Being in your 20 - 30s can be very exciting but also draining from all the important decisions one has to make. Thinking about taking on a student loan, finding the right employer, or financing one’s own first home - the right financial buffer and financial literacy can be the make-or-break factor for anyone considering themselves Gen Z or Millennial.
Alongside this, inflation is surging past 2008 levels, national banks are raising interest rates to record highs, and the job market is struggling for anyone trying to enter. This makes it even more challenging for young adults to settle down and feel safe in their finances. The solution to this? Investing young!
Who are Millennials and Gen Z?
Before diving deeper into this, let’s outline who Millennials (1981-1996) and Gen Z (1996-2012) are and what distinguishes them from other generations. Millennials, entered the workforce during the 2007-2009 recession and are, compared to previous generations off with lower earnings, free assets, and less wealth. Generation Z, or Gen Z for short, describes the generation succeeding Millennials. Both grew up with access to the Internet and are often jokingly described as “zoomers” and “digital natives”. They hold characteristics as being well-behaved and rather risk-averse.
Like any adolescent trying to enter the job market and find one’s purpose in life, Gen Z and Millennials are struggling with a lot of uncertainty, being even more concerned with academic performance and job prospects than older generations. This uncertainty is specifically relevant today, as companies are decreasing their hiring rate and the job market becoming more competitive in general.
Even though both generations do have their differences, such as Gen Z being more entrepreneurial and independent, the similarities outweigh those, hence for the sake of investing and facing the job market, they can be viewed together.
Both generations are multitasked, go to college and are thus accumulating debt, having the highest debt growth of any generation between 2019 and 2020, with the average balance increasing 67.2% from $ 9,593. This shows, that Millennials and Gen Z are experiencing an extraordinarily difficult time right now, with low levels of funds, and high levels of uncertainty.
The generations in time of uncertainty
How are Gen Z and Millennials dealing with uncertainty and mandatory higher risk tolerance? Whilst the parental generation was seeking stability, a defined career path, and low risk in every aspect of life, millennials and Gen Z long for more diverse, fast-paced and individuum-based environments. Yet, especially in the current situation, this wish for freedom and opportunity is limited, as job markets are becoming more restrictive and costs are going through the roof.
Being able to navigate through this crucial point in life, considering whether to take on a student debt, take on a specific job, and select a retirement plan can be overwhelming, and the feeling of uncertainty is unbearable.
Nearly half of those generations are in some form of debt, 45% find it difficult to afford day-to-day necessities, as stated by to a Deloitte survey conducted in Europe . According to a survey by the Bank of America, one-third of Gen Z had no investments, with most of them short on spare funds. This also tremendously impacts family dynamics, with 30% living with their parents longer due to high inflation and economic uncertainty. Those struggles of the generations can be tackled by considering investing your money. Investing allows your money to work for you and to help you achieve your goals quicker, if done correctly.
Understand your goals before doing anything
Before starting your investment journey, it is crucial to understand your goals. This is, as it ties into the investment strategy to be chosen, the approach, the time horizon, as well as someone’s risk profile. Before allocating all money to different investments, you should define the goals you may be pursuing. Those could be specifically for Millennials and Gen Z:
- Paying off student debt
- Boosting the credit score
- Buying your first car
- Paying increased bills
- Learning how to manage money better
- Saving for early retirement
To help you understand your goals better and where you stand in your financial journey, Marmot has created the Money Maker Quiz. The quiz measures your level of risk appetite, financial goals, and more. It calculates a score, based on which you will be guided with your further investment journey and can be done in less than 5 minutes.
In addition to defining your goals, there are more things to consider when starting your investment journey. Think about when you want your money to be liquid, how you are dealing with fluctuations and potential losses due to market conditions, what is the time horizon of your investment, and how much you want it to grow.
Why is it so important to start early?
