Generation Z is now in the market and they are starting to invest younger than any generation before. A new study from the FINRA Foundation and the CFA Institute has taken a deep dive into the attitudes and behaviors of this newest generation of investors, the oldest of whom was just 25 at the time of the survey.
In this episode, Andres Vinelli, chief economist at the CFA Institute, and Gerri Walsh, chairman of the FINRA Foundation and Senior Vice President of Investor Education at FINRA, join forces on the role of cryptocurrency as a stepping stone, how Gen Z is using it, but not necessarily . trust, social media and much more.
Sources mentioned in this episode:
Gen Z and Investing: Social Media, Crypto, FOMO and Family Report (May 2023)
New Investors 2022: Entering the Market in New and Traditional Ways (April 2023)
Nationale Financial Capability Study Investor Survey (december 2022)
Listen and subscribe to our podcast atApple-podcasts,Google Podcasts,Spotifyor wherever you listen to your podcasts. Below is a transcript of the episode. Transcripts are generated using a combination of speech recognition software and human editors and may contain errors. Please check the accompanying audio before quoting in print.
FULL TRANSCRIPT
00:00 - 00:28
Kaitlyn Kiernan:Generation Z is now in the market and they are starting to invest younger than any generation before. In this episode, we dive deep into a new study from the FINRA Foundation and the CFA Institute that looks at the attitudes and behaviors of this newest generation of investors, the oldest of whom was just 25 at the time of the survey. . We learn about the role of crypto as a stepping stone, how Generation Z uses but doesn't necessarily trust social media, and more.
00:28 – 00:37
Intro music
00:37 - 01:05
Kaitlyn Kiernan:Welcome to FINRA Unscripted, I'm your host, Kaitlyn Kiernan. I'm pleased to have two guests today to discuss a new study from the CFA Institute and the FINRA Foundation on Generation Z investors. That's right, Gen Z is already investing. Today we're joined by Andres Vinelli, Chief Economist at the CFA Institute, and Gerri Walsh, Chairman of the FINRA Foundation and Senior Vice President of Investor Education at FINRA. Andres and Gerri, welcome to the show.
01:05 - 01:06
Gerri Walsh:Thanks for having us.
01:07 - 01:08
Andres Vinelli:It's a pleasure to be here. Thank you.
01:09 - 01:17
Kaitlyn Kiernan:So to kick us off, can you introduce yourselves and tell us what you do in your respective organizations? Andres, as a newcomer we could perhaps start with you?
01:18 - 02:09
Andres Vinelli:I'm Andrés Vinelli. I am chief economist at the CFA Institute, the membership organization for investment professionals worldwide. It is therefore a global organization, with almost 200,000 recognized financial analysts. That's where CFA comes from. And it's a pleasure to be here and work with the FINRA Foundation, which does so much good work to make investing accessible. What I do at the CFA Institute is lead the research efforts we do to fulfill our mission of ensuring that finance is a positive force in society. This includes ensuring that investors have the information they need. And we also talk a lot with governments about how we can make the financial markets a little better.
02:09 - 02:17
Kaitlyn Kiernan:And Gerri, you wear two hats, but today you represent more of the FINRA Foundation. So maybe you can talk for a moment about your dual role.
02:17 - 03:47
Gerri Walsh:Absolute. I lead Investor Education at FINRA, and in that capacity the Investor Ed team manages, updates, and creates the content found on finra.org. So, in response to developments in the securities markets, there are trends that investors, especially retail investors, are witnessing. We try to provide content that is neutral and unbiased and gives you only what you need to know to make an informed decision. And we also have a role in regulatory policy. We channel the voice of retail investors through the Investor Issues Committee, and Andres is one of our members on this committee. So I will work with him several times. And the Foundation is a separate organization within FINRA. It is a wholly owned subsidiary of FINRA. The company's entire mission is to provide Americans with the knowledge, skills and tools they need for financial success throughout their lives. And we do much of that in partnership with organizations that reflect our values and reflect our goals. And our main way of doing that is through research like this project and also through outreach. So I would say I have the really 100% fun job at FINRA because we are here to advance investor protection by understanding and advocating for Main Street investors.
