Why are millennials saving instead of investing?

Jamila Smith, a student on work experience with Money Observer, shares her thoughts on why her generation are more likely to save rather than invest.

During my week of work experience with Money Observer I came across a survey that found two fifths of 18-25 year olds are saving cash. This may seem surprisingly high and as a result it was promoted as a ‘good news’ story by Equiniti, the share registrar, which commissioned YouGov to carry out the poll. 

But for me the biggest takeaway is the puzzle as to why that money is going into savings rather than investments. The survey found 40 per cent of 18-24 year olds and 39 per cent of students put aside money in savings accounts. In addition, 12 per cent of 18-24 year olds contribute to either a personal or workplace pension. 

But those that were polled, a sample of 2,040, have not caught the investment bug, as only 5 per cent said they invest in stocks and shares. 

Cash may seem safe, but over the long term its real value is slowly eroded away by inflation. Below I have rounded-up my own thoughts on why millennials choose to save rather than invest in stocks and shares.

Mistrust of financial advice 

Another finding from the survey was that over two fifths of 18-24 year olds and over a third of full-time students stated that they were likely to seek financial advice from friends and relatives. In contrast just 9 per cent said they would seek some form of professional guidance. 

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It seems there’s a mistrust among my generation of professional financial advice. While most millennials would be willing to consult a doctor when it comes to physical injury or illness, they withhold such trust towards financial advisers. I think this is largely down to the fact that, unlike a visit to the GP, they have to directly pay fees for financial advice.

As millennials have limited life experience, they worry about being charged extortionate rates, especially when they only have a small amount of money to invest. 

Millennials are idealistic 

On top of this, millennials are idealistic and are heavily influenced by the growing slew of success stories of people easily making money in the entertainment industry, usually via the online world.

Exposure to such success stories creates a confirmation bias, increasing the proportion of young people who believe it is easy to make a living through social media.

Lack of financial education 

If such over-exposure is a problem, there is also the issue of under-exposure: The education system does not prioritise teaching about saving and budgeting, let alone informing students about investment. As a result, millennials associate investment with corporations and an older demographic. 

Lack of demand to invest among those in the 18-25 age range creates a cycle; the smaller the number of millennials becoming engaged with investing, the fewer millennials get to hear about it as something they could do themselves. 

Too much jargon 

Those who do have an interest in putting money into stocks and shares are confronted by the outwardly intimidating language of investment jargon. To somebody foreign to the sphere of finance, it can sound like binary translated to Aramaic through a broken intercom. A full-time student is not going to be able to add the studying of that dictionary to this semester’s workload.

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It is ironic that such lack of time holds millennials back from investing, when time is really on their side in the long run. In fact, time is precisely the reason it would benefit them to invest: with their whole lives to accrue returns, risk is lessened because they have the timescale to rebuild any losses. All other things being equal, market instability should affect them the least.

But all other things are not equal. The rising price of education ensures most young people leave university heavily in debt. The burden of these loans means they have limited money left over to invest. People are staying in education longer, so earning a steady income is delayed.

On top of that, rising property prices are a substantial concern for many young people, as the idea of their ownership of a house becomes increasingly inconceivable to them. 

My personal intention is to use investment apps to learn. Some of these let users start off with a fantasy portfolio and upgrade to real when they’ve learnt the ropes. I see apps as the most immediate route to help me find my way over the barrier and hope it won’t take too long to decode the jargon. Once I’ve strained my ears to translate the Aramaic back into English and figured out that ETFs aren’t a street drug, the path should seem a little more navigable.  

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