Recall the moment when you watched the iconic scene in the series “SCAM 1992” where Harshad Mehta says, “Jab jeb mein money ho naa toh kundli mein shani hone se koi farq nahi padta.” Remember scrolling on Instagram, seeing reels about how to start investing and then opening your first demat account immediately after? Exciting, right? You start your demat account, put in your savings, listen to a “Finfluencer” on YouTube, make the trade, and then sleep! The next day, you wake up feeling like Suniel Shetty from the movie “Dhadkan,” ready to host a podcast on how to build a 300 crore company in just 3 years!
Well, welcome to reality. You may not be Suniel Shetty yet, but you represent the largest chunk of people globally: the youth, the Gen Z, the 20-year-olds who are intelligent enough to understand the relationship of investment and money but lack the patience to study the right techniques to earn it. We can’t blame our youth for this. The world today is faster than it has ever been, not only in tech, data or connectivity but also in positivity to anxiety, desperation or depression, early success and failures. 19 teen year olds today are building businesses, making crores through trading & investing while the 40 year olds still rant about their low income and work life balance missing.
In this article we shed some light on what has led to this drastic shift of young investors towards the equity market. We take a dig through different angles of world responsible for the influence.
THE DRIVING FORCE BEHIND THE YOUTH PARTICIPATION:
- Technological Advancement: The proliferation of online trading platforms and mobile apps like ZERODHA, UPSTOX has made investing more accessible to the current generation. These platforms, often with user-friendly interfaces and low or zero commissions have lowered the entry barriers for young investors, allowing them to engage in equity markets with ease. Features like virtual trading; rise of trading competitions has made a positive impact on the people to learn markets more effectively and safely.
- Social Media Influence: From TIKTOK reels to those thrilling WEBSERIES telling the stories from THE WALL STREET to THE DALAAL STREET, even the real life stories of market bulls like WARREN BUFFET TO RAKESH JHUNJHUNWALA have left a deep impression about the art of making money. Financial influencers like ANKUR WARIKOO or RACHANA RANADE and many more have demystified investing for young people. These influencers share strategies, tips, and market analysis, creating a sense of community among young investors. Social media is a powerful amplifier of peer influence. It showcases peers of the same age making remarkable strides in fields like content creation and entrepreneurship, achieving financial independence and relieving their parents from responsibilities. Their posts about interactions with world leaders, participation in successful panels, and the opportunities they encounter inspire others to launch their own journeys toward investment and financial freedom.
- Financial Education: With the rise of financial literacy initiatives, young people are more informed about investing than previous generations. Financial education being no longer limited to courses or school or colleges, it has become available in the form of some amazing podcasts like FIGURING OUT or WTF or INDIAN BUSINESS PODCAST, beginners can learn directly from the people who have made it big today. Even with the rise of platforms like KHAN ACADEMY or VARSITY or YOUTUBE where masters in the field help teaching others to understand more and better. College students are increasingly recognizing the intense competition and the significance of upskilling in every field. Specifically, students with backgrounds in finance or commerce are eager to apply their theoretical knowledge practically, thereby enhancing their résumés and improving their financial prospects.
The factors mentioned above greatly impact the mind-set of today’s youth.
But a smart investor will always be thorough with current global economic scenario to make wise decisions. She would be aware where the world is headed in terms of finance and business.
In the next segment we take a look at some important events that one shall consider before putting their hard earned hopes at risk. We also believe that these might be the factors that have psychologically forced the Genz to look beyond the millennial boundaries.
GLOBAL ECONOMIC TRENDS AND EFFECTS:
The world is in a volatile period: economic, geopolitical, and ecological changes all impact the global outlook.
COVID-19: The pandemic caused far-reaching economic consequences including the COVID-19 recession, the second largest global recession in recent history. Pandemic-induced scarring has also slowed human capital build up as a result of learning losses from lack of schooling and on-the-job skill acquisition. It has made people realize that having multiple sources of income is crucial for achieving the work-life balance we strive for. You never know when the world might turn upside down, leaving you with regrets about trips not taken or gifts not given.
WARS: The Food and Agriculture Organization reported a 20% rise in food prices since February 2021, which increased to 40% in March 2022 due to the Russia-Ukraine war. The World Bank warned that the Israel-Gaza conflict could cause oil prices to increase, potentially leading to severe implications for the global economy and higher food prices. We have to understand the setback of not diversifying our money into stocks, crypto currencies and mutual funds, fearing risk and losses, leading to a failed saving outcome. Being stuck at gold and FDs could lead to financial plan that could not sustain us in times of global economic uncertainty.
RECESSION AND INFLATION: The global GDP total had shrunk by nearly $22 trillion as of January 2021, during the course of the pandemic. According to Chief IMF Economist Gita Gopinath, the long-term consequences have not fully played out but could be expected to be in the trillions from 2020 to 2025. This makes the youth realize the difference between saving and making the money flow, the importance of the financial planning, compounding or starting early.
