Why are most people so afraid of stocks and funds?
When dealing with money, Europeans prefer to stay on the safe side , as the GfK association’s investment barometer 2017 confirms. Especially younger generations are not in the mood for risk.
We are currently stuck in a low-interest phase, returns are miniscule, and inflation is doing the rest. Traditional investment forms are anything but lucrative right now. And still, many Europeans continue to prefer to put their money in savings – approx. 40 % of the German population. An investment in stocks and funds clearly creates higher returns, but most Europeans feel uneasy about it: only 7% of Italians, 13 % of French, and 19 % of Brits view stocks as an attractive investment form.1 Especially the younger generation hesitates: an American study showed that approx. 80 % of millennials save but do not invest their money in the stock market.2 Why is Generation Y so reserved?
Ignorance and prejudice dominate
Shares are traded on the stock exchange. So far, so good. But the knowledge of most consumers ends with deposits, derivatives, and binary options. And why are there bulls and bears running around? The world of the exchange is complicated and 34% of millennials admit that they simply do not understand enough and have too little experience to venture into trading. Young women in particular are just not interested. In addition, the exchange has a real image problem. And not just since the financial crisis in 2008. Millennials often associate the stock market with rooms full of brokers who yell into their phones, unscrupulous old men in expensive suits, and excessive parties in the style of Wolf of Wall Street.3
Living in the here and now
In general, young people are not in the mood to think about their financial future. They prefer spending their money in the present. A new smartphone, concert tickets to their favorite band, and going to a good restaurant with their friends – little joys they simply do not want to forgo. A phenomenon that economists call "time preference".4 Simply put: instead of saving money for later, millennials would rather own or experience nice things now. And if they do save money, they prefer to do so for a specific goal like a road trip through Canada. That seems easier than saving for something abstract like retirement.
The financial world is upgrading
Completely avoiding asset creation with stocks and funds should not be an option, especially for Generation Y. They need the higher returns of riskier investments to create sufficient savings for retirement. For this reason, the financial world is now upgrading. Many online posts, tutorials, and finance apps are supposed to make the exchange world more attractive and accessible for millennials. The motto is: stock trading for everyone. Keeping an eye on income and expenses, managing the stock portfolio, and overseeing all investment options with the help of your smartphone is supposed to make the topic of retirement care more tangible for younger people. But to succeed it is necessary to study the subject matter in depth. If you need help to avoid making bad investments, contact a financial consultant – for instance from OVB.