Millennials and the stock market – a lockdown affair or evolutionary leap?

Hello dear reader. I am back after a project that opened up the world of stock investment and consumer behaviour. I come bearing new insights gleaned from helping a stock market guru launch his own investment subscription app.

While the world of Dalal and Wall Street makes for great cinema and TV, the project itself wasn’t instinctively exciting to a financial novice like me. Like most Indians, I was brought up to not discuss money. I didn’t learn or know how money, investment and credit cycles really work - and how it needs to be managed beyond small fixed deposits.

However, on this project the more I researched, met investors and spoke to experts, the more I understood the seductive lure of the stock exchange. So let's get learning some interesting nuggets on millennial investor habits.

What drives Millennial Investor Behaviour?

The financial inheritance

Having worked on financial products in the past, I already knew Millennials inherited their financial behaviour from their parents. This would explain the continuing popularity of traditional savings methods that are considered most conservative, like fixed deposits, Provident Fund schemes and Life Insurance.

Some other investment factors

One of the other influences that play on millennials’ minds when investing could be the state of the financial markets during one’s adolescent years. Most early millenials like me would vaguely remember living through the biggest stock exchange scam of our time. This would have possibly painted the stock market like a gambling den or a casino - a risky, lottery-like way to put away money. It’s possibly why millennials until now have largely shied away from Dalal Street (the name of which, only made it worse).

Then, one’s level of income is a factor. Naturally the more you earn, the more you can save. The more you can save, the more you will try to diversify your risk. This is when one's financial horizons broaden beyond just the inherited world of fixed deposits and life insurance.

However, there is a larger, possibly hidden problem - the identification of which made me sit up in my chair, leave my current research - to double down and calculate my rate of savings.

The problem is: Millennials only save about 11% of their income, versus an advised or ideal 30%. Why do we fall so short?

Why Millennials are bad at saving

So I dug into research, and spoke to millennials on both sides of the savings spectrum. Both groups actively invest in equities, insurance, bank deposits and mutual funds. Below are three major conscious and subconscious factors that affect investor behaviour –

Children of ‘relative’ affluence – millennials finished high school around the liberalisation of the Indian economy. They saw household incomes rise exponentially along with the avenues to spend the money. What worked in their favour was parents who had grown up hearing the war-cry of ‘roti-kapra-makan’ and had dedicated their lives to building a solid asset base. With a basic asset base in place, this generation at least has a foundation to build on.
Early earners – Millennials entered the job market better qualified and earlier compared to traditional professions. There were also more jobs with fat salaries with the entry of multinationals. Theirs was possibly the first generation of ‘young managers’ under 30 years old, who earned big salaries and switched jobs more than once in their careers. This turned out to be a heady cocktail of early money, no dependents and liabilities, parental support, and therefore lots of ways of spending the money they made.
Millennial lifestyle – earlier earnings, parental support, and the internet – all came together to shape the ‘Millennial lifestyle’. Work hard, party harder, marry late, one child, live life. YOLO! Most people will be able to identify with these basic trends. The larger financial implication is that millennials start saving later, and end up saving less. As per financial calculators, life is one big party that will not last till retirement – if they can afford to retire that is.

Saving like parents but for different things

While we know Millennials have learnt to save from their parents but there are some basic deviations in what they save for. Millennials save for today, while their parents saved for tomorrow. Millennials are looking to save for cars, while their parents saved for retirement. While parents saved for home renovation, Millennials want to buy new apartments (possibly because more of them live away, or are increasingly opting for a nuclear set-up, or simply because they grew up with the idea of owning a home). While parents saved up for children’s education, Millennials are saving up for their own education - possibly catalysed with shorter employment tenures, and career obsolescence becoming a real concern.

Covid19 effect on saving and investment behaviour

Millennials were comfortably living their best lives until the pandemic hit. Unfortunately this piece too mentions what would possibly be the most talked about event in human history.

As with most historical events that cause chaos, there emerges a new order. This is exactly what happened with millennials locked up at home to mull over impending career and financial uncertainty. This was a much bigger catalyst than the previous recessions and economic downturns witnessed by them. To begin with, they learnt to save! There was a 50% increase in Google search for ‘how to invest’ during the lockdown.

The Covid-19 call of the stock market

Until now Millennials had tentatively dipped their toes into mutual fund investing with some setting up systematic investment plans (SIPs). However, faced with an uncertain future, Millennials turned where they had so far feared to tread.

Equity players like Zerodha saw 300% rise in new account openings compared to pre-Covid. 50% of these were opened by professionals or people in private jobs. Motilal Oswal’s app downloads doubled with 50% increase in trades. Discount brokers saw a 70% increase in new DEMAT account openings with millennials leading the charge with 80% of those accounts.

More and more millennilas tuned into the business channels to hear established investing gurus, new trading mavericks who had ‘hot tips’ – all increasingly visible and vocal on TV channels and their own social media platforms and apps. Some people even took to websites like Quora to increase and improve their knowledge.

All in all, the millennials may have arrived late to the party but they are certainly getting the party started. Indian stock market was one of the very few that not only didn’t crash, but rose!

I have explored three possible factors that may have spawned the bullish new breed of investors –

Time : Most millennials had been running non-stop on their home-work-life treadmill. With the lockdown, they possibly ‘paused’ for the first time in their adult lives. Locked up at home, they finally had the chance to think, explore and research their financial options beyond tax saving and old school instruments.

Technology – this is where the internet, smartphones and zero brokerage accounts come into play. All providers have their own apps and websites to trade from. There is information overload on the internet for people to study, learn and understand the basics. Warren Buffets letter is one of the most searched pieces of investment advice. Millennials are genuinely trying to see the stock exchange as a long term investment instrument vs. a legal casino. Thankfully, unlike a casino, markets have a method to their madness.

Motivation and ambition – all this has released a whole variety of investors into the stock market. The new breed range from the cautious and analytical who take calculated risks, to intuitive investors looking to get rich quick, and then some who are exploring and experimenting with smaller amounts. Then there are the seasoned players whose ambitions are taking them overseas. They have taken advantage of select services to even invest in stocks in markets like the USA. After all most Indians may not be able to afford a Tesla, but they could own a tiny part of the company in stock.

Learning to save and invest

The Indian equity investors have had an evolutionary leap thanks to Covid. Attitudinally, they went from ‘YOLO’ to jumping right in to learn financial optimisation thanks to lockdown. In a very short time they have moved from fixed deposits to becoming more active investors in equity and even trying to understand debt, derivatives and commodity trading. Perceptually, as they understand the method of the stock market madness, they realise it is not Russian roulette but about data, financials and research.

As the market in India matures, it will see more investors, a larger portion of household savings enter the indexes, stock investing becoming more mainstream as it enters the repertoire of saving instruments. Alongside this, regulation also continues to evolve to make it safer to park money in and tougher to manipulate like the memory forming incident of the 90s. The markets are already a safe and viable bet for long term wealth creation and a place to park funds to finance many life goals like holidays, education, weddings and retirement.

While the Indian investor may just be learning to walk, I wouldn’t put it past them to try and replicate the Reddit Gamestop phenomena even before they were out of their diapers. Given the millennial enthusiasm and critical mass, the journey ahead promises to be exciting indeed.

The views expressed in this piece are personal and not representative of the client or agency. This project was undertaken in collaboration, and as part of Intertwined – Business Ideas with a Soul Connect. The boutique offers brand strategy with digital and creative services.