Thursday, June 01, 2023

Crypto is the preferred investment of Generation Z, FINRA finds

By Anne Sherry, J.D.

Most Americans between 18 and 25 have some kind of investment, according to a new report from the FINRA Investor Education Foundation and CFA Institute. The report compares these Gen Z investors to their counterparts overseas and to older generations, and it examines the barriers that keep nearly half of Generation Z from investing. According to FINRA Foundation President Gerri Walsh, “It is vital to understand their investing decisions and to provide them with the educational tools to prepare for those decisions.”

Investment trends. The study found that 56 percent of Gen Z own at least some investments. A quarter of them started investing before age 18, which is similar to trends in the U.K. and Canada. However, only 7 percent of Gen Z investors in China started before age 18.

Among those who do invest, cryptocurrency is the most common vehicle (55 percent of Gen Z investors), followed by individual stocks (41 percent), mutual funds (35 percent), NFTs (25 percent), and ETFs (23 percent). In contrast, Gen X investors give a slight edge to mutual funds, followed by individual stocks and crypto. Even so, 39 percent of Gen X investors hold some crypto. The report speculates that the widespread availability and popularity of crypto may be what motivated many Gen Zs to start investing, and that the restrictions on cryptocurrency transactions in China may explain some of the differences between Gen Z investors in China compared to in the U.S., U.K., and Canada. (The sample size of non-U.S. participants was also much smaller for the other countries than for the U.S.).

Barriers. The report also looked at some barriers to investment. Gen Z investors and non-investors alike said that their top challenge is inflation and the rising cost of living. However, non-investors were more likely to cite employment and income or lack of financial knowledge as challenges, while investors cited economic and market conditions. The most common reasons for not investing were insufficient savings, insufficient income, insufficient knowledge, and a focus on other expenses.

Sources of information. Gen Z investors and non-investors cite social media, internet searches, family, and friends as their top resources for learning about investing and financial topics. The most-cited source of information is YouTube, relied upon by 60 percent of investors; only about a third of investors look to Reddit. The investor group is more likely than non-investors to use four or more resources to stay informed. Notably, however, the survey also asked participants to select their three most trusted sources. Social media fared poorly here, with family, financial professionals, internet searches, and financial companies ranking highest among investors.

Digital apps have an influence on Gen Z investors, both in terms of managing and making specific investment decisions. Nearly two-thirds of Gen Z investors use investing apps, compared to 55 percent of millennials and 38 percent of Gen X investors. Of the 69 percent of Gen Z investors who have received suggestions from an app, 67 percent said the suggestions influenced them to make a particular investment, trade, or purchase.

“These new entrants to the world of investing are reshaping investment practices, products, and platforms,” observed Paul Andrews, Managing Director for Research, Advocacy and Standards at CFA Institute.