Analysis Of Risk Attitudes And Financial Decisions Of Millennial Generation

As a result of the financial turmoil at the beginning of the twenty first century, literature has prompted growing interest in how young individuals, that just started to interact with credit markets and accumulate assets, have fared in the wake of Great Recession. In more detail, the past decade was an era characterized by historical financial facts such as tech bubbles, housing bubbles, stock market crushes and vast corporate scandals (Davis, 2012). As the dramatic shock of financial crisis in 2008 was an event that traumatized individual investors, the confusion followed the crisis fertilized high levels of uncertainty that changed radically individual perception towards risk and stock markets, resulting for some investors to an even total shy away from equity investing. Even though the signs of nowadays economic recovery and improvements in financial markets may have triggered some investors to pre-crisis risk appetite and investments, empirical evidence suggests otherwise particularly for young age groups. Recently, it has been argued that today's young adults are less financially independent compared to young adults of previous generations at the same age, a statement possibly captured due to the large fraction of youths who still lives with a parent. Financial well-being in early stages of life has crucial implications for lifetime wealth accumulation, however, empirical research reports that young generations have accumulated less wealth than their parents did at the same age. Therefore, this delayed financial dependence among young adults has raised concerns about probable adverse effect phenomena on economic growth and aggregate consumer spending. Furthermore, consumers’ choices to buy a house, take on debt or to invest in the stock market indicate expectations about future personal circumstances and about the macroeconomy many years into the future (Nagel, 2012).

On the other hand, disagreement exists about the longer-term implications of macroeconomic shocks such as financial crisis, on investors’ expectations and willingness to invest in the stock market. Contrary to the traditional economic models which assume that people incorporate all available historical information when they form their beliefs about risky assets along with the fact that their preferences are unchanged by the economic incidents they are experiencing through life, modern literature suggests that experiences leave emotional marks on future decision making process which affect and shape individual risk tolerance more than traditional socioeconomic factors that conventional theories suggest. Based on variable studies, it has been argued that major economic and political events that people go through their formative years can create distinctive sets of generational identities in terms of expectations, values and beliefs that also affect people’s trust in financial institutions as well as their attitudes towards stock markets, emphasizing that recent events affect young individuals in a larger scale as they carry shorter life histories or less financial experience and knowledge. As existing research also notes the importance of studying individuals that just begin to build their lifelong investment preferences and tendencies, referring typically at people are in their early twenties, the purpose of the study is to investigate whether young adults nowadays, or the so-called Millennial generation, exhibit significantly different risk attitudes compared to their counterparts years ago, due to the experience of the financial crisis during their formative years.

As literature highlights, making optimal financial decisions is one of the most crucial choices that individuals might have to face during their lifetime, for the reason that bad investment choices are highly related to pension saving and can negatively affect the quality of life when it comes to retirement. Meanwhile, previous studies stressed the importance of investing part of individuals’ portfolio in stocks as individuals participating in the stock market can accumulate more wealth in contrast to those who choose not to. Therefore, as life expectancy is already high and continues to grow, there is particular pressure on young individuals to make sound investment decisions, meaning that younger generations should be able to support themselves longer than older generations did.

According to the literature, Millennials or Generation Y constitute a group of young adults nowadays that came of age during one of the greatest economic downturns in the global history and form a demographic group of people born approximately between 1980 and 2000. Within their formative years these individuals experienced macroeconomic trends such as depressed salaries, globalization, and rapid technological changes. For young Millennials Great Recession could be view as a cataclysmic event that would shape their principles for years to come as they have witnessed the devastated implications that the crisis had on their parents’ welfare. Meanwhile, older Millennials who entered the workforce were experiencing limited job opportunities and unemployment. The Millennial Generation’s attitude is an issue that has been examined widely by different practitioners and professionals in the contemporary literature. Empirical evidence reports that as a whole, Millennials exhibit different traits, values and behaviors compared to the generations that preceded them. Additionally, literature highlights that the magnitude of their market size of this generation is significant as they constitute a large segment of the global population, particularly in US, which is the second largest generation in history after Baby Boomers

The financial crisis of 2008-2009 offers the opportunity to determine the impact that experiences leave on investors stock market risk tolerance and financial behavior, whereas variable studies conclude that the confusion followed the financial crisis of 2008 had significant repercussions on individual investors, altered their behavior and induced a shift away from risky assets towards safer investments like government bonds (Rizzi, 2014). Nevertheless, there is a little empirical evidence focusing on how this financial turmoil affected young investors’ willingness to take financial risk and participate in the stock markets. The occurrence of a total shying away of young adults from equity market or other markets, might have an impact on future investments in the long run as despite that they are relatively young, young cohorts might not be able to make up the lost ground and support themselves when they eventually retire, whereas this financial uncertainty could be spread all around the economy, as entrepreneurial activity, investments and saving tend to build on the basis of growing wealth. Therefore, it is important to understand Millennials’ willingness to invest in the market and compare their choices to those that similar age group held, dozens of years ago, in order to design policies addressed according to the needs in order to avoid adverse phenomena.