The Top Five Reasons Why Young People are Not Investing Today

Imagine this: you're a young adult, stepping into the real world. You're earning your own money now, and you've probably heard people talk about "investing". But where do you even start?

Investing is as much a part of growing up as getting your first job or buying your first car. It's about securing your future, taking risks, and learning to make your money work for you. Yet, for many young people, investing remains a distant, unexplored terrain.

"The stock market is a device for transferring money from the impatient to the patient." - Warren Buffett

There's a world of potential in investing, but it seems many young people are still standing on the sidelines. Why? What's holding them back?

Are you curious about what's keeping the younger generation from dipping their toes in the world of investing? We've got the insights you're craving for.

Investipal conducted a survey with more than 100 youngsters in their early twenties to understand their perspectives on investing. Let's cover off some of their common inflictions and how to overcome the obstacles to investing for young people.

1. The Lack of Financial Literacy: Why Young People Are Not Taught About Investing

Nearly 70% of those who responded to our survey are not currently dabbling in the world of investing. We can certainly empathize; our early twenties were a whirlwind of juggling student loans, social life, and rent, leaving little to nothing for investments. The question is, does this sentiment still echo amongst the young crowd today?

Our survey threw up some interesting insights. Only one-third of respondents felt that a lean wallet was keeping them from investing. The greater revelation was that a majority felt handicapped, not by their financial situation, but by their lack of knowledge (43%) on how to navigate the investment landscape.

Why Isn't Financial Literacy Taught?

Financial literacy is like the secret sauce to a successful investment journey. Yet, it's often left out of the recipe when it comes to our educational curriculum. Why is such a crucial life skill overlooked?

There are several reasons for this glaring oversight. Let's dig into them.

Lack of Understanding and Emphasis: Often, the importance of financial literacy is underestimated. Many educational institutions fail to recognize the long-term benefits of financial education, focusing instead on traditional academic subjects.
Insufficient Resources: Even when there's a desire to include financial literacy in the curriculum, schools may lack the necessary resources. This can be anything from lack of qualified teachers to inadequate educational materials.
Societal Taboos: Money matters are often considered a taboo subject. This cultural mindset can discourage open conversations about finances in a learning environment, making it difficult for young people to gain financial knowledge.

These barriers prevent young people from building a solid foundation in financial literacy. By not learning these skills early, they may face challenges when it comes to making smart investment decisions in the future.

2. The Instant Gratification Trap: Why Short Term Thinking Can Hold Young People Back From Long Term Investing

When we asked our cohort of young people if they wanted to invest what would be their primary goal they're looking to achieve. Overwhelmingly, (59%) respondents wanted to generate income from their investments.

Could it be that our culture of instant gratification is to blame, where the allure of immediate spending often trumps the wisdom of saving for the future? This mindset, sadly, is a significant roadblock for many young people when it comes to investing. It could also be the relentless march of inflation, pushing people to chase quick money to survive.

Framing Your Investment Goals

Let's not dive too deep into the abyss of financial literacy just yet, but here's a tantalizing tip for young people to start investing for the long-term.

Imagine a high dividend yielding stock that generously dishes out a 5-7% annual payout to its shareholders. Now, let's say you've been a scrupulous saver, and by the time you hit 25, you've managed to squirrel away $20,000. With a 5% dividend yield, you're pulling in an extra $1,000 each year, or $83 a month. Doesn't quite sound like a ticket to financial freedom, does it?

Unleashing the Eighth Wonder: Compound Interest

"Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn't... pays it." - Albert Einstein.

The beauty of compound interest lies in its simplicity. You invest a sum of money, it earns interest, and then that interest earns interest on itself. Like a snowball rolling down a hill, it grows relentlessly, picking up pace the longer it rolls!

Imagine this; instead of spending that $1,000 dividend cheque every year you reinvest it. This is the power of compounding, a fundamental principle in investing that can turn small sums into great fortunes over time.

Harnessing the Power of Time

Compound interest has a best friend and it's called time. The longer you leave your money invested, the more exponentially it can grow. It's like planting a tree: the sooner you plant it, the more time it has to grow. And while you may not have money, time is one of the largest benefits of investing for young adults.

Remember: Time in the market beats timing the market.

3. The Risky Business: How Young People's Risk Aversion Can Prevent Them From Investing

When it comes to financial matters, young people seem to have a unique relationship with risk. While they might be open to all-nighters, starting their own businesses, or even skydiving, investing in the stock market can seem like a bridge too far. Why does this risk aversion prevent young people from seizing the financial opportunities that investing offers?

Risk perception: Investing is often viewed as a game of high stakes, where one wrong move could lead to devastating losses. This perception puts many off.

Despite the ticking clock being on their side, our budding investors seem to lean towards a balanced approach to risk. But here's the kicker - with a well-crafted financial plan and goals that hit the bullseye, they could well tip the scales towards embracing a tad more risk.

Let's break down some of the key reasons behind this risk aversion:

Lack of financial literacy: Many young people lack a basic understanding of how investing works, which can make the prospect of entering the financial markets intimidating.
Negative experiences: Witnessing the financial crises of the past and their impact on investments has left many young people wary of the stock market.
Immediate financial pressures: Young people often have immediate financial concerns, like student loan debt or the cost of housing, which can make it difficult to focus on long-term financial planning.

Clearly, the fear of risk is a significant barrier to young people entering the world of investing. But this doesn't have to be the case. With the right information and support, young people can make informed decisions about their finances and start reaping the benefits that investing has to offer.

