Why are young people in their teens and 20s so reluctant to invest in the stock market? A recent piece of research from Equiniti found that 40 per cent of those aged 18-24 at work or university are saving cash, but just 5 per cent are putting money into stocks and shares.
There are several very obvious valid considerations that help explain this resistance to investing. This cohort has a millstone of university debt around its neck, and it faces dwindling real earnings and rising house prices. So young people with often tiny amounts to tuck away are likely to prefer cash: it’s simple and understandable, there are no minimum contribution limits to complicate matters, and it is more easily accessible in the short to medium term.
In addition, as Equiniti points out, they are unlikely to receive affordable professional advice that would highlight the huge advantages of very long-term exposure to stock markets. Moreover, they may feel they don’t understand how to go about investing, or that only posh/rich/old people do it. In most cases, it probably never even occurs to them as an option.
This is a challenge-in-waiting for parents as they conscientiously invest into their children’s Junior Isas (Jisas) in the run-up to their coming of age. I know from personal experience that while it’s easy enough for me to select a few funds, set up a monthly direct debit into my teenage daughter’s Jisa and check progress from time to time, it’s much harder to interest her in the process.
She jumps at the chance to make money – she has a weekend job and sells bits and pieces online – but just doesn’t view the idea of learning about investment as another profitable string to her money-making bow. It’s my job, I guess, to sell that idea to her, which will perhaps be easier when she turns 18 and the Jisa rolls over into her name and becomes a grown-up Isa.
But I suspect there may be other, more-left field reasons why the gulf between the world of millennials and that of investment is not being bridged effectively. Perhaps, for instance, providers are not offering the kind of products that resonate with young people.
This month the Money Observer team hosted a 17-year-old intern, Jamila Smith, for a week of work experience. We asked her to write up the Equiniti research and use it as a jumping-off point for her own thoughts on young people and the obstacles, both practical and psychological, that stand between them and the world of investment (you can find it here; it makes illuminating reading).
She and I had several discussions around the topic of investment. Like most people her age, Jamila doesn’t have much knowledge about it, but she had done some background reading in preparation for her time with us. However, when I tried to promote the idea of a long-term buyand-hold core fund approach, where a professional fund manager would make all the decisions and do the hard work, freeing her and her contemporaries up to do more interesting and groovy things with their time, she was not convinced.
For a start, she wants to be able to check up on the way companies run their operations, from their record as employers to their carbon footprint. Sounds like you’d need a sustainability fund, I ventured, still on my collectives soapbox. ‘No, I don’t think so,’ she replied. ‘I don’t really know much about funds, so I’d rather invest in individual companies – it would give me more of a sense of involvement and achievement.’
What Jamila really wants is control – the ability to pick and choose the specific companies whose businesses interest her. For her, that’s the interesting part, so why would she hand it over to a fund manager? That’s an ambitious and many would argue high-risk jumping-off point, particularly if you have neither much money nor much knowledge about companies.
But perhaps we’re failing to think laterally about this. Following the argument that young people would be more inclined to invest if they could engage more closely with the selection process, perhaps providers need to find a way to make that happen.
The idea that particularly excited Jamila was that of fantasy portfolios providing the opportunity to learn about investment and also about the companies she might back; she talked about running a practice portfolio for a year, or several years, while she built up enough money to make an initial investment.
If such a thing could be designed specifically for young beginners to cut their investment teeth on – jargon-free, focused on sustainable businesses with millennial appeal, available as a phone app – maybe it would help fire their enthusiasm for the stock market. Just a thought.
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