102 million millennials are living in the EU, which would represent 20% of its population, while the Baby Boomers assume a significantly higher weight (23.4%). If we focus on Spain, the millennial generation is as relevant as in the EU (18.7%)being Generation X the one that today acquires the most significant share (26.2%).
Given its high weight in the population, it is important to know what is your savings capacity and your savings/investment preferences as they will mark the direction in the coming years.
If there is one fact that defines this demographic group, it is that they have high levels of risk aversion when investing in the stock market. While it is true that the average investor, regardless of his age, is usually risk averse, the sensitivity of millennials is even greater.
Despite the chained crises that this generation has experienced, theoretically, they would find themselves at the best time of their lives to start investing in the stock market: they start to earn money and, in the long term, compound interest would generate a multiplier effect on their personal wealth. But, their preference is not to invest but the greater availability of their money and have greater liquidity.
What is the financial situation of millennials?
First, to achieve long-term investment goals, a savings base must be in place. According to the 2022 study by Schroders Global Investormillennials are saving, on average, 11.2% of your income for retirement.
In the case of the Spanish, our millennials would be among the least savers, with 8.7% of your salary for retirement. The cause of this reduced metric is multiple:
- job instability both due to temporality and the amount of salary that makes it difficult to program savings for retirement. To put it in perspective, compared to Generation X (those born between 1966 and 1980) when they were between 30 and 34 years old, current millennials have a 30% lower disposable income in real terms. This point is considered the most relevant, since the greater the labor uncertainty, the greater the predisposition will exist for liquidity versus risk alternatives.
- They become independent late and when they do they find an expensive housing market, which leads them to the option of renting. In Spain, 44% of millennial households are homeowners compared to 65% of Generation X.
- The debts squeeze. The 33% millennials who are not in a home they own have acquired some type of debt (consumer credit). To meet this financial burden, they must mobilize 21% of household income, a percentage higher than the 13% of Generation X households.
- Despite the many uncertainties about the pension system, in Spain public pensions are deeply rooted with a replacement rate close to 80%, which tends to form the idea that “it is not necessary to save” because the State will take care of us once working life is abandoned.
Due to their reality, it is understandable that they do not want to expose themselves to the risk of equities… their reality is uncertain and changing, they do not want to assume greater amounts of risk.
The VidaCaixa barometer “Saving habits in the millennial generation”, which measures the saving habits of young Spaniards between 25 and 35 years of age, concludes that they use these products to channel savings:
Liquidity-oriented financial products are a priority for millennials. A fact that draws attention, when savings are penalized by negative interest rates (to which is added the devaluation due to price increases), while the Global equity is historically the best asset to integrate into a portfolio and has averaged returns of 5.61% over the last 20 years.