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Millennials and Gen Z are a growing force in investing. The market needs to catch up

November 18, 2021, 12:04 PM UTC
These new investors want to use their capital for socially responsible investing and sell stocks when they think a company is not serving the best interest of society or the planet.
Nicky J Sims - Getty Images

Just a few weeks ago, one of the most influential financial conferences in the world, the Milken Institute Global Conference, assembled in Los Angeles for a high-COVID-protocol, in-person gathering.  But this year it seemed many of the “movers and shakers” at the conference were moved and shaken themselves as the reality of a rapidly changing world of finance hung in the air. 

As I talked to conference attendees, it became eminently clear that they see a not-so-quiet tsunami approaching, and they are all scrambling to prepare. Pointedly, they know today’s millennials and Gen Z are a growing force in investing. These new generations are driving their capital to new frontiers, on new platforms, with new priorities. The financial sector recognizes that they must begin to adapt accordingly or get left behind.

Leaders are right to be concerned because (contrary to popular belief) today’s millennials and Gen Z have more economic power than any generation that preceded them. They are earning more, saving more, and investing earlier and at a higher rate than previous generations. For millennials, 31% started investing before age 21, compared to only 9% of baby boomers and 14% of Gen X. Not only are millennials the largest workforce in U.S. history but they, together with Gen Z and women, are poised to be on the receiving end of a wealth transfer of tens of trillions of dollars, which is already underway.

One in four millennials who save has more than $100,000 in savings. When they deploy that capital, they are investing with a different set of expectations than their parents: 95% say they want to use their financial capital for socially responsible investing. Two-thirds of this group own stock, and 57% report that they have sold stock when they think the company is not serving the best interest of society or our planet. Their passion for environmental, social, and governance (ESG) investing has helped drive the 10x growth in ESG inflows in just two years. 

The potential impact of these young generations on the finance sector is extraordinary, but even more so if we factor in women across all age groups. Their economic power is also on the rise, and they share many of the same perspectives on how they want to invest their capital.

These investors are calling for the democratization of finance–not an evolution but a revolution that accelerates the plodding progress the sector has made on issues they care deeply about. They know that the world of finance is not inclusive, and they’ve felt the consequences. 

Today, only 1.3% of U.S. financial assets are managed by women and people of color, according to the World Economic Forum. Unsurprisingly, given the lack of diversity in who controls the money, capital is not flowing to female founders and female-led companies. This is despite concurring clear-cut data from McKinseyDeloitte, and Boston Consulting Group that women-led firms tend to outperform their peers financially, and diverse teams outperform not just financially, but in areas such as innovation. Yet last year, just 2.2% of venture capital went to female-founded firms. Similarly, the next generation is watching the progress and diversification of the Boards and in the C-suite of the companies that they are investing in, with a clear eye on their sustainability and diversity pledges and actions. 

Talk to wealth advisors, bankers, fund managers, and others across finance, and it’s clear there is great concern about how to best appeal to young investors. For some, like wealth advisors, it is almost existential for their business because they know what Ernst & Young has reported—that as many as 70% of women and millennial/Gen Z investors will likely fire their family’s advisors as the trillions in wealth transfer comes their way.

And that’s if young investors choose to employ a money manager at all. Young people do not have the same deep trust in institutions found in their parents’ generation, so they are more willing to embrace decentralized finance offerings, as proven by the 40% of them who own crypto, and the proliferation of newer investing platforms such as Robinhood, Acorns, Public, and Ellevest.

Despite their clear buying power, Gen Z and millennials have consistently expressed an honest concern about their lack of knowledge and confidence when it comes to investing. For those in the financial industry who embrace these changes, there is a real opportunity to support and guide this new generation of investors who are willing to put their capital on the line to hold businesses accountable in helping to shape a better society and a healthier planet. 

Jean Case is the founder and CEO of For What It’s Worth (FWIW) and Chairman of the National Geographic Society.

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