Millennials most likely to embrace VCTs and EIS - but they're also least able to
Millennials are twice as likely to embrace early-stage investing such as venture capital trusts (VCTs) and the enterprise investment scheme (EIS) than older generations, according to research from SyndicateRoom.
Over nine in 10 investors aged 18-30 believe a portfolio of diversified early-stage equities would help them achieve their long-term financial goals, compared to just under half of those aged 51 and above.
A fifth of retail investors claim to be knowledgeable about VCTs (21 per cent) and EIS products (19 per cent). The research argues that the level of knowledge of these products is much higher among millennials, as well as for those with more than £1 million in investments.
Gonçalo de Vasconcelos, CEO of SyndicateRoom, says: 'Millennials are clearly ahead of the pack when it comes to taking advantage of the benefits that tax-efficient products offer when investing in early-stage companies.
'This belief in the value of Britain's young companies and business ideas by those who will control the economy of tomorrow is highly encouraging.
'The combined growth opportunity and tax benefits available through EIS are highly attractive, and should be a consideration for any investor with a long investment time horizon.'
But it's worth pointing out that millennials are the least likely group to be able to invest in any of the above tax-efficient products, due to having a lack of spare capital to invest.
According to research from the Resolution Foundation millennials are the first generation in over a century to be worse off than the preceding generation.
First of all, millennials came of age during the financial crisis, which means that they had to enter the labour force in a subdued market. Second, unlike previous generations, millennials struggle to build up assets, particularly in terms of housing.
The stark difference in housing costs between renters and owners (which are characterised by a generational difference) means that declining levels of home ownership increases intergenerational inequality.
Millennials spend almost a fifth (19 per cent) of their income on rent and bills, which is more than any other generation, according to research by Fidelity.
Fidelity's research also indicates that the increased cost of living is largely driven by millennials' spending choices. While this generation only spends 8 per cent of their income on food and drink in supermarkets, they spend 14 per cent and more on eating out.
Third, millennials are not set to benefit from defined benefit pensions, they have lower pension contributions and they cannot expect to have an early retirement age - if they'll have any retirement age at all.
Therefore, millennials may indeed be knowledgeable and interested in tax-efficient investments - but the stark reality is most millennials can't afford to save or invest in either due to the high cost of living or in making a conscious lifestyle choice to 'live for today'.
Research last October from Investec Wealth & Investment hammered this point home. The firm found that 37 per cent of those aged under 35 prefer to enjoy themselves now rather than save or invest for the future.
Moreover, just under half said the 'buy now pay later' culture stops them from saving or investing. The vast majority, however, 88 per cent, blamed the cost of living as a reason that impedes their ability to save.
With a rising cost of living and low income growth, lack of disposable income is the key barrier for those not currently saving.
Research by Old Mutual Wealth found that 22 per cent of those aged 30 to 45 (which includes part millennials, part baby boomers) in the UK have less than £100 in savings outside of their pensions. Finally, 80 per cent of those not saving said it was because they couldn't afford to.