can change their investments vastly outstrips that of the generations that came before them.
- More Saving to Buy, Less Investing to Grow
The amount of money it takes to own a home, manage utilities, and travel for fun these days far exceeds what it cost the baby boomers. With that in mind, many millennials are having a difficult time delegating between the daily essentials and their potential investments. It is more complicated, after all, for a millennial employee to buy stocks or contribute to a company pension when they’re struggling to make rent every month.
Instead of readily making conventional investments, such as stocks and bonds, most millennials set a small portion of their regular income aside for purchasing items such as a car or a new home. Some save money to pay off a chunk of their debt, as well. Although this type of saving and purchasing behavior isn’t technically “investing” per the conventional or financial sense of the word, most millennials prefer to “invest” or put money into their daily living needs than into the stock market.
Those millennials who invest (traditionally) would rather work with stocks or similar properties that will help them achieve the purchases mentioned above. Planning for this kind of “investment” can feel more realistic for the millennial employee, as the subsequent rewards are more tangible than those offered by the stock market.
- Abandoning Retirement Funds
Accounts like 401ks, pensions, and other retirement-oriented plans are falling by the wayside as the millennial generation takes over the workforce. That isn’t because millennials are unaware of their retirement options, though.
Instead, many millennials don’t see a future for themselves in which they can retire. Social security, for example, is no longer as reliable as it once was as a means for financial protection. Millennials also consider many company pension plans to be unreliable due to their complexity and slow ROI. As a result, many millennials investing in their future rely on small bank accounts and little else to carry their finances forward.
A Generational, Financial Divide
The baby boomer generation faces its own financial crises, with Social Security now in question and job security growing more and more conceptual. However, the baby boomer generation is also notably more financially secure than the millennial workforce. Consequently, a baby boomer’s investment recommendations aren’t always based on today’s financial reality.
That said, millennials are approaching their future investments with stable heads and concrete ambitions. Still, the millennial investor is more interested in a lifelong retirement experience, enjoying the benefits of travel, good living, and small luxuries throughout their life.
It’s a different approach to the stock market and subsequent trades than the baby boomers took. How this strategy will suit the most invested millennials, however, remains to be seen.