Amid rumors of a potential upcoming stock market downturn, and a conservative approach to investing in stocks by the millennial generation, experts wonder if Generation Z will be the hero to save the stock market in the near future. The millennials were old enough to understand the economic downturn of 2007-2008. This made them more cautious when it comes to investing in financial instruments such as stocks and more cautious about taking on debt. The question is whether the next generation will be able to pull the stock markets out of what some financial analysts call another impending disaster.
When the financial crisis of 2007-2008 hit, the millennials were old enough to understand their parents’ struggles. They saw their parents have something and then lose it, and they know what it is like to be able to afford something one day and then be told it is not possible the next. This experience shaped a conservative approach among the millennial generation when it comes to taking on debt and investing in the stock market.
A recent survey of millennials found that 41 percent of them avoid the stock market altogether. This may leave you wondering what millennials plan to do when it comes to retirement. The answer is that many of them plan to depend on their savings account, whereas Generation X plans to rely on their 401K for their retirement plans. By taking this conservative strategy, they will miss out on potentially millions of dollars that they could have if they used a more aggressive investment strategy.
Millennials are steeped in skepticism when it comes to investing and this could harm them in the long run, especially when it comes time for retirement. Their conservative strategies will not allow them to build the retirement portfolios of their predecessors. They have not only seen the effects of an unstable stock market, they also are strapped with high student loan debt.
What About Generation Z?
With millennials, it is a case of once bitten, twice shy. Millennials are the first generation to say that they plan on using their savings account as their primary plan for retirement. This change in ideology from the baby boomer generation represents a shift from depending on outside sources for one’s own financial security to one of independence when it comes to building a plan for the future. The question is whether this lack of trust in the system carry over into Generation Z.
Millennials see a bleak financial future ahead where they can barely scrape by every month and can never envision homeownership. Renting is now the new millennial American dream. However, Generation Z is a little more optimistic and 97% of them believe that someday home ownership will be a reality for them. They also exhibit more trust in fixed rate home loans as one of the ways of realizing that dream, whereas it seems that millennials lost all faith in long term stability of banks. This is a stark contrast to the millennials and much more like the baby boomers who valued homeownership as an American institution.
Generation Z were only 7 to 11 years old when the 2007-2008 recession hit. They were not quite old enough to be traumatized by the economic downturn, compared to the millennials. At least, this is good news for the housing market.
What About Stocks?
Generation Z shows a little more resiliency and trust than the millennials, but exactly how far does this trust go? Their trust in the housing market will help to avoid another housing bust, but do they trust the system enough to invest in stocks?
Having a home means that Generations Z expects to have more financial stability than the millennials. They are much more optimistic and value higher salaries over job status. They are already planning for their retirement in their early 20s but are still conservative when it comes to taking on debt. This approach means more financial mobility and the ability to choose a job that makes you happy you over one that you are in just for the money.
The problem with Generation Z seems to be credit card debt because they are not seeing the results of their efforts on their immediate cash flow. This also gives them less to place in riskier investments. When it comes to the stock markets, it all comes down to risk taking personalities and having enough cash flow to afford it.
Even though Generation Z seems to be much more financially secure than the millennials, they still plan to depend on their savings and take us conservative approach to investing. Even though Generation Z has a different mindset than the millennials, they are still not confident enough to invest in risky financial instruments. This will have a marked effect on the financial markets, particularly as baby boomers withdraw their retirement savings and become less influential on the markets.
In the end, it does not look like we can depend on Generation Z to save us. They may bring us more stability than the millennials, but they may not be a boon for the stock market. If estimations are true, the baby boomers may be the last to depend on the stock market for their retirement dreams.