“We must start saving and investing while we are young because the real currency in insurance is our age and our health.” ~Jovs Villano, Financial Advisor
If there is one word that is nowhere near a millennial’s vocabulary, that would be investing. Of course, this is not true for everyone. Some millennials might be aware of the importance of saving and investing, but they aren’t necessarily keen on doing it. For some others who want to manage their money actively, the problem is that they don’t know where to start.
Perhaps, a good starting point for all of these is understanding why young people are too hesitant to jump on the investing bandwagon and why they shouldn’t hesitate. Below are some points to ponder, including these statistics.
- About 39% of the Filipinos invest in preparing for financial uncertainties, up by 29% since 2014 [Business Mirror]
- In 2018, 21.5% and 43.1% of stock market investors were aged 19 to 29 years old and 30 to 44 years old, respectively [Business Mirror]
- Filipinos aged between 24 and 34 years old are most likely to have debt [Manila Times]
- Millennials are avid savers, saving for home purchase (33%) and vacation (30%) [Manila Times]
- Only 25% of millennials invest in stocks or equity [Manila Times]
- Millennials invest irregularly: 28% invest “when they feel like it” [CNN Philippines]
Why young people are afraid of investing
There are at least two reasons for this.
1) They are busy
Their minds are lenient to here-and -now decisions. Investing is challenging, and it requires discipline and dedication. The young generation is spending too much energy on other things, so learning about investing is not in their current scheme of things.
The same goes with spending their money on what they think they need, such as expensive gadgets, branded clothes, etc. They put off investing because they are not yet financially stable.
2) They are risk-averse
Investing can be an extremely uncertain undertaking for any youngster. This explains their risk aversion or simply their fear of failing. This is an unknown territory that they are not likely to dive into. Instead, they’d rather keep their money in the bank—a conservative vision regarding saving money. Also, they are burdened by the necessities; thus, ideas about future-oriented strategy are not entertained.
There are obstacles to investing, well, at least for young adults. These are their too-focused-on-the-now mindset at the expense of their future, conservative vision regarding savings, spendthrift lifestyle, and overall lack of urgency to save and invest. Not to mention the possibility of their being ill-informed about proper budgeting.
Again, no generalizing here.
Furthermore, a friend of mine, Sir Jovs, a financial advisor at Pru Life UK, has this to say about this matter: “Considering the behavior and how millennials work or decide, I can say that some of them are hesitant because they’re not using it.” I couldn’t agree more—well at least not yet.
He continues, “Like most of us, we tend to seek immediate gratification. But, unfortunately, some of these millennials, if not most, tend not to appreciate delayed gratification.
When we save investment, we do not expect that we’ll have its return immediately. We should understand that it will take a while before it grows or maybe not. It’s a risk to take.
Maybe some millennials don’t appreciate it very much since they have not experienced the need for an insurance yet. They have not seen the value of it yet. They have to see it before they believe on it. They have to experience it before they can appreciate it.”
Sir Jovs also pointed out why the Filipinos in general are not keen on investing. Investing is not taught in schools, not even by our parents.
He is also right that the youngest generation of millennials is around 25 years old this year—still a risk-averse age. If in the US, the average age of Americans to start saving and investing is 31 years old, what could be the average age for the Filipinos? I don’t have the answer.
But one thing is clear: millennials delay saving and investing.
Now, the question is…
What should be done to encourage them to invest
Now, let’s talk about why young people must overcome these barriers. Yes, it is possible. And, as a youngster, there are two main things to remember.
- Knowledge is foundational
- Age is not a factor in learning
True, they say that knowledge is power, and this is one thing that we can subject ourselves to regardless of our age. You are afraid to invest, thinking you might ‘lose it all’ because you are unprepared. You might make some mistakes in the process.
However, with learning, you would be able to develop your skills in discerning criteria and making sound judgments. Through this, you can minimize the risk and maximize the gains.
You may reason out that even when you learn everything about investing (which is also impossible), you are still inexperienced.
While this may be true, there are many ways to overcome this challenge. There are several investment tools online, like investment forums, wealth management websites, and simulation investment platforms. These could compensate for the lack of knowledge. But of course, you need to jump in to gain the experience.
Let the below discussion on advantages of investments convince you some more.
What are the advantages of starting investing while young
Twenty-somethings may realize more early investment advantages compared to forty-somethings. The young may not have realized it yet, but they have the most important resource: time. That’s why you—the youngsters—must not waste your precious time by investing now. Early investment is more beneficial because:
ROI is not very important, saving rate is
For novice investors, the amount of money you can save is much more important than the returns. This is not to say that return on investment (ROI) is not essential—it is. It’s just that you have more free funds now than you would 10 to 20 years from now when you have your own family, house, car, business, etc.
Compounding works favorably
When you put your money to work for you the earliest possible time, chances are, you’ll generate more wealth from it. More wealth is created, and yet the cost of investment is kept at low rates. The longer the time that this money is working for you, the better your financial status will be in the future. This is because money invested grows substantially hereafter, including share values, dividends, and interest.
Losses are minimal
Depending on how you proceed and which investment products you choose, know that losses are a part of investing dynamics. That’s why experts always advise budding capitalists to start small by picking a product with lesser associated risks unless you are highly risk-tolerant. Anyhow, since you are starting small, your losses are also small. So with that, build your investment portfolio slowly.
Investing might be an absurd idea for the youngsters. However, the mere fact that you are delaying investing is a grave mistake impacting your future. Put simply, investing early in your life means a better future for you, much better than what you can imagine. Again, learning is the key here.
With that, I’d like you end this with some insightful words from Sir Jovs.
“We must start saving and investing while we are young because the real currency in insurance is our age and our health. If we start younger, we’re much healthier and don’t have any issues or concerns about our health. If we start younger, there is more time for our money that we’re saving to grow and to be compounded. Insurance policies are much cheaper when we start at a young age.
If we have just started our job while we’re still young and started the discipline of savings for insurance and investment, we’ll be more responsible for our cash flow. We’ll be more cautious about where our money goes. We’ll be more aware of the value of each penny or our hard-earned money.
We’ll then get used to this attitude and behavior, and we’ll be able to transfer and teach it to the next generation. That picture of our world where all people are knowledgeable in handling the money and expenses would also give us a brighter future.
Better economy not just wide range but even the smallest range in the family/household level. People are secured and have peace of mind that whatever happens in the future, they’re prepared.”
If you want to learn more about financial management, financial literacy and financial products like life and health insurance and educational plan, among others, please contact Sir Jovs.
Jovenal “Jovs” Villano
Financial Advisor, Pru Life UK
+63 977 8128045