In the Financial Times, Madison Darbyshire discusses the tendency for younger investors to take bigger risks, and to treat financial products more like lottery tickets than investments. Darbyshire writes:
The appetite for high-risk speculation is particularly sharp among Americans, who tend to have high levels of personal debt, researchers say. The average US student now graduates with $37,000 in student debt — up from $17,000 in 2001.
“The idea is that you’re supposed to be able to save money for college, but almost no middle-class family can in a significant way,” says Caitlin Zaloom, a professor of social and cultural analysis at NYU. “There isn’t enough financial stability at the core of people’s lives. If there was, there would be little incentive to speculate.”
Rent rises have outpaced income growth in most US states since 2001, according to estimates by the Center on Budget and Policy Priorities. And inflation has pushed the cost of living higher in recent months. As low interest rates and heavy debt became a fact of life, relationships with risk changed, experts say. Young investors are less likely to approach speculative financial products as investments with underlying value. Rather, they are inclined to treat them like lottery tickets — probably worthless, but still worth the gamble on a life-changing payout.
“If you had lottery tickets for houses, investors would buy some of those, too,” says Jeremy Grantham, co-founder of the Boston-based asset management group GMO. “There is enormous inequality, and when people get fed up . . . they start to behave in strange and new ways.”
The logic is simple, says Ben Johnson, head of exchange traded fund research at data provider Morningstar: “Negative real yields? No, thank you. What are the alternatives? JPEGs of monkeys and fake internet money? It’s not surprising that investors feel like they’re stuck between NFT pet rocks and a hard place.”
Read more here.