By Douglas A. Boneparth, CFP®, AIF®, MBA
A number of recent statistics indicate Millennials are not investing in the stock market. One study reveals that 60% of Millennials aren’t investing; another shows the number is as high as 80%. Either way, the number is too high, and it means a large portion of the population is not participating in the capital market in this country, which could eventually have ramifications on the economy as a whole. It’s in the best interest of Millennials to invest in the stock market because it can help them save money for their future retirement.
There are a number of reasons Millennials are not investing in the stock market, including lack of financial literacy and knowledge, lack of money to invest because high levels of student debt, and fear of risk. Luckily, there are remedies for all of these reasons why Millennials are not investing.
1. Lack of Financial Literacy and Knowledge
One of the first hurdles many Millennials see to investing is a general lack of knowledge. Many were not taught about investing or personal finance in high school or college. This is especially true for younger Millennials. When the main source of knowledge about investing and the stock market comes passively from social media, it’s easy to receive conflicting information. It takes a lot of work to seek out the knowledge needed to invest, and it’s tough to be motivated to learn when you feel so removed from investing. However, the information is out there, and there are financial professionals who are willing to help. (For related reading, see: Investing 101: A Tutorial for Beginner Investors.)
2. Lack of Financial Resources
The second hurdle many Millennials encounter is a lack of financial resources. They are trying to do a lot of things in their financial lives, including paying for weddings, buying homes and paying off student loans. These can eat up a lot of extra cash flow that might otherwise go toward investing. Student loan payments often are a priority and can outweigh any additional savings towards retirement or other goals. Time in an important component to investing, even if you only allocate a small amount of money toward a goal like saving for retirement. For older Millennials, many are getting the message that the stock market has the potential for financial gains if they start early. There are always risks, but compounding can work in their favor when they have a long time horizon. (For more from this author, see: Retirement Planning for Millennials Now.)
3. Exposure to Bubbles Caused Risk Aversion
Speaking of risk, Millennials find themselves more risk averse when talking about the stock market because of what many of us saw with the various bubbles in the 2000s. We also saw our parents become unemployed or forced into early retirement. It has made us more cautious about investing and skeptical of financial institutions. It also has an affect how we feel about risk over the long-term. But we are taking on risks in other areas. Our entrepreneurial spirit is having us take risks to start our own businesses.
It is encouraging to see some Millennials taking calculated risks in certain areas. It’s hard to be objective with your money and to take the emotion out of it, even during tough times in the market.
Master Cash Flow, Establish a Cash Reserve, Identify Financial Goals
Lack of knowledge, lack of funds and fear of risk are all valid concerns and reasons not to invest, but they can all be overcome. Having the ability to invest is a privilege earned by mastering cash flow, establishing a cash reserve and identifying financial goals you want to invest toward. All Millennials should keep pursuing the knowledge of personal finance and investing because it is the key to financial empowerment.
Millennials are a resourceful generation and have the ability to figure things out. Technology is providing a lot of new opportunities for Millennials who are conscious of fees and want transparency. For Millennials who place a premium on their free time, these developments, along with professional help, can be beneficial. There is no silver bullet when it comes to investing, but Millennials shouldn’t miss out on saving for future goals because of fear or lack of knowledge—the funds one will come in time—just keep crushing it!
(For more from this author, see: Savings Options for the Self-Employed Millennial.)
This article was originally published on Investopedia.