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Millennials on Investing, Debt, and Banking [Chart]

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Millennials on Investing, Debt, and Banking [Chart]

Millennials on Investing, Debt, and Banking [Chart]

Surveys reveal Millennials to have conflicting views on financial matters.

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

Millennials are the most confident generation regarding their financial future. In fact, recent survey results show that 65% of Millennials feel confident about their future finances, compared to 52% of Gen X, 50% of Baby Boomers, and 59% of the Silent Generation. This is not a surprising find, as one of the defining traits of the Millennial group is high self-confidence.

The problem is that this confidence seems to conflict with other survey findings.

In reality, it looks like many Millennials could still have a steep learning curve ahead of them in the financial realm.

Debt

The first red flag is with debt. Only 48% of Millennials know their credit score, and just 37% are confident in their ability to manage their credit.

Millennial student debt is at sky-high levels, and many are struggling to pay. Even the Federal Reserve noted that the delinquency rate for student loans in repayment is a staggering 27% in the United States.

Investing

Another potential concern arises with the generation’s attitudes towards investing and building wealth. Despite their confidence in their financial future, 46% of Millennials think investing is “risky”, 60% distrust financial markets, and a whopping 70% hold their savings and investments in cash.

While there are some reasoning for these numbers individually, as a whole they seem to paint a broader picture that Millennials are afraid of entering the market in any capacity. As a result, it would appear that they hold onto their money in cash while interest rates are at their lowest in human history.

Historically, the middle class has built much of their wealth through investing. While it is true that Millennials witnessed the failures of Wall Street first-hand during the Financial Crisis, it doesn’t change the fact that investing will likely play a key role in building their financial futures. Millennials do not have to only own stocks either, as there are plenty of market instruments, hedging strategies, and stores of value out there that can protect against market downside at any risk tolerance.

Further, 87% of Millennials feel empowered to make investing decisions on their own. While we would agree that investing for yourself can be one of the most rewarding ways to build a strong financial future, not everyone can be an expert in personal finance. That’s why people hire brokers or investment advisors.

When it comes to opinions on these types of professionals, Millennials have contradicting feelings. For example: 58% of Millennials are interested in robo-advisors, yet at the same time 64% say that a personal relationship with an advisor is important.

Cash and Banking

Millennials also have unorthodox views on cash and banking. As a generation of people that grew up in the digital age, 40% of Millennials would stop using cash altogether if cards could be used for all transactions.

Further, 49% would consider using financial services from tech companies like Google or Facebook. In contrast, only 16% of people in older generations would consider a similar move.

This disparity is part of the reason why bank executives today are unaware of the very technology startups gaining traction in the market, and that seek to unseat them.

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3 Reasons Why AI Enthusiasm Differs from the Dot-Com Bubble

Valuations are much lower than they were during the dot-com bubble, but what else sets the current AI enthusiasm apart?

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Two bubbles sized according to the forward p/e ratio of the Nasdaq 100 Index during the dot-com bubble (60.1X) and the current AI Enthusiasm (26.4x).

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The following content is sponsored by New York Life Investments

3 Reasons Why AI Enthusiasm Differs from the Dot-Com Bubble

Artificial intelligence, like the internet during the dot-com bubble, is getting a lot of attention these days. In the second quarter of 2023, 177 S&P 500 companies mentioned “AI” during their earnings call, nearly triple the five-year average.

Not only that, companies that mentioned “AI” saw their stock price rise 13.3% from December 2022 to September 2023, compared to 1.5% for those that didn’t.

In this graphic from New York Life Investments, we look at current market conditions to find out if AI could be the next dot-com bubble.

Comparing the Dot-Com Bubble to Today

In the late 1990s, frenzied optimism for internet-related stocks led to a rapid rise in valuations and an eventual market crash in the early 2000s. By the time the market hit rock bottom, the tech-heavy Nasdaq 100 Index had dropped 82% from its peak.

The growing enthusiasm for AI has some concerned that it could be the next dot-com bubble. But here are three reasons that the current environment is different.

1. Valuations Are Lower

Stock valuations are much lower than they were at the peak of the dot-com bubble. For example, the forward price-to-earnings ratio of the Nasdaq 100 is significantly lower than it was in 2000.

DateForward P/E Ratio
March 200060.1x
November 202326.4x

Source: CNBC, Barron’s

Lower valuations are an indication that investors are putting more emphasis on earnings and stocks are less at risk of being overvalued.

2. Investors Are More Hesitant

During the dot-com bubble, flows to equity funds increased by 76% from 1999 to 2000.

YearCombined ETF and Mutual Fund Flows to Equity Funds
1997$231B
1998$163B
1999$200B
2000$352B
2001$63B
2002$14B

In contrast, equity fund flows have been negative in 2022 and 2023.

YearCombined ETF and Mutual Fund Flows to Equity Funds
2021$295B
2022-$54B
2023*-$137B

Source: Investment Company Institute
*2023 data is from January to September.

Based on fund flows, investors appear hesitant of stocks, rather than overly exuberant.

3. Companies Are More Established

Leading up to the internet bubble, the number of technology IPOs increased substantially.

YearNumber of Technology IPOsMedian Age
19971748
19981137
19993704
20002615
2001249
2002209

Many of these companies were relatively new and, at the peak of the bubble in 2000, only 14% of them were profitable.

In recent years, there have been far fewer tech IPOs as companies wait for more positive market conditions. And those that have gone public, the median age is much higher.

YearNumber of Technology IPOsMedian Age
20204812
202112612
2022615

Ultimately, many of the companies benefitting from AI are established companies that are already publicly traded. New, unproven companies are much less common in public markets.

Navigating Modern Tech Amid Dot-Com Bubble Worries

Valuations, equity flows, and the shortage of tech IPOs all suggest that AI isn’t shaping up to be the next dot-com bubble.

However, risk is still present in the market. For instance, only 33% of tech companies that went public in 2022 were profitable. Investors can help manage their risk by keeping a diversified portfolio rather than choosing individual stocks.

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Explore more insights from New York Life Investments.

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