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There is enough information on how to start investing, that you wouldn’t think anyone could literally fear the stock market. There’s also just enough information to prove that people don’t have full confidence in the stocks or other investments right now. But millennials have some extra challenges when it comes to investing.
In a recent survey about stock marketing investing, Bankrate noted that more than half of Americans in all age groups are not active stock market investors. Here’s how the numbers look for those age 18-35.
65% of millennials, age 18-35, said that they don’t invest regularly in the stock market, retirement accounts, or mutual funds.
Even more daunting, 80% of survey respondents age 18-25 said they don’t invest.
While some millennials may not acknowledge outright fear, there is definitely a pattern. So, exactly what is it that keeps most millennials from investing?
5 Reasons Why Millennials Shy Away From Investing
The top 5 reasons why most millennials, and especially the younger ones, are hesitant to invest in stocks, mutual funds, and retirement plans are:
- They lived through the financial crisis of 2008.
- Financial literacy among millennials is low
- Millennials don’t believe they can afford to invest
- They are in too much debt
- They think that the cost of investing is too high
Here’s how these beliefs affect millennials.
The 2008 Financial Crisis
During the 2008 financial crisis, millennials were anywhere from pre-teens to mid-20s. Younger millennials, 18-25, experienced first-hand the effects of the crisis. Some saw their parents lose their homes and some had to defer college or find another way to pay for it since their parents were unable to help. Older millennials, 26-35, just starting their careers and families were impacted because they either couldn’t buy a home because of the credit tightening and sinking property values. Some even took a loss in the real estate market.
Low Financial Literacy
Unfortunately, many school systems didn’t place a premium on financial literacy education. Too many millennials were unprepared when they graduated from high school. Many were never taught the basics like budgeting and managing credit and debt. As a result, most millennials first act was to go into student loan and credit card debt.
Many millennials say that they can’t keep a basic savings account, much less invest, because a significant part of their incomes goes to paying back their education loans. Then as they try to improve their way of life, the debt spiral starts. They get into credit card, auto loan, and mortgage debt. Some are still paying back credit card debt they incurred trying to meet the cost of living while they were still in college.
“I don’t have enough money to invest.” Or more accurately stated, they don’t have anything left over after paying off debts and meeting their basic monthly living expenses. They don’t feel in control of their finances and are not ready to take a chance on putting their money at any further perceived risk.
Cost of Maintaining Investments
When millennials say that it would cost them too much to invest, often what they’re referring to is risk. They believe that they must pay an advisor who really can’t guarantee that their money is safe and their account values will be intact in 15-20 years. They also feel like it’s too costly to put money away and defer immediate goals for the future.
How Can Millennials Overcome the Barriers and Fears That Keep Them From Investing?
Millennials need to get smart about investing. The first order of business is to not jump in head-first, without the right tools and solid knowledge. If you’re a millennial who is new to investing, we suggest that you learn as much as you can about investment, use technology to help you along the way, and focus your efforts on both short- and long-term goals.
Educate yourself before you put your money into stocks or mutual funds. If budgeting and managing credit is a challenge, you’ll want to take advantage of the resources to help you understand credit and how to use it. If your paycheck is stretched to the limit, consider a financial literacy program that uses group seminars, online budgeting tools, or local coaches and accountability partners. Usually, you’ll start saving money, and that will help you see how affordable and easy it is to commit to investing.
Leverage technology because the investment companies do. There are investing apps for micro investors that let you do everything from reading a mutual fund prospectus, to managing your 401K, to buying and selling stock. Follow investment companies on Facebook and Twitter. Subscribe to newsletters from investor education websites like Investopedia.com.
Set goals that you can achieve now as well as in 20-30 years. Start with a short-term saving and low-risk investment plan that you can see results from in two to five years. Use our Simple Savings Calculator to see how much your money could grow over time.
Take the Next Step
Investing need not be stressful or altogether avoided. As a millennial, you are at the age where investing can be affordable. Younger people in a great position to start out investing very small amounts over time. Start by investing in high-quality stock through your employer retirement plan. Once you see results, it’s time to try investing directly in the stock market on your own.
Author: Jeff Gitlen