Gen Z or Millennials, which generation is likely to invest this year?

Younger Australians want to take control of their finances — but surveys show the challenging economic climate has resulted in many feeling left behind. While investing in the share market may produce an income stream that pays dividends in the long term, Gen Z and Millennials have barriers to clear before they become the next generation of investors.

The financial future of young Australians

Despite all the talk about money wasted on flat whites and avocado toast, young Australians face real challenges in securing their financial futures. Having just recovered from a global pandemic, they’re back to juggling issues like stagnant wages, the soaring cost of living, and a lack of affordable housing.

When comparing Gen Z and Millennials to their parents’ generation, research from the Grattan Institute shows the wealth of households headed by someone under the age of 35 has barely shifted since 2004. In comparison, older Australians “today spend more and have higher incomes and greater wealth than older Australians three decades ago.”

Further, a recent report by Finder “shows that it is younger generations - not older property owners - who are bearing the brunt” of the rising cost of living.

The climbing cost of living means younger Aussies aren’t getting as much bang for their hard-earned bucks. And in terms of earning capacity, the gender wage gap is still very much alive, with women reportedly being paid 13.3% less on average than male colleagues. Job security is another factor. Australia’s unemployment rate jumped from 3.5% to 3.7% in May, with more than 4,000 jobs lost in the month, according to the Australian Bureau of Statistics (ABS).

But it’s not all bad news. While younger Australians are often accused of being too willing to splash the cash on unnecessary purchases, the report “How Millennials Manage Money”found they are actually 30% more likely to save regularly than their parents. What’s more, they use technology to manage their finances.

And, for many Millennials and Gen Zs, the peak earning years are yet to come. So as homeownership rates continue to decline with each generation, there may come opportunities to grow wealth in alternative ways. After all, Australia is the third-largest self-investment market in the world.

Breaking investment barriers

Many Australians already have a slice of the share market thanks to compulsory superannuation, which is essentially investing a percentage of your earnings to help grow your retirement pot.

But when it comes to investing beyond that, recent CommSec YouGov research shows Australians are motivated but remain cautious. Nine in 10 Aussies (91%) say they face barriers to investing. And a third are wary about investing given the current financial climate. Key concerns include a lack of knowledge, a lack of funds, and market uncertainty.

Among the groups most interested in getting into the share market are Gen Z and Millennials. Soaring property prices and rising interest rates have these wage earners looking for opportunities elsewhere. The same CommSec YouGov research shows Millennials seem to be most concerned they don’t have enough money to get started and feel nervous about market conditions. Gen Z respondents name a lack of education on investing as one of their main barriers.

Weathering shocks on the share market

The share market has a reputation for being a volatile place for savings. But while the value of shares can drop due to events like bank collapses or pandemics, we have also seen – and relatively recently – that it can recover from said shocks.

Broadly, the value of the share market rises over time if the economy grows, businesses make more money and generate higher profits. Recent analysis of the MSCI World Equity Mid and MSCI Large Cap Total Return in GBP statistics suggests the longer that you invest, (for instance five years or more) you are statistically more likely to generate positive returns on your investments.

And the good news is you don’t need a rippling bank balance to get started. In fact, applications like CommSec Pocket allow you to start building a share portfolio with as little as $50.

Any potential returns depend on the overall performance of both the share market and the company you invest in. Getting into the market early, however, may give you a head start. Not only are you giving yourself longer to grow your money, but you could also take advantage of dividend payments (paid to shareholders by some companies). Before you know it, that initial buy-in could be worth a lot more.

As always, when it comes to investing, knowledge is power, which is why CommSec Learn offers a number of bite-sized resources and expert advice to get you started on your investment journey.