Catch-22 v. 2.0 — Millennials and the Stock Market

The stock market lacks millennials. Is the stock market not suited for them? If the numbers tell us anything, that’s probably true. Eighty percent of millennials are not investing in the stock market, according to a Harris poll. This strikes us as a very high number, as 52% of the general population are invested in the stock market. In fact, that 52% is still much less than the 65% invested before the subprime crisis in 2008. These stats can increase the gaps between generations.

Generation Gaps

Millennials avoid the stock market for various reasons:

  • Financial education—Some might say that education overall is not very good, but financial education is especially awful. Financial literacy tests return with the same conclusion every time—Many Americans lack basic financial skills. While this fact probably applies to all generations, the data shows us that something really bad is happening with millennials in particular.
  • Millennials came of age during the subprime crisis. They are terrified by another possible crisis since their employment and salaries suffered from the previous one.
  • Even those who are employed are often working in low-paying jobs. Many of them still carry student loan debt. Less than third of millennials have more than $1,000 in their savings account. Will they invest that money?



We probably can’t blame the millennials if they don’t invest, but we do have to deal with the consequences. Entire generation buried in debts is one thing, but the fact that most millennials will not enjoy the pure joy of compounding should make us all worry. The difference between those who are starting to save (and invest those savings) in their 20s and those who start saving in their 30s or even 40s is dramatic, but what’s so different about this from other generations?

The core difference between generations

Generation X, Baby Boomers, and the generation before that no one remembers (because they were so silent) never experienced an insignificant, almost zero interest rate, even for a short period. It has its downside in that those generations had to pay more for loans, but the comfort we had in the loan market can’t blind us. In most cases, people in their 20s and even 30s do not have enough money to invest in the stock market. They just pay their loans, and the low-interest rate probably creates too many of those, but this is only one side of the coin. The other is that a low-interest rate makes the stock market go up and up.

The stock market bonanza happens for many reasons, but what has had the most effect is the low-interest rate:

  • No good low-risk alternatives are available for investments
  • Companies become cheap, as investors discount future cash flow in a lower discount rate
  • Companies can get cheap credit to increase their operations or even buy back stocks and pay dividends

So the catch-22 for the 22-year-old millennials is as simple as that—they just graduated and have to pay back their student debts, while older people enjoy the celebration on Wall Street. When (and it’s just a matter of when) the interest rate rises, their loans will become more expensive. Even if they actually find a high-paying job and pay back their loans in full, by the time they have some money in their saving account, the stock market will be flat or even worse.

I can’t cheer up the young millennial. I don’t see the interest rate going as high as it used to be, but the stock market will probably be more expensive once those recent graduates start saving some money.

So what we do?

It’s Not a One Generation Trouble

First, we have to understand that this is not a problem for just a specific generation. If America wants to retain its economic force, millennials have to achieve economic power. Young people everywhere are the ones who drive the economy for several reasons:

  • Young people work harder—Maybe it’s the energy, maybe it’s the need to impress their Gen X bosses, or maybe it’s just that most of them are not yet ready to have a family, but millennials are also working more hours than previous generations.
  • They are usually considered as being more innovative and more likely to take risks.
  • They are fresh out of college and have been raised with technology and a new set of skills adjusted to the current industry.

It’s reasonable to assume, however, that the financial problems of young people can hurt the economy. Loans can make people work in a bad job, thus stopping their professional progress; less savings may cause them to take fewer risks, build fewer companies, and start fewer ventures; less money entering the markets means less fuel to grow the economy.

The problems of the millennials are not just their problems. Most millennials are generally the children of Baby Boomers. These Baby Boomers are retiring, and with a high life expectancy, a major share of the population will be out of the labor market, paying higher costs for health services, and having less money to leave for their children.

Creative solutions

We need to think of new ways to deal with this financial gap between the generations. We can’t suddenly make the millennials rich, but we need to make them more financially aware, better financially educated. The ultimate way to accomplish this would be to encourage the millennials to invest more. We can do it by financial education and focusing on the value proposition of investments. It is something we are already doing to some degree but with only limited success.

A better option would be to offer incentives. The economy is all about incentives. If an average double-digit return does not convince people, we have two options: they are either not aware of the numbers (which brings us back to the paragraph above) or they do not have the money to start with.

Imagine that every American household receives a few dollars that could only be used for investment. The cost of this program would be a tiny fraction of the federal budget, but results might be unprecedented. Another possibility is to decrease the tax liabilities for a first-time investor.

I can already hear the objections. The general public might not be very good with investments, believing that only the rich become richer in the market. This may be correct, so we should incentivize the public to invest in the indices. Everyone will have a small share in an ETF that covers the S&P 500, and we’ll build ourselves a promising incentive.

What do you think?


6 comments On Catch-22 v. 2.0 — Millennials and the Stock Market

  • Great article! very inspiring.

    Personally, I believe that Millennials are somehow suspicious about the capital market because of knowledge barriers and inefficient process. It’s doesn’t seem to me as very intuitive for a young person to approach his banker and ask for an investment account. I think that a low (or no) fees applications, such as “Robin Hood”, which also provide simple and structure process, along with enough information about each stock or financial instrument, could really bring Millennials closer to this world.

    What do you think?

    • Hi Tal,

      Thanks for the compliments!

      I think your’e correct. There are many barriers for young people and overall the capital market creates antagonism among all generations, but especially among millennials.

      I agree that Robin Hood does a lot to connect young people to the market, and their success is unprecedented among millennials. However, I do think Robin Hood might create some other problems, and I actually intend to write a post about it in the coming weeks.

  • Hi Roy, loved the insightful post.

    Short & mid term speaking, do you believe the US economy is suffering from the trend of millennials consuming goods rather than saving for a rainy future?

    • Hi Ori,

      Generally speaking, I believe our generation consume more than it can afford, perhaps more than it really needs.

      However, I think that short term speaking, it only contributes to the US economy, as consumption is the main factor for growth. The US economy and the world economy post the subprime crisis live on cheap credit used for consumption.

      The long run is obviously a different story, and we could find many old people with no savings at all in a generation or two. And that’s risky.

  • Roy, you might be familiar with this but I will mention it anyways. William J. Bernstein wrote a financial guide in 2014 called, “If You Can: How Millenials Can Het Rich Slowly”. The best financial advice I have found so far was there.

    • Hi Gabriel,
      Actually, I did not know the guide, even though I have heard about the author. It has definitely entered my reading list, thank you!

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