03:48 - 04:08
Kaitlyn Kiernan:Big. Well, as they say: knowledge is power. So I am sure that research is very important in that role. That's why we're here today to discuss a new study that the FINRA Foundation and the CFA Institute collaborated on that looks at Gen Z investors. To start, can you give us some background on this investigation and what prompted it?
04:08 - 05:09
Gerri Walsh:Well, five years ago, we, the FINRA Foundation, partnered with the CFA Institute to understand millennials, and we wanted to see what was happening, and we looked at both investors and people who might be interested in the securities industry. So we had a wide view. And five years later we thought: 'Millennials have invested. Awesome. But look at Gen Z: These 18 to 25 year olds are already in the market in a way that millennials, Gen X and boomers were not. market at that young age." So we thought, “Hey, let's work together again and understand this generation better, because it seems like it's investing in much larger numbers and the availability of investment platforms has increased so much. So what should we as regulators know about this new generation of investors?” investors?"
05:10 - 05:32
Kaitlyn Kiernan:Millennials are old news now, so it's good to hear, I think as a Millennial on the podcast, that we're no longer at the forefront. The research therefore showed that more than half of Gen Zers are already investing. That seems like a really big deal considering how young they are, as Gerri just said, how do we define Gen Z in general and for the purpose of the study?
05:33 - 06:16
Gerri Walsh:So Gen Z is much larger than the cohort we looked at for investment purposes. We looked at people who were 18 to 25 years old at the end of 2022, when we released this survey. They could therefore legally own their own investment account. But Gen Zers are those born between 1997 and 2012. So it's a much bigger generation. So in many ways we are looking at the tip of the spear. We don't really see the entire Gen Z, we just see the Gen Zers who were able to invest in their own accounts at the end of 2022.
06:17 - 06:24
Kaitlyn Kiernan:So we still have a fair number of minors. So this will be a group that we will continue to monitor in the coming years.
06:24 - 06:26
Gerri Walsh:Precisely. And that gives us a baseline.
06:26 - 06:32
Kaitlyn Kiernan:And what do they invest in for these young investors? What counts as an investment in this research?
06:33 - 07:23
Andres Vinelli:Well, it's a surprising selection of products. There are the old classics: mutual funds, individual stocks, ETFs. I suspect some Gen Zer is looking at me and saying, “Hey Boomer, you're forgetting where the real action is happening.” By the way, I'm not a Boomer, I'm a Gen Xer. But you know what? Crypto is running first here and NFTs are in the mix. So what we're seeing is a surprising range of instruments that people are investing in, with crypto really making progress. For many people in this generation, crypto seems to be their first love, and it is very interesting and quite new. Of course, we're also seeing other generations coming into the mix, but Gen Z is leading the way here.
07:23 - 07:59
Gerri Walsh:But it's interesting to see Millennials and Gen X are also investing in crypto because it wasn't a zero-sum game, is that what you invested in? And I mean, individual stocks seem to be something that all generations have invested in. But Gen Xers are much more likely. Almost half of them are in investment funds, compared to only a third of Generation Z. But things are also different in crypto. 55% of Generation Z likes crypto, while just over a third of Generation X does.
08:00 - 08:06
Kaitlyn Kiernan:It is interesting. So this cohort is still very young, but when did they start investing?
08:06 - 08:18
Gerri Walsh:That's wild, Kaitlyn. At least in the US, because this was an international study, in the US about 25% of them started investing before they were 18.
08:19 - 08:26
Kaitlyn Kiernan:We were not able to find some people in the survey because they are not yet legal adults. It may also be that they are already investing. So it's really interesting.
08:26 - 09:09
Andres Vinelli:I think the trends we see for Gen Z will be sharper when we see what the minors were doing back then. I think the trends will be even more robust for people who are even younger, just because they were cut off at age 18. But it's a remarkable change, and very interesting. It opens up a lot of interesting possibilities in terms of the investment world, as it opens it up to a new audience, perhaps a more diverse group of investors who have the ability to use the capital markets to their advantage to plan their lives with just more resources. and more tools for that.
