04/09/2024
The impact of generational differences
We all know that the views, preferences and needs of people are impacted by their age. Although many of these differences are a direct result of how old we are and what life experiences we have had, there are some differences that are an effect of our generation. These generational differences impact our behaviour and attitudes across all areas of our lives and are likely to remain with us as we grow older – they will not change or develop simply because we age.
Traditionally when we think about ‘investors’ as a group of consumers, we probably picture older people who have accumulated wealth and are approaching retirement or already retired. We know marketing teams at investment companies tend to focus more attention on older age groups, which of course makes commercial sense given they account for a significant proportion of the target audience and have larger amounts money to invest than younger investors. However, what happens when time moves on, and Gen Z (currently aged between 15 and 27) and Millennials (currently aged between 28 and 43) investors become the target audience? As a result of generational differences, these investors of tomorrow will be very different to the investors of today, so product and marketing strategies will in turn, need to be very different.
Start targeting those in ‘early accumulation’ now
Over the last few years, we have seen more and more young people engaged in investing as they enter the ‘early accumulation’ phase. According to the Royal Mint’s ‘Gen Z Investment Report’ from 2022, 80% of 16-25 year-olds are choosing to invest in their future, with the majority (57%) stashing away up to £200 per month. Within our own investor panel at Research in Finance, we have a significant number of Gen Z and Millennial investors, and when we talk to them, it is clear they are engaged in investments and building up significant knowledge and general financial ‘savviness’ despite their young age. Although the amount of spare cash they have to invest may be limited and their overall wealth is probably at the lower end of the scale currently, this is unlikely to be the case in the future.
“So I started investing the minute I turned 18…You can save money your whole life, but if it’s just sat there doing nothing, it’s losing to inflation… So it was always like, well, I don’t want it just sat there. I want it to be, you know, doing something.” Gen Z investor
Understanding the motivations of younger investors
What younger investors are investing in is different to older investors – our Retail Consumer Interests Study (RCI) conducted earlier this year found that 31% of Gen Z investors and 33% of Millennials investor hold cryptocurrency, compared to just 4% of the Baby Boomer generation (born 1946 – 1964). Among Millennials, 44% hold ETFs compared to just 22% of Baby Boomers, demonstrating their preference for low-cost passive investment options (36%) over active management (preferred by 42% of Baby Boomers). Their investment options may develop as they get older and potentially more sophisticated, but the investing foundation of younger investors is clearly different from older investors.
Younger investors are more likely to be attracted to ESG investments than older investors, recognising the importance of ethical issues and the desire to ‘make a difference’. For them, understanding the impact of their investments really matters – in the sustainable investing phase of our 2023 RCI study, we found 42% Millennial and Gen Z investors strongly agreed that ‘’Sustainable investments should ‘do good’ and not simply ‘do no harm”” compared to just 26% of those investors from the Baby Boomer generation.
“I’d love for it [my investment] to have a reportable breakdown on the impacts of the fund… And you know what? Here’s the roadmap. I’d love to be part of that journey.” Millennial investor
How they are engaging with investment companies as well as what they need from them also reflects their generation. In our RCI study earlier this year, we found use of social media as a source of investment trends and insights is at 16% among Gen Z and 14% among Millennials, but just 2% among Baby Boomers. As these younger investors become older and inevitably richer, they will be using very different investment information sources and looking to interact very differently compared to the investors of today.
How Research in Finance can help
It is vital that investment companies understand the extent of these differences to build relationships with younger investors, who are at the early accumulation stage, and ensure they develop product and marketing strategies to meet their needs effectively as time passes. To help with this, Research in Finance is launching a longitudinal study to help investment companies understand the needs, motivations and preferences of Gen Z and Millennial investors so they can develop strategies to engage them today and continue to engage them tomorrow.
We will be presenting a webinar on this topic and our recent findings in early October 2024. Please keep an eye out for the invite.
If you would like to know more about the new study, or the other ways in which our research and intelligent insights can help your business exceed its goals, please get in touch with Mick Hrabe. You can also call us on +44 (20) 7104 2235.
