Young people could be putting their finances at risk as new research shows they are more likely to think they will make big money through investing after picking up hints and tips from Hollywood movies such as The Wolf of Wall Street.
A national poll from Nationwide Building Society looking at investment culture asked people with at least £1,000 in savings how they perceive investing, with the results clearly showing Generation Z (those aged 16 to 24) as much more willing to take risks with their money. It follows a warning from the FCA on how many young people are taking on financial risk through investing.
According to the research, close to nine in ten (86%) of people in this age group are either investors or have considered investing – compared to 79 per cent of the general population. However, younger generations are more likely to consider cryptocurrencies (28% vs 22% average) and less likely to consider property (39% vs 42% average).
Attitude to risk:
Nationwide’s research found that attitudes towards risk differ wildly between age groups, with younger investors more likely to take a gamble, despite being less likely to understand them. Well over a third (38%) of those in Gen-Z are prepared to take high risks to increase the chance of rewards, a factor which significantly tapers with age.
Across all age groups, 12 per cent of the population class their investment risk appetite as high. Looking at portfolio splits, the most popular investments are stocks and shares ISA (48%), property (42%) and other ISAs (40%). Investments in gold (26%), crypto-currency (22%), and alternative investments such as wine (10%) and antiques (9%) fell down the list. However, Gen-Z are more interested in crypto (28%) and wine (14%) when compared to the average, classed traditionally as more unusual investments.
Gen-Z’s believe returns will come considerably quicker than their older counterparts, with 40 per cent expecting to wait between one and two years before they start making strong returns. The average UK saver surveyed believes they’ll start to see decent returns on their investments after their money has been locked away between five and nine years (40%), although one in five (20%) expect to see strong returns between just one and two years.
This is perhaps why nearly two thirds (62%) of Gen-Z’s would be put off from investing if they had to lock their money away for five years.
Aside from recommendations from social media, family, or friends, Nationwide’s research found that films that cover investment topics, such as The Wolf of Wall Street, The Big Short or Margin Call, had a significant role to play in the rise of younger investors. Across the UK, 62 per cent of the population noted they’ve seen at least one investment film, a figure that rises to 70 per cent of those in Gen-Z. Over half (53%) of those who have watched such films say they have learnt something about investing from them, a figure which rises to two thirds (66%) of those in Gen-Z. Furthermore, these films have actively encouraged more than two in five (41%) Brits to invest, including 63 per cent of those aged 16 to 24.
Barriers to investing:
Nationwide found that there were a number of significant barriers that stopped many in their tracks. Half were concerned about losing money (49%), over two fifths (43%) simply consider investing too risky and around a quarter (24%) didn’t have enough money to invest. Education and knowledge about investments also remains a barrier, with a further quarter (25%) stating that they simply didn’t know where to start.
For Gen-Z, not knowing where to begin was found to be a much greater issue, with close to half (46%) saying they weren’t confident about starting their investment journey because they didn’t have enough knowledge to proceed, while those aged 16-24 are also most likely (76%) to require help and guidance with investments. They are also most aware that investing is a potentially risky endeavour (83%).
Starting out on the right foot:
When looking at reasons for beginning investing, age differences were stark once again. Overall, the reason UK savers surveyed cited most was saving for retirement (32%), followed by seeing the success of others (24%), following the recommendations of family or friends (22%) and having time for it thanks to COVID-19 (19%). However, those in Gen-Z over-indexed in the beginning due to seeing the success of other investors (35%), being recommended by family or friends (30%) and doing so because of more time on their hands (30%).
For those looking for more advice on starting their journey, their bank or building society was the logical starting point for most (38%), followed by friends and family (33%), with 30 per cent preferring to look online and do it themselves.
Jason Hurwood, Director of Protection, Investments and Insurance, said: “Over the course of the pandemic, investing has remained a popular topic that’s rarely been out of the news, whether it’s the rise in interest of cryptocurrencies, or the GME stock fluctuations. Whilst it’s encouraging to see that younger generations are getting involved in investing, it’s important that, no matter your age, the risks are fully understood before you part with any of your hard-earned money. Getting it wrong may turn a Hollywood dream into a financial nightmare.
“With some of the newer products on the market, you can go from sign-up to investing rapidly, and in many cases it’s easy to get confused, especially if it’s something that’s new to you. Nationwide’s investment platform is designed to cater to all levels of investor, whether you’re just starting out and need some guidance, or if you’re an experienced investor who knows exactly what you want.”
For more information visit: www.nationwide.co.uk/products/investments
Iona Bain, award-winning financial writer and broadcaster & founder of Young Money Blog said: “On the one hand, it's fantastic to see younger people getting more interested in investing. We all have to take calculated, informed risks with our money if we want to achieve big future goals. Putting your money in stocks and shares has traditionally provided people with much better returns in the long run than cash savings. Encouraging greater share ownership is also crucial if we want to create a fairer, more inclusive economy.
“But it's incredibly worrying that Gen-Z is investing for shorter timeframes, chasing high returns and being dazzled by more exotic, high-risk assets. And while there's nothing wrong with enjoying films about high finance, we need to remember Hollywood is providing heightened entertainment, not a realistic guide to the world of retail investing.
“Covid-19 has created the ideal conditions to investigate the world of investing but too many young people are trying to run a marathon before they can walk. My work, alongside that of Nationwide, is designed to help young people understand that investing is a long-term, serious endeavour, and you need to be informed to get the most out of it. It's a marathon, not a race.”