09:10 - 09:23
Kaitlyn Kiernan:Yes, greater participation in the markets is definitely a good thing. And do we have any idea what drives this participation in the markets? What makes these young investors enter the market?
09:23 - 09:55
Gerri Walsh:One of the biggest factors is the ability to start investing with small amounts. More than two-thirds of Gen Zers we surveyed in the US said this was the top motivator, followed by curiosity, simply their desire to learn about investing and own investments. But having money to invest was also a factor and conversely a barrier for the people who don't invest and for parents and family who encourage you to invest. And that could explain some of the investors under the age of 18.
09:56 - 10:05
Kaitlyn Kiernan:Kudos to the parents who have children who are interested in young people. How does this compare to older generations? What drives their investment decisions and how do they compare?
10:06 - 10:42
Gerri Walsh:Compared to other generations, Generation Z was more likely to say that the fear of missing out was a factor or influence that stemmed from something they saw on social media. So we see a generational difference in terms of some of the drivers of investment behavior. And FOMO was a factor for some people opening accounts on their own. But especially when it comes to things like individual stocks and meme stocks, Gen Zers are more likely to say that FOMO, the fear of missing out, is the driving force behind their decision to jump into an investment.
10:43 - 10:48
Kaitlyn Kiernan:It is interesting. Where do these investors learn about financial topics?
10:49 - 11:25
Gerri Walsh:In the US, social media is the largest source of information for these investors. This is where they get their information from, as well as through internet searches. But the third and most reliable form of information comes from parents and family. Yes, they use social media and see what's out there. But interestingly, while a Gen Z investor can rely on as many as four different points of information on social media when making a decision, they don't necessarily trust everything they see. They are very picky.
11:25 - 12:16
Andres Vinelli:It's really interesting because we hear so much about financial influencers and the role they play in educating people, sometimes directing them to certain strategies or products. And it's kind of like the wild, wild west out there. We, the CFA Institute, are currently conducting a study on financial influencers. So more to come on that. But what we see in this study is that they are very picky. These people know that things move fast. There is a certain fear of missing out. We have it all. But they seem to have a keen knowledge of the dynamics outside. Reassuringly, they get their information not only from social media, but also from parental advice, from financial professionals and from more traditional ways of acquiring financial knowledge.
12:16 - 13:01
Gerri Walsh:And you know, Kaitlyn, Millennials and Gen Xers were more likely to say that they get their information, that they learn about investing, from internet searches or from financial professionals and financial companies themselves. But it's really interesting when you think about which sources people trust and what is actually useful to them. Parents and family were their best reliable source. Financial professionals were their second trusted source. So financial professionals are in the mix for Generation Z. But interestingly enough, when they're looking for information, when they want ideas about where to invest, social media and internet searches are where they go.
13:02 - 13:08
Kaitlyn Kiernan:What do you mean by social media? Is there an overview of the platforms these investors use?
13:08 - 13:17
Andres Vinelli:It's there and I was honestly surprised by it. Guess what was the biggest source of investment? Hint: it wasn't TikTok. That is what I thought.
13:18 - 13:19
Gerri Walsh:But it was a video!
13:19 - 13:25
Kaitlyn Kiernan:Okay. Then I have to guess YouTube. I'd say it's probably not Facebook. I don't think this generation is on Facebook.
13:25 - 13:51
Andres Vinelli:No, it's for other generations. YouTube actually. You were right. Then YouTube, number one at 60%, and then internet searches and then Instagram, which makes sense across generations. And then you have other sources, TikTok, Twitter, Reddit. Yes, Facebook. But it's mostly YouTube, which is mostly research and analysis.
13:51 - 14:26
Gerri Walsh:And it was interesting to see that these were consistent results with the National Financial Capability Study Investor Survey component, which was published in December 2022 but aired in 2021. And even though Gen Z didn't break out for investors under the age of 35, so still these young investors more than half of them used YouTube. So very consistent with what we saw in Gen Z, and a higher percentage used Reddit than we saw in this particular study.