Breaking Down the Barriers: How can young people overcome their investment fears?

Education is key. Providing young people with a solid understanding of finance and investing can demystify the process, making it less intimidating.

Access to resources that explain investing in simple, understandable terms can also be a big help. This includes books, online courses, apps, and even financial advisors who specialize in working with young clients.

Lastly, it's important to remind young people that investing is not about making quick gains. It's a long-term strategy for building wealth that requires patience and discipline.

So, while risk aversion may be holding young people back from investing now, with the right tools and mindset, they can become confident investors ready to take on the financial world.

4. The Student Loan Dilemma: How Student Loan Debt Delays Young People from Investing

Imagine a giant beast, a dragon named Student Loan Debt, breathing fire on the dreams of 33% of young people who wish to invest their money. This monstrous debt, often accumulated in pursuit of higher education, is the second-largest dilemma stopping our youth from stepping into the exciting realm of investment. It's as if they're shackled, their aspirations of financial growth held hostage by this relentless financial predator.

According to the Federal Reserve, the average student loan debt for Class of 2019 graduates was $29,900. This substantial debt impacts their ability to save and invest for the future.

Let's break down how this dilemma affects young people's investment potential:

Restricted cash flow: The monthly loan payments constrict the budget, leaving less room for investments.
Delayed retirement savings: Greater focus on debt repayment means less attention to retirement savings, pushing back the start of compounding interest.
Risk aversion: The pressure of debt can trigger a fear-based approach to money, making young people wary of investments' inherent risks.

Moreover, student loan debt can also have a profound psychological impact, leading to financial anxiety that further deters young individuals from exploring investment opportunities.

5. The Technology Barrier: How Investment Technology Can Help Young People's Investing Journey

Consider this hardly a shocker - the tech-savvy Zoomers, or Gen Zers, are keen to harness the power of technology to fuel their investment adventures. After all, they've literally grown up with the world of tech at their fingertips.

The chart below breaks down both the investors and non-investors willingness to leverage digital tools to support them on their investment journey.

If you need a helping hand with the spectrum of investing tools out there, here's the low-down on a few:

Fully Managed: Robo Advisors

Robo-advisors are digital platforms offering automated, algorithm-driven financial planning services with little to no human supervision. They provide a user-friendly, low-cost alternative for investment management, typically requiring minimal initial investment. Here's a rundown of the key advantages and disadvantages:

ProsCons

Low Costs: With a robo-advisor, you're typically looking at lower fees compared to traditional human advisors.
Accessibility: Robo-advisors are available 24/7 and can be accessed from anywhere with an internet connection.
Minimal Initial Investment: Some robo-advisors require as little as $1 to start investing.

Limitations: Robo-advisors typically offer less personalized advice compared to human advisors.
Lack of Human Touch: Some people still prefer the traditional human interaction, especially for complex financial planning matters.
Investment Limitations: They are usually limited to the investment products that the company offers.

Note: While robo-advisors are an excellent starting point, they might not suit everyone's needs. It's essential to assess your financial goals and risk tolerance before deciding on your investment strategy.

Fully Self-Serve: Stock Screeners and Charting Tools

Ever wondered how self-serve investors make informed decisions about where to put their money? Well, they have some pretty nifty tools at their disposal. Among these are stock screeners and charting tools.

Stock screeners are like a search engine for stocks. Investors can input their preferred criteria - such as sector, market cap, or dividend yield - and the screener will spit out a list of stocks that fit the bill.

Finviz: This is one of the most popular stock screeners out there. It offers preset screens, or you can customize your own.
Yahoo Finance: This screener is free and easy to use, making it a great option for beginners.

Once they have this list, investors can use charting tools to visually analyze the stocks. These tools provide detailed graphs and charts that show a stock's performance over time.

TradingView: This platform allows for in-depth technical analysis with a user-friendly interface.
StockCharts: This offers robust charting tools and is well-loved by seasoned traders.

Note: While these tools can provide valuable insights, they're not foolproof. It's always a good idea to do your own research and consult with a financial advisor before making any investment decisions.

As with anything in life, the key to successful investing is not just having the right tools, but knowing how to use them.

Meeting In the Middle: Investipal

Investipal is a unique platform designed specifically for investors who could use a little guidance on their financial journey. It's like having a trusted friend by your side, nudging you in the right direction. Whether you're a seasoned professional or a newcomer to the world of investing, Investipal's got your back.

What makes Investipal special?

Personalized Portfolio Building: After understanding your financial goals and risk tolerance, Investipal offers the perfect platform to build a diverse portfolio custom to you.
Easy to Use: The platform is designed with simplicity in mind, making it easy for anyone to navigate.
Collaboration: With Investipal, you're never alone. Our community portfolios let you easily subscribe and take inspiration from experts like Warren Buffett or your friends.

Now, let's delve a little deeper into its core features:

FeatureDescriptionPortfolio BuilderInvestipal's Portfolio Builder walks you through creating a diversified portfolio based on your financial goals and risk appetite.Market AnalysisStay informed with real-time market data and insightful analytics that help you make informed decisions.Investment TrackerKeep track of your investments and watch your wealth grow with their comprehensive investment tracker.

Remember, investing doesn't have to be scary or complicated. With the right tools and guidance, anyone can become a successful investor. And that's where Investipal comes in.

So, whether you're just starting out or looking to enhance your investment strategy, Investipal can overcome obstacles to investing for young people. It's about time you took that step towards financial freedom, wouldn't you agree?

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