This is where the right and especially early thoughts about investing come into play. If money remains uninvested, it loses its value; with investment, it ideally retains and even gains value. This concept is referred to as the time value of money: the money I have today will be worth less in the future.
This is an essential concept to keep in mind when making investment decisions, describing that your purchasing power decreases over time. When you apply this to your investments and add an interest (usually 1-5%), which compounds over time, the following example can be drawn up. If you invest $100 for one year at a 5% interest rate, then at the end of the year, you will have $105. So the $100 today is worth $105 in the future.
So how is this especially relevant for millennials? Well, the earlier you start, the more significant will the compounding effect be. So even if you start with minimal sums that you invest in lowest risk (and thus lowest return) investments, such as Treasury Bills or Bundesanleihen, the German equivalent, money provided by the government which is viewed as the lowest possible risk, you will eventually gain greater financial value in the long run.
In addition to investing, saving can be a great tool to put money to the side to help buffer education expenses or retirement. Millennials are planning for their future but not enough of them. With 60% of people in Switzerland struggling with finding the right pension and making adequate financial decisions, according to Credit Suisse , thinking about retirement funding early is crucial.
How to start investing
Here is a common phrase regarding investing young: “I am going to start investing when I have real money to invest”. Yet, it is never too soon to start investing. Say you invest 40 euros per month, this might not seem like a lot, but over the course of a year, it comes to over 500, assuming that there is a return of 5% (which is the average annual return on international stocks) on your investment.
But where should one start to invest? Even though there is always a particular risk ascribed to an asset, you can define your investment strategy and select the right assets based on your risk profile. To learn about how to start investing, check out the article “How to Start Investing if You Have Little or No Experience?” and “5 reasons why you should start investing ASAP”.
Many Millennials and Gen Z have been investing in key trends, so-called “trend-investing”, over the past years, such as in tech or crypto investments. Those asset classes experienced a significant loss this year. A more diversified portfolio alongside those current-low assets can help balance this with more traditional investments like stocks, bonds, and real estate mentioned before.
Resources to help you
There are plenty of resources that can help you alongside the investing path. Here are a few book recommendations that can get you started.
- Girls Who Invest; Simran Kaur
- Girls just wanna have funds; Emma Due Bitz
- Clever Girl Finance; Bola Sokunbi
- Christiane von Hardenberg: Selbst investiert die Frau
- Katharina Bremer: Finanzheldinnen - der Finanzplaner für Frauen
- Natascha Wegelin: Madame Moneypenny: Wie Frauen ihre Finanzen selbst in die Hand nehmen können
Additionally, you can work with a trusted advisor for guidance and professional support on defining your strategy and managing your wealth. For that, Marmot`s team of experts can help.
Investing young can not only help you reach your personal goals faster, but it also makes use of your money in an efficient and easy way. Gen Z and Millennials are entering the workforce in times of economic upheaval and tense markets, so they are particularly benefiting from their return on investment.
Further, what should not be neglected is that Millennials and Gen Z will be the future workforce, who, with their personal investment decisions and ideas they bring to their workplace, drive and thrive through impact and ESG investing. Through this tremendous economic power, change can be driven in a sustainable manner. So when deciding what to invest in, think about the future you want to live in and what vehicles, indexes, and stocks align with that.
So - are you ready to start investing in your future and positive impacts today? If so, check out Marmot`s Financial Goals Planner to understand what your goals are and how you can achieve it with investments.
The content in the blogs is solely for general information and to help potential clients get an idea of how we work. They are not recommendations that should lead to the purchase or sale of assets and are not investment advice. Marmot.Finance cannot judge whether and how the statements made fit your investment objectives and risk profile. If you make investment decisions based on this blog entry, you do so entirely at your own risk and responsibility. Marmot.Finance cannot be held responsible for any losses you may incur as a result of information contained in this blog entry.The products mentioned are not recommendations, but are intended to show how Marmot.Finance works and selects such products. Marmot.Finance is also completely independent and does not earn money in any form from product providers.