14:27 - 14:35
Kaitlyn Kiernan:It's very interesting. At least YouTube is more long-form content. So hopefully they'll learn something more than a 90 second soundbite somewhere else.
14:36 - 14:42
Gerri Walsh:It's such a challenge to reduce investor education to 45 or 90 seconds.
14:42 - 14:55
Kaitlyn Kiernan:Social media seems to play a complicated role here. They use it, they don't necessarily trust it. From your perspective, is social media a net positive or net negative for the younger generation and investments?
14:56 - 16:05
Andres Vinelli:I'd say it's a net positive. This is a young generation. Hopefully they have a long life to live, invest and prosper. So even if you make a few mistakes in the beginning, it's no problem because you'll have time to hopefully make some money and learn from mistakes or from the successes you've had. This is an incredible opportunity that other generations did not have. You just had to spend a lot of money to get started. Now the industry is offering fractional shares for a handful of dollars and starting very early. And social media can give you some of the background that you obviously need for the wild west, and think that we as a society need to come to terms with that. Maybe people should explain it a little better if they have a financial interest in what they're talking about. We have to set some rules for it, but I think in the end it's an incredible opportunity to learn, make mistakes, win some, lose some, and everyone will be better off down the road. So what do you think, Gerri?
16:05 - 17:38
Gerri Walsh:Well, I share your view that social media offers opportunities. It clearly has challenges. Like any information channel, fraud can be spread through this channel. An investment seminar one attends may be a legitimate effort to educate, or it may be a sales pitch for a Ponzi scheme. It really varies. But one of the things we did with this study was dig a little deeper into how Gen Zers decide who to trust. And so, regardless of the channel, whether it's parents, whether it's financial professionals, whether it's marketing companies or social media channels, whatever it is, they appreciate things being explained clearly to them, and they appreciate information that is relevant to them.
They also want to see how things work. They appreciate people sharing financial results, and obviously regulators can't necessarily do that. But the key to the equation is that this is not a sales pitch, regardless of the educational opportunities. This is where this generation, this digitally native generation, is smart to screen and filter some of what they see on social media, especially if it's not particularly relevant to them. It feels like a sales pitch. It feels vague. They may still listen, but they may not act on it. They rely on content that actually breaks things down without a big sales pitch.
17:39 - 17:55
Kaitlyn Kiernan:Crypto, Andres said, is a big thing in this study. It is a great driving force for this generation. How is this reflected in the risk profile of this latest generation? Are they risk takers? And how does this compare to the older generations?
17:55 - 19:38
Andres Vinelli:We have numbers that indicate this is a generation that is not afraid to take risks. There is a bit of a go-getter mentality. And one of the questions about this type of service is: is it a phase? Because we are young and we think young in so many ways in life. And as you settle down later in life, you can change. Or is it a generational trait that stays with you? But what we find is that there is a greater propensity to take financial risks. And in fact we also see a connection between the tendency to take large financial risks, for example, and the tendency to gamble. So it's a bit of a yin and yang in the sense that you could see this as: it's very worrying to see that financial instruments are just for play, it's not great.
On the other hand, I would say that when you are young, it is time to take some risks because you have to make up for the rest of your life. As people get older, they tend to become more conservative in the way they invest. And it's the right time in life to take a few risks. The other thing we see in this study is that men are more likely to be investors than women. And it is a trend that is not new. In fact, in this generation it might even be a little better than before because sometimes men are overconfident and overconfident. What this means is that they think they know better what is going on and they take more risks accordingly.
19:38 - 20:39
Gerri Walsh:And there is no doubt that Generation Z are risk takers, much more so than other generations. And it's interesting. They really believe they know more. Half of them think they know more about investing than their parents. And that FOMO element we talked about definitely creeps in when it comes to risk-taking. But this generation also feels like they face some unique challenges. So Andres said that the young people are on their side. It is certainly a factor that plays a role. But I think this sense that they have a different economic environment that they inherit causes them to interact with the financial markets differently. And you know, we asked about confidence in achieving financial goals across generations. Gen Z was most confident that they could achieve their long-term financial goals with a long-term vision. So they take risks to increase this ability to achieve their goals.
