Recently, I read a great study by the National Endowment for Financial Education that stated:

“Two-thirds of Millennials have at least one long-term debt (student loan, home mortgage, car loan)” and “Nearly 30% of those [Millennials] with checking accounts had overdrawn their account in the prior 12 months… [and]… nearly 20 percent of those with a self-directed retirement account either took a loan or made a hardship withdrawal…”

With approximately 66% of Millennials facing more than one trillion dollars of student loans plus other debts, it’s no wonder their view of the world and their money will be different than generations before.

I also know that in 2008 Millennials watched their parents endure the harshest financial crisis since the Great Depression. As parents’ homes, finances, jobs and retirement plans blew apart during those trying days, Millennials had a front row seat to the devastation, which undoubtedly cast a shadow on their own personal financial psychology/beliefs. (For more about the psychology of money, listen to our podcast on the topic.)

So, as I try to figure out the future, I tapped the expertise of Brett Carlin, my 20-year-old Generation Z/Millennial family member and college student at Syracuse University who majors in finance. Frankly, no one is better to help us understand this generation! We will explore over several articles the mind of Millennials to see how they really feel about finances – money, investing and everything related to the way they view their future.

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This is what Brett had to say:

“My parents are Baby Boomers. I overheard and watched as they endured many hardships such as the dotcom crash of 2000, the post 9/11 downturn in 2001 and the 2008 stock market and residential real estate crash. We Millennials watched our parents suffer as the stock market plummeted to new lows. It is my opinion, and the opinion of other Millennials I spoke to in my finance classes, that these crashes ended up having a bigger psychological effect on my generation than it did our parents. Yes, the stock market may have bounced back, but the mental impact remains indelible. Millennials do not think of the account values recovering because we never knew how much they were to start with, nor do we know the values today. Since we didn’t see the recovery, because our parents didn’t share it with us, we only saw the sadness and fear brought about in the messy markets of 2008-2009.

So, it isn’t surprising that statistics and studies show that, on average, 66% of Millennials and 69% of Generation Z fear investing in the stock market.* People in my generation are scared because we have seen how the stock market can be an emotional roller coaster, and we aren’t left with positive vibes about investing in stocks.

Making matters more challenging in our business-finances classes, we are bombarded with bad news like “Two-thirds of business economists in the U.S. expect a recession to begin by the end of 2020.” (Time)** Also, with so much information available online, Millennials don’t have to go too far down in their Google searches to read about the latest financial meltdown. We are buried under articles from economists who write about how a recession is going to hit and take down the market and some aspect of our economic system.

Frankly, it’s all very overwhelming when you consider the number of information sources out there promoting the value of gold and how the financial world is going to collapse. Plus, geopolitical fears are creating financial tensions across the globe. A litany of opinions about the potential collapse of the European Union leaves us all frozen with our personal parental history fresh in our minds. We don’t want to endure the financial uncertainties of our parents. So, it is easier sometimes to avoid the stock market altogether, and I think we do as a result.

Yet, we do know and understand the need to start investing now. We understand the link between saving early and establishing a solid long-term plan for retirement. Although my generation may understand this, Generation Z is the first generation that favors cash investments over stocks. It is shocking to most that the conservatism and stability of cash is favored over the long-term wealth creator that is the stock market. For confirmation, USA Today wrote a report that confirmed Millennials’ love for cash! ***

But, I have an advantage over your average Millennial. I am related to Michael Carlin! He has explained to me the power of compounding interest. Yes, it is a topic covered in finance class, but when given practical application, it’s still amazing to learn the difference earning interest over the long-term. As Michael and I discussed, the difference between me saving $100 a month between now and age 50 earning 2% in cash versus 8% in stocks is staggering. The savings account balance at 50 is $49,274.36 and the investment account in stocks earning an average of 8% is $149,046.88.**** So, I can tell having triple the amount of money over the long-term is well worth the uncertainty of the market. It helps me start to understand why my parents ever considered starting to invest in the stock market in the first place.

If you are a parent reading this article, you may be surprised to know that financial classes in high school are practically unheard of other than the random faux stock market investing class where the incentive is to pick super small cap stocks and hope for a miracle to win the prize for greatest rate of return. And picking stocks in a high school class with fake money isn’t the same as really learning how to invest. Would you be more surprised to read that classes on the stock market do not really exist on a college level either? Presently, with about two years of business school under my belt, not a single class has been dedicated to investing and the virtues of putting your money away for the long-term. Nothing on the power of compounding interest has been covered yet.

It seems obvious to me that we need to educate everyone on how the market works – even just at a simple level would give people the foundation to apply the basic building blocks to become an investor. This foundation, though, does not exist for so many. The education about how to invest can’t start at home because when you look at how much families have saved or invested, clearly not enough households have enough knowledge to share. So, we look back towards our education to provide this foundation.”

Thanks, Brett, for the valuable insight! Our next pieces on Millennial money habits will look at the way they think about cash flow. Are they good savers or avid spenders like their Baby Boomer parents are known to be? We will see in our next installment.

Are you looking for an Arizona wealth management firm to provide personalized investment management? If so, contact the wealth advisors at Henry+Horne Wealth Management.

Michael Carlin, AIF® and Brett Carlin

* https://www.ally.com/do-it-right/investing/millennial-investment-fears/
** http://time.com/money/5411420/when-is-the-next-recession-economists/
*** https://www.usatoday.com/story/money/personalfinance/2018/07/25/millennials-prefer-cash-investmentover-stock-market-survey/826657002/
**** https://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

Disclosure: Any rates of return shown are for illustrative purposes only and are neither guaranteed nor implied. Actual rates of return will be based upon the actual performance of selected investments. Taxes and fees are not a consideration in the illustrated returns.