April 17, 2015 | kayemb | 3 Comments 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.