Figures from the Department for Work and Pensions (DWP) suggest that young people are much less willing to invest their money into the stock market than in previous years. The recordings indicate that young adults are interested more in the buy to let market, with investment now more prominent than before the recession.
Stock market pain, buy to let gain
The statistics released by the DWP suggest that the sharpest decline in savers was in the 22-29 age bracket, where there has been a fall of 19% from 43% in 1997 to just 24% today.[1] Pension investment was down across all age brackets.
This fall in savings was in contrast to young people investing in property. Ludlow Thompson, a London-based letting agent, released figures showing that roughly 15% of its clients were in their 20s, an increase of 5% before the financial crisis.[1]
Director of Ludlow Thompson, Stephen Ludlow, is convinced that the rise in young investors is a result of the unpredictability of the stock market. Ludlow said: “Many of the young landlords we see are bankers or traders who view buy to let as a reliable alternative to the unpredictable stock market that they work in day-in, day-out.”[1] He added that these young adults “often use their annual bonus as the deposit for a buy to let mortgage.”[1]
Property is the new pension
With mortgage rates remaining low, rent prices rising and optimism that the market is recovering, young investors believe the time is right for them to enter. Director of research company SCM world, Oliver Sloboda, is one young adult who went into the buy to let business as opposed to investing in the stock market.
Sloboda said: “I see my property and business as my pension. My dad thinks I’m mad, but it’s a generations thing. My friends, those who work in banking and who have bonuses, have done the same and bought property. I don’t know anyone who would take a lump sum and give it to a pension manager. You read stories about pension funds collapsing and volatile equities and high fees and it isn’t appealing.”[1]
Economic pressure
The recent banking crisis will have an impact on those youngsters who have lived through it, according to research from the Stamford Graduate School of Business. According to the research, those who have experienced such events will go on to be more conservative with their money. This has prompted concern from investment advisers that the long-term growth of the economy could be at risk.
Gervais Williams, MD at asset management group MAM Funds, said: “Over time if younger people aren’t investing in equities this will make a difference to everyone. If you have a generation who are despondent, then it impedes our ability as an economy.”[1]
Moving forwards
This October, workers in the UK will automatically be enrolled into a workplace pension scheme designed to improve falling saving lines. The DWP however, suggests that anywhere up to 40% of workers may choose to exit the scheme. Labour’s pensions spokesman, Gregg McClymont, said that past failings have led to investors becoming apprehensive and that the prudence of the industry had disappeared. McClymont said that there is a “lack of confidence” surrounding the industry and that the “lack of disclosure on costs and charges is also an issue for people’s trust.”[1]
Hal Ratner of research company Morningstar, said that certain companies were to blame for the apprehension of investors. Ratner said: “What happened in the equity market has caused young investors to be concerned and the investment community needs to treat this audience with respect and explain why these investments are important in the long term.”
The improvement of the economic climate will see a better indication of how young adults may invest in the long-term.
[1] http://www.landlordexpert.co.uk/2012/09/19/the-stock-market-is-out-and-buy-to-let-is-in-for-young-investors/