Millennials are born between 1981 and 1996, with their generation succeeding Gen X. Anyone born between 1997 and 2010 is part of Gen Z. Today’s kids that are born from 2010 are called Gen Alpha.
Millennials grew up as the first generation of “Digital Natives”, having access to the internet and new technologies from an early age. Therefore, they are considered the first generation to fully understand and embrace the huge potential of digitalization.
Although fluently speaking the language of the World Wide Web and new technologies, many Millennials still lack behind when it comes to banking. According to a 2018 Gallup study of banking in the U.S., Millennials have a low level of both engagement and loyalty with their banks.
However, Millennials are poised to become the generation where the next big wealth transfer will occur. Millennial spending is set to overtake Generation X soon and will continue to increase, shaping the direction of the world economy in the years to come.
Investing for Millennials – 3 reasons why you should start early
There is a popular Chinese proverb that says: “The best time to plant a tree was 20 years ago. The second best time is now.”
The same applies to investing. If there is one thing our older selves could go back in time and tell our younger selves, it would be to start investing now. Investing is not a get-rich-quick scheme, but it can be a get-rich-slow scheme if you play your cards right.
Here are 3 reasons why it is a good idea for Millennials to start investing now:
1. Use the advantage of time
Time is on your side when it comes to long-term investing because you can use the power of compounding interest. Compounding interest is the interest rate on an amount of money calculated based on both the initial principal and the accumulated interest from previous periods. It can be thought about as the “interest on interest”.
When it comes to investing this interest indeed is interesting, because the compounding will make a sum grow at a faster rate than simple interest, which is calculated only on the initial amount.
Here’s an example:
Say you start investing in the Swiss stock market at age 22. Assuming an average 7.9% return over the course of your life, you would only have to invest about CHF 10 a day to end up with a million CHF at 62. In case you’re wondering, your total contribution would be CHF 153,600. That’s over CHF 840,000 of interest earned! But time is the key. In half the time, only 20 years of saving CHF 10 a day, you would have contributed about CHF 76,800 and only have around CHF 181,228 total.
2. Be happier and healthier
There is good stress and bad stress. While the first can make us stronger, and more resilient, the ladder can affect our immune system in a negative way, and potentially lead to weight gain, viral infections or diseases like diabetes mellitus, heart problems, ulcers and mental problems.
For many people, their relationship with money means negative stress. According to a study by SmartPurse surveying 255 women from the UK and Switzerland, money remains a difficult subject. Only 13% of respondents chose a positive descriptor for their relationship with money like “easy” or “happy”. 85% rather used words like “shameful” or “complicated”.
The best time to plant a tree was 20 years ago. The second best time is now.
Furthermore, the study found that financial health is closely tied to mental health. Over half (52%) of the respondents said that financial control would bring them “confidence”, 35% said “greater peace of mind”, and 13% chose “increased happiness”. All three of these benefits play a huge role in mental health. And while these figures come from a study with women, we assume that the findings also apply for men.
We have talked on i-vest about the role of emotions in investing before, and also shared how a Stoic mindset in investing can help us cope with difficult situations. But we cannot stress enough how important it is, to claim back control over your money and investment decisions, to get out of a victim’s mindset and therefore get happier, more relaxed, and – eventually – healthier.
3. Have an impact
Millennials are not only hungry for status and money, they also want to have an impact on the world. According to recent studies, Millennials are the most willing generation to trade financial return for greater social impact.
Digital channels have helped expand the visibility of impact investing, and with digital technologies, banks now have the capabilities to expand their distribution channels, enabling clients to participate in impact investing directly.
To sum it up
Oftentimes, we see investing only as a tool to pile up money and to build wealth. But as we saw, investing can be even more. Investing can be a great tool for Millennials not only to build wealth, but also to be happier and healthier, and to have an impact in the world.
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