20:40 - 21:21
Kaitlyn Kiernan:It will be very interesting to continue to follow this generation to see what the nature of being young is. It sounds very familiar to me to think that you know more than your parents. I think a lot of teens have felt this way over the decades. But that confidence sounds very different to millennials, many of whom graduated in the middle of a financial crisis and lacked that confidence. So it will be interesting to see over time how this information evolves as this demographic group ages. Andres mentioned the distribution of more male versus female investors, but beyond that, who are these Gen Z investors demographically?
21:22 - 22:25
Andres Vinelli:When we compare the Gen Zers who invest with those who don't, there are some interesting facets. We talked about gender, but what we see is that if you're a student, you're much more likely to be an investor. The 42% of people who are investors completed their studies, while those who did not did not invest, only 24% of them did so. Naturally, the investors come from wealthier households. It makes a lot of sense. I mean, you need some money to invest, although nowadays you can invest with a lot less. Some encouraging news is that the demographics, defined by race, for example, are very similar for those who invest and those who don't. And that, I think, is quite an achievement for this generation, in the sense that we've always had an issue of inclusivity in this industry, where minorities are less invested in the market, which of course makes it difficult to create prosperity and prosperity for the create generations. . So this is an encouraging finding in this study.
22:25 - 22:57
Gerri Walsh:And while the gender gap is annoying, we don't see as many women investing, but the needle is slowly moving toward women becoming investors. When we looked at Boomers versus Millennial women in previous studies, we saw the gender gap narrowing, both in terms of investing and understanding investment concepts. So I think we're continuing that trend, but it's a slow shift.
22:57 - 23:11
Andres Vinelli:Can I ask a question here? Gerri, I'm bold enough to ask you: what do you think about this crypto-first part of this research? Is there anything that makes you smile, worries you? Any ideas about that? I'm curious.
23:11 - 24:40
Gerri Walsh:I think it's an interesting question and interesting results. What we see, and as a regulator I can't say this is good or bad, but what we see is that the entry point to investments has changed. Five years ago, when we studied millennials, the parental element was present in all generations. But the workplace was a key factor. Exposure to a company, an employer-sponsored retirement plan, 401k or 403b, whatever vehicle it was, was one of the most important factors for people investing. But now the interest in crypto seems to be driving many people to become investors.
And we did separate research on newer investors, people who opened accounts in 2020 and then in 2021 and 2022, and we did some longitudinal analysis, but we also looked at people who considered themselves investors and who were really only into crypto assets had. And this piques their interest in investing in our capital markets more broadly. So there's an interesting and complex dynamic going on here, which is that the entry point into investing is no longer the traditional business 401k. It's still a factor, don't get me wrong, but crypto is attracting more and more interest in the financial markets.
24:41 - 25:01
Kaitlyn Kiernan:And that causes a change among the supervisors. FINRA has done a lot more work in the cryptocurrency space. So, Andres, I'm going to tease you: in late summer, early fall we'll have a series of podcasts about what FINRA as a regulator is doing and thinking in the crypto space, so you might find interest in those episodes later in the year.
25:02 - 25:06
Andres Vinelli:Wow. Okay, so cliffhanger there. Look forward.
25:06 - 25:30
Kaitlyn Kiernan:I need to keep people coming back for more. Andres, you mentioned earlier that one of the unique aspects of this study is that it looks not only at Gen Z investors in the US, but also at investors in Britain, Canada and China. So how are these Gen Z investors in these other jurisdictions similar or different from their US counterparts?
25:31 - 27:29
Andres Vinelli:What strikes me are the similarities. This generation is different and has a unique touch. It is also shaped by the local context. Take China for example. What we saw in China is that they generally start investing a little later in life, and they focus more on traditional products, not on cryptocurrency. Of course, cryptocurrency transactions are now restricted in China, so that could explain a lot of that. There is less dependence on parents for information. That would be something very, very interesting to follow up on.
While parents are investing, a big part of the drive we see in China is FOMO, the fear of missing out. It is there, especially present in China. If we now go to Great Britain, we see that the parents of this generation invest less than parents elsewhere. But what has really helped them in this particular place in Britain is the ability to start with just a little money, which is thanks to all the investing apps and share fractionation, which is quite new to the market.
