A recent article by Fox Business has brought into light that more 50% of Americans have no ownership of stocks or stock-based investments (i.e. mutual funds, retirement accounts).  Author Claes Bell notes that this is bad for U.S. citizens, especially millennials.

“For adults under 30, only 26 percent of whom said they own stock, the consequences could be profound. Young people who don’t invest in equities early are set to have ‘a lot less money later on,'”

This could, indeed, result in a loss for young Americans.  If folks our age invest now, we will have plenty of time for our dividends to grow, our retirement funds to accumulate, and our portfolios to diversify.  So why aren’t U.S. millennials taking advantage of this economic opportunity… sounds like a sweet deal.

According to the article there are a few reasons (and potential solutions) providing why the youth of America doesn’t invest.

One: They don’t have the money to invest.  How can you start earning interest on a stock if you can’t buy the stock in the first place.  Simple enough.  In fact the article states that “people with incomes under $30,000 per year were the most likely to cite a lack of sufficient funds for staying out of the market in our survey.”

Bell’s article also provides a solution of sorts; more or less, invest anyway.  Even if you are earning less than $30,000 a year, take some of that money and put it in the stock market.  In regards to the idea that people feel like they don’t have enough money to invest, Bell says,  “that result also may reflect a misconception that you need a lot of money to benefit from investing in stocks.”  So you can still invest with little money.

Two: Many Americans don’t have investing know-how.  The article goes on to say that there isn’t a good system for financial education.  Young Americans don’t know how to invest, and if they did know how, then many of them would.  Bell is backed by academics here:

“There’s no effective financial education in the school system,” Stammers says. “Everyone is learning from the school of hard knocks for the most part, and that’s just not really an effective teacher.”

That notion is bolstered by Bankrate’s survey. Millennials were twice as likely as other age groups to say they’ve stayed out of the stock market because they don’t know enough to invest, suggesting they weren’t adequately prepared by the education they’d received.

Three: Potential investors don’t trust the market.  This makes sense, a lot of these under 30 Americans began their independent financial lives just after (or on the tail end of) a recession.  They don’t have confidence that their money will grow quickly enough and want to save the money they have.  But it wasn’t all that bad, according to Bell’s sources, “‘It’s funny because most of the people who stayed in the market actually did OK,” he says. “You hear a lot of news about how bad it was, not a lot of news about what happened to people who actually stayed invested.'”

While all of the provided reasons may be valid and true, the assumptions made and potential solutions proposed don’t really hold weight.  While Bell probably has the right ideas as to the surface reasoning behind young Americans being “stock avoiders” (yes, Bell calls them “stock avoiders”), he’s completely ignoring the underlying factors.  Let’s start with reason number one, or rather the supposed solution.

One: Young Americans don’t have that much money to invest in the stock market, but they should invest regardless.

The reasoning behind this is that if you invest while you’re young you will see a great return later on.  But let’s go back to the U.S. that is under 30 and earning under $30,000.

Firstly, they don’t have enough disposable income to invest.  These are the same folks that live paycheck to paycheck and have mouths to feed.  While a principal investment of $200 or $300 seems like a small sum to a corporation or broker, it looks more like a few weeks of groceries to a low income family.  While I’m sure these people would love to start a portfolio and watch their investment grow, they’re probably more concerned with paying rent.

Secondly, if these low earners do have money to invest they should be investing in themselves.  It is a far better decision (in my personal opinion and from an economic standpoint) to use that extra cash to pay for an education.  In fact, the return on investment for an education is usually a lot better than that of a stock investment.  Even the lowest earning degree holders usually see a lifetime return that is about on par with a stock holding, about 7%.  And higher earners can see up to double that.  So why should these same people who are primed for earning a degree invest in something with a much higher risk and about the same reward?

Two: Young Americans don’t have investing know how because the “school of hard knocks” isn’t an effective teacher.

I think the school of hard knocks is a great teacher, a teacher with a purpose.  The school of hard knocks teaches us that we need to get a job and save money in order to survive in this economy, is it wrong?  I don’t think that the school of hard knocks is a bad teacher, I just think that the lessons it teaches don’t align with the lessons that Bell would have us learn (which begs the question, why does Bell think we should be investing in stocks anyway?).

Three: Post recession investors don’t trust the market, but they should because stock investors weren’t hit that bad anyway.

It may be true that stock holders during the recession made out pretty well in the end.  So by that logic young folks should go ahead and invest, right?  Wrong.  The fact that stock holders did OK during the recession doesn’t change the fact that there still was a recession.  People remember that shit and are still trying to pick themselves up from it.  Which brings this argument full circle, back to the idea that people don’t have money to invest in the first place.  The post-recession under 30s are trying to pay rent and find jobs, so most likely the least of their worries is how stock holders made out in the 2010 fiscal year.

In my opinion, it’s pretty easy to see why young Americans aren’t investing.  Furthermore, it’s easy to see that convincing young Americans to buy stocks shouldn’t be top priority right now.  This article leaves more questions to be pondered, the aforementioned being why should we invest anyway?  Maybe Fox Business has some sort of interest in corporate gain (corporations being the real winners when lots of people invest), but who knows?  In a time where young Americans have more to worry about than expanding their portfolio and more to gain than yearly dividends, to me the choice is clear.


3 comments on “Why Aren’t Young Americans Investing in Stocks?

  • What happened with the stock market crash was really in the middle of what we call our latest recession. Many people think that it was the beginning but it was coming and we should have saw it coming. Investing is similar to gambling of course it depends on which enmities you are investing in but that goes the same for gambling. In my opinion millennial’s like to play it safe, be given things, and not have to risk there money investing. Investing you take a risk an attribute many millennia’s don’t have. Also the market crash of 2008 set millennials way back and we are the ones seeing the consequences; lack of jobs, lower salaries, less benefits, and companies instead of expanding to create more jobs are trying to get smaller and cutting jobs.

  • I agree with the point about playing it safe that Juan made. This is the same reason why our generation is avoiding all types of market activity that previous generations saw as necessity/tradition. Like buying a home for instance, or a car. These are investments this generation cannot afford. If a young adult cannot buy a home, and therefore must rent(a costly venture that does not benefit the tenant in the long run), they have student debt, and/or they have no money for a vehicle, why would they spend heir excess or savings on an investment that might go up in smoke? Its stubborn to believe young Americans today are going to make the same financial choices as their parents when the economic environment and terms around which they base their decisions have changed.

  • I also agree with the comments about playing it safe. We live in a generation where people struggle with affording simple (or not so simple) things such as healthcare. The cost of living has skyrocketed and living pay check to pay check isn’t just for the low wage workers anymore. With school debt and the loss of adequate paying jobs, Americans are focused on how they are going to make rent! Another factor to consider is the amount of distrust that this generation has with processes in general. We have grown up in an era that we are very scam conscious and we are very hesitant to spend or pay into stocks that we believe are distorted and skewed. The government is a prime source of our discomfort. I mean every time you turn on the news, despite which channel, you are bound to hear of some kind of scam or rip off. We are the generation that is clenching on to the little money that we have for dear life.. and when that doesn’t work we go to happy hour and hope we don’t overdraft. Material possessions are also very important to our age group as well as upcoming adolescents. Brand names and styles are viewed as needs by some, where our parents were actually looking for a good value. Why of course I will be pay a few hundred dollars for sunglasses… but don’t you dare ask me to invest! No money for that!! 🙂

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