Finance in the News & Class Discussion: Gen Y (those 18 to 35) Financially Conservative , Worried about Debt, Optimistic About the Future, and Open for Help

In Chapter 1 we introduce the “Ten Principles of Personal Finance.”   Two of these are Principle 8: Risk and Return Go Hand in Hand and Principle 9: Mind Games, Your Financial Personality, and Your Money.  These principles discuss the fact that while risk taking is necessary, it is also difficult to stomach for many investors.  In addition, investors tend to put more reliance on what has happened recently, and as such, in tough financial markets, they tend to shy away from risk.  A recent survey by MFS Investment Management titled “MFS Investing Sentiment Survey Offers Insight into Generation Y Investing Behaviors” looks at investing habits of those 18 to 35 and sheds light on how a lack of understanding of those two principles is causing them problems.

This survey finds that Gen Y (those age 18 to 35) investors are conservative when it comes to investing and despite their long-term time horizon, invest more like their Baby Boomer parents, who have a much shorter time horizon.  There are approximately 77 million Americans that fall into the Gen Y age group of 18 – 30 with nearly $1 trillion on the  investment table.  They represent the next wave of investors which makes the results of this survey very interesting.

What financial charateristics were uncovered in the survey?

  • 40% of Gen Y agreed with the statement “I will never feel comfortable investing in the stock market.”
  • 54% of Gen Y investors agreed that they are likely to feel overwhelmed by all the choices they have, 47% put off investment decisions, and 59% consider themselves to be savers more than investors.
  • 30% of Gen Y investors said that their primary investment objective was protecting principal/not losing money, while only 34% said their primary goal was growing assets.
  • 38% of Gen Y investors say they live paycheck to paycheck and that saving consistently is not an option.
  • 64% and 78% are optimistic about the economy and their own five-year future, respectively.
  • Of those who reviewed or rebalanced in the past 12 months, 89% of Gen Y, more than any other age group, reported an advisor playing a key role.

Discussion Question:

  1. Take a look at the results of the MFS Investment Management titled “MFS Investing Sentiment Survey Offers Insight into Generation Y Investing Behaviors,” which statements found you in agreement with the majority of Gen Y investors?
  2. Which ones did you disagree with?
  3. Do you feel your response to those questions is better than the response from the majority of Gen Y investors?  Why?  Be prepared to discuss your answer in class.
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