Millennials are now the largest generation in Canada, at 27% of the population – which means that their financial and spending habits have wide sweeping impacts. Other interesting statistics on this influential Canadian demographic:
Millennials pay more in taxes than generation Xers did
Millennials make up 40% of the working population
33% of millennials are young families and 29% are single professionals
In general, millennials are earning more than their generation X counterparts did at the same time, but they are also carrying substantially larger debt loads. In 1999, generation Xers of a comparable age had a 125% debt-to-after-tax income ratio. Today’s average millennial is at 216%. Two major reasons for this dramatic shift are the increasing costs of higher education and of home ownership.
We recently sat down with Stephen Logan, Senior Financial Analyst at WealthCo (and proud millennial) to discuss some of the investment trends we’re seeing in Canada from this impactful group.
Q: Are millennials investing at an earlier or later age than their parents?
A: It really depends. In terms of a broad generalization, I would say millennials are investing later. The cost of living has increased quite a bit, everything is getting more expensive, and student debt loads are high. I suspect that many millennials are more focused on paying down debt rather than investing. On the other hand, there has been a big rise in retail investing apps that have led some millennials to start entering the market earlier and experimenting with their own investing strategies. While wages may be rising modestly, in general millennials don’t have as much disposable income as their parents did at the same age.
Q: Would you say that millennials are strong adopters of sustainable investing?
A: It’s safe to say that this generation has a much bigger focus on Environmental, Social, and Governance (ESG) all around. There is greater awareness for the environment and a sense of personal responsibility for being consumers of companies that are ethically sourced. I think what’s important to a lot of millennial investors is not only generating good return on investment but feeling like the companies they are committing to have a positive impact on the communities in which they operate.
Q: What is being forecasted as far as generational wealth transfers to millennials?
A: Of course, it varies drastically depending on the family and how much wealth is being bestowed. It’s been forecasted that $1 trillion in inheritance funding will change hands in the coming decade. With baby boomers retiring, we can expect their portfolios to shift towards more conservative models of asset allocation. However, after millennials receive their inheritance, we may see an asset allocation shift back into something more balanced or even aggressive.
Additionally, it’s possible that after millennials receive their inheritance, they may have different opinions of the firm that is managing their portfolio. Some firms are anticipating having to re-pitch to the next generation, it’s no longer safe to assume that any family money will stay put.
This makes it extra critical to engage in proper financial planning. We need to understand investors (young and old alike), where they are coming from, and what their ‘why’ is.
Q: What other general trends are you seeing with younger investors?
A: The rise of cryptocurrency is a big trend. This could be a really good diversifier, and also may present some big opportunities for wealth creation.
There has been a significant rise in retail investors using Exchange Traded Funds (ETFs) in their portfolios. These investments have allowed younger investors to diversify their portfolios in a way they couldn’t before.
Retail investment apps have gained a lot of momentum over the last couple of years. These apps have provided young investors with greater access to the marketplace while also giving them an opportunity to experiment with constructing their own portfolios. Trading volume on these apps has increased quite substantially, an increase that was likely brought on by the COVID-19 pandemic. Specifically, many young investors have found they have more free time during a down job market to pursue additional hobbies. Likely investing was one of these which also provided them an opportunity to generate secondary income.
Online message boards are also worth mentioning. These online forums where people can share their investment ideas and tips can build a sense of community for an independent retail investor and give them confidence to start dabbling in the market.
We’ll be diving deeper into a few of these trends in future articles, so stay tuned. In the meantime, please let us know if there anything you’d like to hear more about, or if you have any questions from our WealthCo team of experts, drop us a line.
Note: this article is part of our four-part series on Millennial Investment Trends. Check out the other articles in the series:
The Great Wealth Transfer: Is Your Family Ready?
Growth of the Sustainable Investing Movement