HOW DOES THE YOUTH BENEFIT?
Amid all the economic slowdowns and downtrends one may think that investing in the market at this point is a senseless thought but..
“Be fearful when others are greedy and greedy when others are fearful.”
-Warren Buffet
The legendary trader Warren Buffet emphasizes the importance of contrarian thinking.
Economic fluctuations significantly influence youth participation in equity market trading, often driving them towards it for several key reasons:
1. Opportunities in Volatility:
Market Volatility: Economic downturns or periods of high market volatility can present opportunities for substantial returns. Younger investors, who often have a higher risk tolerance, may be attracted to the potential for quick gains during these times.
Bargain Hunting: During recessions or economic slowdowns, stock prices may drop significantly, allowing young investors to buy shares at lower prices. This “buy the dip” mentality is common among youth who believe in long-term recovery and growth.
2. Long-term Wealth Building:
Low Interest Rates: In times of economic downturn, central banks often lower interest rates, making traditional savings accounts less attractive. Youth may turn to the equity markets as a more promising avenue for long-term wealth accumulation.
Inflation Hedging: With inflation concerns, young investors might be drawn to equities as a hedge against the devaluation of money, seeing the market as a way to preserve and grow their purchasing power over time.
3. Desire for Alternative Income:
Job Market Uncertainty: During economic downturns, job prospects may decline, leading young people to seek alternative income sources. The equity market offers a platform where they can potentially earn money despite the broader economic challenges.
Gig Economy: Many young people are part of the gig economy, which may not provide stable income. Investing in the stock market becomes a way to supplement their earnings. If we were to talk numbers at the global level of the recent generation making the money flow via the markets as compared to generations who believed in saving, here is the data:
- United States: In the U.S., the rise of platforms like Robin-hood has been instrumental in attracting young investors. The democratization of trading through zero-commission models has led to a surge in retail participation, particularly among millennial and Gen Z. The trend has been so pronounced that young investors now account for a significant portion of daily trading volumes. By 2019, the younger age group’s annual investing share had more than tripled, compared to a 60 % increase for 40 plus. And the spike in 2021 relative to 2019 was twice as large in percentage point terms for those less than 40 years old compared with the 40 and over group.
- Europe: In Europe, the youth involvement in equity markets has also seen a notable increase. However, the approach has been slightly different, with a stronger focus on sustainable investing. Young European investors are increasingly drawn to ESG (Environmental, Social, and Governance) criteria when making investment decisions, reflecting a broader trend of socially conscious investing. The appetite ofEuropean ‘millennial’ investors to make riskier investments amid market volatility is higher than the generations above them, according to the EY Global Wealth Research Report2023, as younger investors more actively respond to and are influenced by external market events.
- Asia: Asia has witnessed a rapid rise in young investors, particularly in countries like India and China. In India, the growth of fin-tech companies offering simplified investment solutions has contributed to a surge in equity market participation among the youth. In China, government policies promoting stock market participation have played a key role, with young investors increasingly turning to equity markets as a means of wealth accumulation. In India particularly the number of individual traders who traded intraday in the equity cash segment rose over 300% in FY 2022-23, as compared to FY 2018-19, the SEBI study revealed.
In the recent budget 2024 key decisions by FM Nirmala Sitaraman:
- Angel tax abolishment
- Reduction of STCG to 20% and LTCG to 12.5%
- Reduction of TDS on E commerce transactions from 1% to 0.1%
- Reduction of custom duty on specific commodities.
Such changes have paved the way for an accessible start-up and trading ecosystem in India.
India has 67 unicorns as of June 24, along with approx. 100+ cheetahs and 40+ gazelles (start-ups that are expected to become a unicorn) .The booming start-up culture in India has also encouraged a mind-set of risk-taking and entrepreneurship, which aligns with the risk-reward nature of equity investing.
IMPLICATION OF FUTURE
The growing presence of young investors in equity markets is likely to have far-reaching implications. Firstly, the increased focus on technology-driven platforms and social media could lead to greater market volatility, as trends can be rapidly amplified. Secondly, the emphasis on ESG and socially responsible investing could push companies to adopt more sustainable practices, driven by the demands of younger shareholders.
Moreover, financial institutions and market regulators will need to adapt to this new reality. Ensuring that young investors are protected from the risks associated with market volatility, while also providing them with the tools and education necessary for informed decision-making, will be crucial.
CONCLUSION
The rise of youth in equity markets is a global phenomenon that is reshaping the financial landscape. As young investors continue to grow in influence, their preferences and behaviours will play a key role in determining the future direction of equity markets. Understanding these trends and their implications is essential for anyone involved in the world of finance.
Written by:
Pooja Dhanuka