Why millennials do not trust the stock market

About a month ago, Goldman Sachs released a poll which came out with some quite stupefying results. It showed that only 18 percent of the young adults trusted the stock market as “the best way to save for the future.” This means that investor confidence within this age group is at an all time low, and that the stock market has gone “out of fashion”, as it were, in that people do not want to invest their money in stocks, especially given the uncertain nature of the economic climate, instead turning to crowdfunding and community banks as a way to secure income for later years. Above all, there are some key reasons why this generation do not trust the stock market as a way to generate income, the first of which being the economic crash of 2008.

When stocks plummeted in 2008, many millennials saw their elders lose the shirts off their backs, which extirpated the trust that had been gradually built up in previous years. The cost of living is rising rapidly as it is, therefore people need a stable source of income now more than ever. It is unmistakeable that stocks cannot provide this anymore, especially when we look at the recent volatility that the Chinese markets have been experiencing, with quite a few investors gaining a great deal of wealth and losing it almost as quickly. As student loan is higher now than ever, aspiring and enterprising people are having to sacrifice a large chunk of their income just to pay back these loans, which means that a steady stream of “extra” income is needed, not   a rapid gain and loss of wealth.

The general populace is also aware of more information than ever before these days, especially with sites such as Wikileaks coming to the fore, revealing information which national governments did not wish to be released. As such, millennials now know that the stock market is at least somewhat rigged, with stock prices surging far ahead of economic growth over the past five to ten years. The market being rigged also means that there is no longer a level playing field when investing in the stock market, as some high profile investors are aware of more information than others, giving them a greater chance of making money than their not so sagacious counterparts. In my opinion, millennials need the knowledge that they have the same chance of making money as anyone else off the financial markets, and, as this has not been provided thus far, they have been disincentivised to invest, and risk their money to the whims and fancies of society’s higher-ups.

Finally, some millennials just do not have the knowledge required to invest in the stock market. The Goldman poll showed that 16% of people believed that they did not have the practical knowledge required to invest in the financial markets, which links itself to a lack of financial literacy education in high school. Let us take America as an example. Only 17 states require financial literacy education in high school, which means that not enough millennials are aware of the opportunities for wealth creation that the financial markets provide. It follows that people will definitely not want to risk their money in an environment which they do not understand in the first place, and would rather have a stable, albeit comparatively low source of income than a volatile, fluctuating base of wealth. It remains to be seen whether these concerns can be addressed, and perhaps then the stock market will return to its previous place as a viable alternative to secure income for later years.

I must stress that these reasons are not meant to be taken as fact, but rather as a strong personal opinion of mine as to why millennials just do not want to invest in the financial markets anymore.

5 Comments Add yours

  1. This is an interesting perspective. However, if you have funds that you need to set aside for a future pension, a rainy day fund etc, then you need to put it somewhere. Putting it into crowdfunding rather than the stock market seems to me to be the high risk option.

    There is something called the Huhne Theory which states that financial innovation tends to go along with under-pricing of risk. Crowdfunding is an obvious example of this. We have never had an economic downturn that has led to widespread crowdfunding defaults and the return you get investing in crowdfunding doesn’t adequately reflect this risk. However, it s only a matter of time before it happens.

    I want a simple low cost investment that is relatively low risk over the long term. Give me the FTSE All Share anyday over crowdfunding for this.

    Like

  2. Because they love money not people..

    Like

  3. aimhex says:

    Reblogged this on Economics.

    Like

  4. larswillen says:

    maybe because of this ugly new yorker that just own 1 billion in 2008 and now own 7 billion after the finance crisis and now try to be president of USA.maybe that is the reason why we dont trust wallstreet

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s