Canada is leading the way. They cook on gas. That generation is very curious and eager to learn. And you know what? That's exactly the right mentality. Because when you invest, whether it's a stock or maybe even a crypto asset, it's more traditional than it seems. Many of these crypto assets are old things wrapped in new technologies and perhaps new concepts. In many ways, Stablecoin can resemble an old-fashioned money market fund. And a sign that we have financial instruments that look like this. We call them secured, so it's a good gateway. But in Canada they really love investing, curiosity and learning. So thank you for Canada.
27:29 - 27:49
Kaitlyn Kiernan:It's very interesting. And we'll have to figure out what Canada is doing that could be replicable. In closing, I would like to talk about the barriers and non-investors in the research. What has the research found here in terms of some of the key barriers and what can we do to get these people into the market?
27:49 - 29:07
Gerri Walsh:Well, the barriers aren't that shocking, and they're not that different for other generations. They have their roots in income and debt problems, but also in a lack of education. We asked people to list several reasons for not investing, and about two-thirds of non-investors said they simply didn't have enough savings. And almost as many people said they don't have enough income or enough paycheck to paycheck. So they just don't have the extra money to invest it. But more than half, 56%, indicate that they do not have enough knowledge about investing. So it's an opportunity for regulators, for educators and for the securities industry to play a role as a trusted source of unbiased, non-marketable information.
We see that Gen Zers who invest have more often received some money from their parents. And as Andres said, the demographics are that they probably have more education, they probably have more income. A large part of that fairness in society plays a role in why people don't invest. But you asked about opportunity and education is, I think, the most important opportunity.
29:08 - 29:18
Kaitlyn Kiernan:Last question. Ultimately, what are your overall thoughts on this study? What do you think are the most important things for our listeners?
29:18 - 30:32
Andres Vinelli:For me there are a few facts that stand out. First of all, the level of involvement of this generation in the investment world is something we have not seen before. So that's good news. The second is that this generation is smart. It is focused on learning and that is so important. Learning by doing, that is what this generation does. It's the right way. You can start very small, but we also see that people who have started usually start investing for the right reasons, namely to make plans for life events, for things we want to do in the future, for example to do things. taking a short vacation or more grandiose goals, home ownership or retirement and all that. Investing therefore puts you in the right framework to tackle many challenges in life. This is a generation that is very smart about this and they seem to have a healthy relationship with their parents when it comes to seeking some level of advice, but also making up their own minds. So as far as I know it is an encouraging study.
30:33 - 31:42
Gerri Walsh:I agree 100% with Andres. Our capital markets work best when they are open to everyone and people with knowledge can participate and the world has changed. I am therefore enthusiastic about this research. I feel like I've met the next generation of investors, but I can't wait to meet their younger siblings. This is an ongoing story. We must continually adapt our methods to engage investors, and this is not limited to generations. The technologies that have democratized investing are also available to millennials, Gen Xers and boomers, of which I am one. I am the Boomer representative on this panel. So I see this is a developing story. We continue to research this generation and all generations of investors to learn what their motivations are, what their challenges are, and that informs what we as regulators can do, what we as investor educators can do to help the capital market grow. I am therefore enthusiastic about the possibilities.
31:43 - 32:33
Kaitlyn Kiernan:Fantastic. I'm also excited to continue learning about this generation. Gerri and Andres, thank you very much for discussing this truly fascinating study. Be sure to encourage our listeners to check out the link in our show notes to see all the meaty information in the new study. So thanks again to the FINRA Foundation and the CFA Institute for bringing this together. For our listeners, if you don't already, you can subscribe to FINRA Unscripted, wherever you listen to podcasts, to stay up to date on all of our latest episodes, including the upcoming crypto episodes I mentioned. If you have ideas for future episodes or comments about today's episode, please email us at[email protected]. Today's episode was produced by me, Kaitlyn Kiernan, developed by John Williams, and coordinated by Hannah Krobock. Until next time.
32:33 – 32:38
Other music
32:38 - 33:06
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