Millennials get a bad press, often being called the ‘avocado toast’ generation. However, they have had to face challenges that no other generation has had to face. So how does this affect how they invest? We take a look at who millennials are and what this means for how they handle their money.
Who are millennials?
Millennials, Gen Z, Gen X? It can all get a bit confusing. According to the Pew Research Center, millennials are those that were born between 1981 and 1996.
Gen Z is typically described as those born in the mid-1990s to 2000s. Which, as you can see, overlaps slightly with millennials. This is mainly because Gen Z are typically the children of Gen X. But they can also be the children of millennials.
There is also a bit of ambiguity as they have similar characteristics. Both grew up in the age of huge technological advancement. So both had the internet from a young age and are confident when it comes to all things digital.
What characterises a millennial?
Millennials are the generation who have been most severely impacted by recession. Many millennials were entering the job market just as the financial crash occurred. They faced record unemployment, which in turn hampered their chances of entering the workplace.
This has had a knock-on effect on their personal finances. They are the generation who are likely to have higher levels of debt, who have struggled to get on the property ladder, and who started their employment journey at a lower level of income.
How do millennials invest?
The sad reality is that mistrust in financial institutions, the effect of a recession and an environment of ultra-low interest rates has knocked the confidence of many millennial investors.
Many consider investing too risky. With other demands on their finances (such as paying down debt) and the nature of the gig economy, millennials have preferred to spend what money they have in the present rather than grow it for the future.
It is also important to note that there is a lack of knowledge and education when it comes to investing for millennials. In previous generations, there just weren’t that many options to choose from. However, the market place is now flooded with a huge range of providers. And there is very little guidance on how to pick the right investment.
In fact, a lot of millennials have chosen to stick with low-yield savings accounts, or have developed conservative investing habits, despite having a longer window to invest and recoup any losses.
What investment strategies could millennials adopt?
If you take a step back and look at the age and the earning potential of millennials, many could afford to take a lot more risks than they think. While many are focused on paying down debt, any savings they do make are languishing in savings accounts that are not earning them interest above inflation.
When it comes to investing, having a long timeline in which to ride out any dips in the market makes a huge difference. Millennials are currently aged between 24 and 39. This means that even the oldest of the generation still have just shy of 30 years before retirement.
While how much risk you take with your finances is personal, if you have a longer runway to grow your money, you can afford to take on a little more. So millennials should maybe consider growth stocks rather than equities, for example.
If you are new to investing, then starting with something like a stocks and shares ISA could be a good idea. Or maybe a share dealing platform like the Barclays Smart Investor. With five ready-made investment funds included so you don’t have to start from scratch.
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