Equities scare millennials and this is bad news for that generation

102 million millennials are living in the EU, which would represent 20% of its population, while Baby Boomers assume a significantly greater weight (23.4%). If we focus on Spain, the millennial generation is as relevant as in the EU (18.7%), being Generation X the one that today acquires the most significant share (26.2%).

Population Structure By Five Year Age Groups And Sex Eu 27 1 January 1999 And 2019 Share Of Total Population Byie20

Given its high weight in the population, it is important to know what is your ability to save and your preferences for saving / investing as they will set the direction in the coming years.

If there is one fact that defines this demographic, it is that they have high levels of risk aversion when investing in the stock market. While it is true that the average investor, regardless of age, is often risk averse, the sensitivity of millennials is even higher.

Despite the chained crises that this generation have experienced, theoretically, they would find themselves in the best moment of their lives to start investing in the stock market: they begin to earn money and, in the long term, compound interest would generate a multiplier effect on their personal wealth. But, their preference is not to invest but the greater availability of their money and to have greater liquidity.

What is the financial situation of millennials?

First, to achieve long-term investment goals, a savings base must exist. According to the 2017 study by Schroders Global Investor, millennials are saving, on average, 11.2% of your retirement income.

In the case of the Spanish, our millennials would be among the least savers, with 8.7% of his salary for retirement. The cause of this reduced metric is multiple:

  • Job instability both due to temporality and due to the salary amount that makes it difficult to plan savings for retirement. To put ourselves in perspective, compared to Generation X (those born between 1966 and 1980) when they were between 30 and 34 years old, today’s millennials have a 30% lower disposable income in real terms. This point is considered the most relevant, since the greater the uncertainty in employment, the greater the predisposition will exist for liquidity in the face of risk alternatives.
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  • They become independent late And when they do, they find an expensive housing market, leading to the option of renting. In Spain, 44% of millennial households are homeowners compared to 65% of Generation X.

  • Debts squeeze. The 33% millennials who are not in a home they own have acquired some type of debt (consumer credit). To cope with this financial burden, they must mobilize 21% of household income, a percentage higher than 13% of Generation X households.

  • Despite the multiple uncertainties about the pension system, in Spain public pensions are deeply rooted with a replacement rate close to 80%, which tends to form the idea that “there is no need to save” because the State will take care of us once working life is abandoned.

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Due to their reality it is understandable that they do not want to expose themselves to the risk of equities … their reality is uncertain and changing, they do not want to assume higher risk quotas.

The VidaCaixa barometer “Saving habits in the millennial generation”, which measures the saving habits of young Spaniards between 25 and 35 years old, concludes that they use these products to channel savings:

  • Current account, 43%.

  • Deposit account, 43%.

  • Cash, 23%.

  • Deposit, 11%.

  • Pension plan, 8%.

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Liquidity-oriented financial products are a priority for millennials. A fact that draws attention, when saving is penalized by negative interest rates (to which is added the devaluation due to price increases), while the Global equities is the best asset to integrate into the portfolio historically and has averaged returns in the last 20 years of 5.61%.

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Source: El Blog Salmón by www.elblogsalmon.com.

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