Millennials tend to get at lot of criticism. They’ve been called the “Me, Me, Me” generation, obsessively narcissistic, and self-centered.
These critics aren’t necessarily wrong. The generation of the selfie, participation trophies and obsession with documenting everything is probably, ok definitely, a bit self-centered.
But according to Millennials, that isn’t a bad thing.
Millennials might be a little different from their predecessors, and a little more self-involved, but that’s because they see their own personal happiness as their number one goal in life.
I have a disclosure to make. I am a Millennial. Since I’m on the later spectrum of Millennials, I could also arguably be considered a member of Generation Z. But regardless of technicalities, I identify with Millennials. And I think Millennials are pretty great.
Millennials see money differently than their predecessors. They would rather make $40,000 a year at a job they love than $100,000 at a job they think is boring.
They are also one of the most aware and socially accepting groups that the world has ever seen. Their fabled tolerance and massive technological innovation is undoubtedly impressive. One thing that isn’t particularly impressive though, is their financial situation.
There are over 80 million Millennials, and as the years go by they will become the dominant force in the economy. By the year 2025, 75 percent of the U.S. workforce will be Millennials.
It’s no secret that many Millennials are struggling to make it financially. Many spend more than they make, are in debt, and live with their parents. And very few of them are investing.
But they should be. Millennials more than anyone need the money, and investment just might help young people find financial stability despite their current financial insecurity.
Here at equities.com we’ve compiled five reasons why Millennials need to start investing. To make this piece particularly Millennial-friendly, we’ve made it into a listicle.
1. We’ve got time (“The Power of Compounding”)
The main thing that millennials have that our predecessors did not is time. Millennials are, obviously, younger than previous generations, leaving us a lot more time to get done what needs to get done. And thanks to that extra time, young people get to take advantage of “The Power of Compounding”.
Compound interest is what makes investing potentially so profitable. Compound interest lets you earn interest on the money you save, and also on that interest the money earns. A small amount of money can add up overtime. Let’s compare the investing habits of two different Millennials.
Paul has a part time job working at the local produce shop while he attends college. Paul has managed to save $1,000 a year since he was 15 and he successfully invests it in the stock market for 10 years earning 12% per year on average. He graduates with no debt. At 25, Paul decides he no longer wants to live “working for the man,” and starts basing his life on the motto “YOLO.” Instead of investing his money, he spends everything he earns on bedazzled snap backs, gold chains, and bottles to pop while clubbing. Despite Paul’s uptick in spending and halt in investing, he keeps his 10 year nest egg in the market.
Kate spent her early paychecks trying to make a dent in that student loan debt she’s racked up at an expensive private school. Kate isn’t partial to bedazzled snapbacks and conservatively spends the money she earns from her modest but secure job. But, when Kate finally pays off her loans and decides to start investing, she’s 40. Faced with upcoming retirement, she starts scrimping to invest $10,000 every year for the next 25 years.
So who has more money at 65? Both Paul and Kate have made a substantial amount of money, but Paul’s money grew for 50 years, twice as long as Kate’s, and Paul didn’t have to take huge chunks out of his paychecks. His initial 10 years of saving $1,000 per year ($10,000 total -- the same amount Kate invested in one year) resulted in $1.8 million by age 65. Kate, conversely, scrounged for 25 years to invest a quarter million dollars and still ended up with less than Paul, just under $1.5 million.
Twentysomethings also have time to weather any the ups and downs of the market and benefit from long-term gains.
There’s a reason that time is number one on this listicle. The power of compounding is why the sooner you start investing, the better.
2. We’re tech-savvy
Millennials have another advantage on our side that previous generations aren’t quite up to par with. We’re tech savvy. We know how to work those fancy gizmo gadgets and that Internet machine. And we know that the Internet is useful for much more than just cat videos, which some of our predecessors have yet to figure out. There are many free tools on the Internet that can help you make better decisions about investing.
Much of what makes the stock market confusing and made brokers invaluable in the past is the terminology used. Websites such as Investopedia make it easy for anyone to figure out what exactly P/E means.
There is a plethora of resources online to help you gain a better understanding of the stock market, including (shameless plug) equities.com. Websites such as Howthemarketworks.com also provide knowledge along with option for virtual trading.
With a better knowledge of what you’re getting into you can make a smarter investment.
3. We’re skeptics
Millennials have grown into the workplace in a time of economic strife, so it’s no surprise that they are skeptics when it comes to money. You’ll be hard pressed to find many willing to partake in get-rich-quick schemes and overly risky stock market gambling.
Millennials are also skeptical of financial institutions. As they transition into adulthood, more than half say their parents were the most influential on developing the way they view money. In fact, when seeking investment advice, Millennials are most likely looking towards their parents.
But so far the financial habits of Millenials have been substantially different than their predecessors. According to a Wells Fargo survey to gauge savings and investing attitudes and behaviors, Millennials are more risk-averse than Boomers when it comes to investing.
Although Millennial cautiousness might save us from gambling away all our money, it isn’t always a good thing. Only 14 percent are investing in high-growth strategies.
Around half of millennials surveyed say that they are “Not very confident” or “Not at all confident” in the stock market as an investment for retirement. This mistrust of the market was particularly apparent in women, resulting in less women investing than men.
Most millennials that are investing are playing it safe. Northwestern Mutual found that a third favor long-term strategies, and another third would like to as well, but they feel like they are too far behind to take the slower route.
High growth strategies lead to much greater long-term returns, and Millennials have 40 years to get over any bumps. With money sitting in savings bonds and other conservative investments, Millennials are missing out on growth opportunities. Young peopleshould embrace low-cost, diversified risk while they have time to ride it out.
4. We need something to counter student loan debt and underemployment
Compared to Generation X and Baby Boomers, millennials have less wealth and income at the same stage of their lives. Millennials suffer from unemployment, student debt, and underemployment.
It’s no secret that Millennials haven’t all been getting the best results out of the education system. Of the 20 million Americans that choose to attend college each year close to 12 million, or 60%, borrow annually to help cover costs. In 2011, about 57% of students at public four-year colleges graduated with debt, borrowing an average of $23,800 each.
And to add on to the financial hardships caused by student loan debt, many are also facing underemployment. Millennials are taking on jobs that they are overqualified for just to make ends meet.
The amount of young adults living with their parents has also reached a historic peak within the last few years. In May 2014 the unemployment rate for Americans aged 18 through 29 reached 13.2%, well above the national average.
5. Retirement is far away... but not as far away as you might think
Less than half of Millennials are saving for retirement. Yes, Millennials have got a few years before retirement becomes a reality, but it tends to creep up sooner than anticipated.
Millennials are aware of the problems with Social Security, and many of them don’t expect it to be a significant income source when they retire.
The uncertain fate of social security has caused millennials to anticipate the need to be self-reliant when it comes to retirement. Thirty-seven percent of Millennials don’t expect Social Security to be available to them as a source of income upon retirement at all. Investment profits can act as a counter to reduced or non-existent Social Security support in the future.
All investments have a degree of risk. Money invested in securities is not federally insured. It’s important to understand that with the purchase of stocks, bonds and mutual funds that you could potentially lose your principal, or the amount you originally invested.
But the stock market isn’t that different from life itself. With no risk comes no reward. If you keep your money under the mattress instead of investing it, your money will just sit there idly. Every day your money is invested is another day that your money works for you.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer