Since the recession, middle class Americans have been avoiding the stock market, largely citing a lack of funds to invest. And with the economy still slow to recover, an entire generation appears to be afraid of investing. Millennials don’t necessarily lack confidence with their money, yet they are shying away from stocks. Among adults under age 30, only 26% participate in the stock market, according to a March 2015 Bankrate study. Compare that with 58% of people between the ages of 50 and 64 who invest. This could mean serious consequences in retirement for millennials, as many claim it’s best to invest early in one’s career so money has more time to grow and recover from dips in the market.
The hesitancy on the part of millennials may not be so misplaced, however. According to Betsy Flanagan, president of WorkStrengths, retirement is precisely what many young people are worried about. “If we look at what was happening in the world when they were growing up, we can understand how this makes sense,” she explains. “Millennials grew up during the Internet crash, the financial crisis of 2008, the housing bust, and watched while their parents’ financial assets and security got crushed repeatedly, and they worried about how they would ever be able to retire.”
America is still recovering from the Great Recession, so the residing wariness surrounding stocks and Wall Street may take years to fade. Many predict millennials will eventually make their way to the market. David Nelson, chief strategist at Belpointe Asset Management, says, “They will buy stocks, but millennials will invest in ways different from their parents, via robo advisers or methods where they can be more involved.” Young people are demanding more control and transparency in all aspects of their lives, so the path they take to investing will likely follow the same trajectory.
Here are four major reasons millennials continue to avoid involvement in the stock market.
1. They can’t afford to invest
The biggest obstacle to young people investing is a lack of funds. In the Bankrate survey, 42% of respondents under 30 cited not having enough money as the main reason they’re not investing in the stock market. Millennials face a lackluster employment outlook and unprecedented levels of student loan debt, so many young people are wisely focusing on paying back debts, moving out of Mom and Dad’s house, and securing a stable career before they turn to retirement savings or investments.
2. They don’t understand stocks
Of all of the age groups Bankrate surveyed, the 18- to 30-year-olds were most likely to say a lack of knowledge about the market was the reason they avoided stocks, with 38% of respondents citing this factor. Millennials are behind older generations in terms of financial literacy. Of course, with age comes greater financial wisdom, as well as greater urgency in terms of retirement savings. Americans of all ages have long been frustrated by Wall Street’s jargon and inaccessibility to everyday investors, but young people might be the least willing to let stock brokers take the reins.
3. They are conservative with their money
A 2014 UBS survey found millennials to be much more conservative and risk-averse with their money than non-millenials. Respondents age 21 to 29 devoted less than one-third of their portfolio to stocks and more than half to cash, while for non-millenials, these figures were essentially reversed. When asked how they would invest money they wouldn’t need for 10 years, 39% of millennials preferred cash, meaning savings accounts or CDS, according to a 2014 Bankrate report.
“The preference for cash and aversion to the stock market among young adults is very troubling considering this age group has the biggest retirement savings burden,” said Greg McBride, chief financial analyst at Bankrate. “They won’t get there without being willing to assume a little short-term price risk in their long-term money.”
4. They don’t like Wall Street
The harsh economy since the financial crisis has taken its toll on millennials, largely leading them to focus on more pressing financial concerns than investments and retirement. But even those in better financial situations may be shy about investing after seeing the vulnerability of the market firsthand. After all, if young people don’t trust the economy, they trust Wall Street even less. In a 2015 study out of Harvard University’s Institute of Politics, only 14% of respondents age 18 to 29 said they trusted Wall Street to “do the right thing all or most of the time,” a statistic that has barely changed over the past five years.
Seven years after the financial crisis, Wall Street corruption is alive and well, if not more prevalent than ever. So when brokers claim to have millennial investors’ interests at heart, you can’t blame them for not believing it. That’s why when millennials do get more involved in the market, it will likely be on their own terms. After watching Wall Street fail again and again to clean up its act, some young people, even those who could potentially benefit financially from investing, may abstain from the markets simply out of moral opposition.