Millennials: Savvy or Stupid?

Jul 31, 2014 by

stock salesmanStock sellers and others who drink Wall Street’s Kool-Aid® have been slamming Millennials over a Bankrate.com survey that concluded 39% of Millennials prefer to keep their savings in cash. I’ll get into later why I think this attitude reveals savvy, not naivete or ignorance, on the part of Millennials. But first I have to rant about a Wall Street Journal Live video on the survey that manages brilliantly to capture in about three minutes most of what is loathsome about the stock investing sales pitch. An embedded version of the video was not available, but a link was: Why Do Millennials Prefer Cash to Investing Money?.

Wall Street’s Sales Pitch Has No Clothes

Video Introduction

A teaser paragraph below the video begins with “In the last year, the S&P 500 delivered 17% and cash investments delivered 1%. Which would you rather have?”

C’mon guys, that is such a sickeningly misleading, incomplete, and patronizing pitch it should be worthy of prosecution. (Fortunately, Millennials may be the first generation far too media-savvy to be seduced by these old-school marketing tactics. Better wise-up Wall Street—you need a new marketing firm if this is the best you’ve got.)

Using the same formula I could write: “The NASDAQ need only rise another 1,000 points—or 23%—to regain the all-time high it reached nearly fifteen years ago on March 10, 2000. If only you’d invested in Treasury Bonds.” Or how about this: “After crashing twice by nearly 50% since 2000, the S&P 500 has now logged an average annual increase of 1.7% over the past fifteen years. Too bad you didn’t have your money in FDIC-insured CDs.

A Wall Street Commercial Weakly Disguised as an Interview

Though actually nothing more than a commercial highlighting all of the classic, and bogus, Wall Street sales pitches, the video shows a so-called interview of Andy Smith who works for a place called The Mutual Fund Store. (Only in “Wall Street World” are people with huge personal financial stakes in the subject of an interview presented as unbiased experts on the topic). The interviewer begins by asserting “Everybody says you can’t save enough cash for retirement…” Huh? Maybe everybody in your marketing-warped world, bub, but here in the real world many people see things differently.

Andy Smith blames in part Millennials’ ignorance for their choice not to entrust their retirement security to Wall Street. Financial literacy is not what it needs to be, so says Andy (disingenuously and incorrectly implying that financial literacy used to be a lot better).

What Mr. Smith means of course is that Wall Streeters like him have done an ineffective job “educating” these ignorant young people about the virtues of stock investing. On this, Andy’s right. In the face of two catastrophic market crashes since 2000, a Wall Street-induced near calamity in 2008, totally unjustifiable investing fees, a mountain of evidence that Wall Street’s foremost mission is to fleece the retail investor, an impotent SEC and near zero rate of prosecutions of rapacious money managers by the Justice Department, Wall Street’s traditional marketing messages are proving not up to the task of converting Millennials to the stock-investing fold.

To Mr. Smith, financial literacy = blindly slurping Wall Street’s Kool-Aid. And near the end of the interview commercial he makes the appallingly self-serving recommendation that Millennials obtain their financial education not from parents or schools but rather from “broadcast media,” which coincidentally facilitates direct delivery of unfiltered, unanalyzed pitches from salespeople like him.

Give Me Your Money or You’re a Wuss

I give Andy Smith credit for one thing: he understands that stock sellers need a new approach if they hope to suck in Millennials’ cash. But I think Mr. Smith’s choice of a new sales pitch is ill advised and reeks of desperation. At the 1:50 remaining mark of the video Andy says

“When we do have to sit down and have ‘the talk’ [with clients] one of the things that we tell them is, look, you can’t be a wuss with your investments.”

Oh, Andy. You’ve missed the mark, my friend. Are you so desperate to boost your income and further enrich your employer as to resort to infantile, schoolyard name-calling? Sad, very sad.

The “wussy strategy” is Wall Street’s newest, and perhaps lamest, sales pitch to date. For just one more recent example, check out the “dog” video in my last Diamonds & Dogs post in which Kristine Hooper of Allianz chastises those who don’t entrust their savings to Wall Street as lacking “intestinal fortitude.” I’m sure Wall Street’s focus grouped to death its new marketing tack, but in my opinion this sort of taunting and bullying will be perceived by investors blessed with triple-digit IQs as insulting, obnoxious, and patronizing. Such tactics may be part of the reason CNBC a year ago posted its worst ratings in twenty years among 25-54 year olds.

Investment Training

The interview commercial goes on to note investors’ lack of training when it comes to saving for retirement. Unsaid, naturally, is that the only training people like Andy Smith get is in marketing and selling—how to suck more cash into Wall Street money managers’ coffers.

Why Millennials Like Cash

To me, there’s no big mystery about why Millennials are stock-shy.

  • Many young people have witnessed first hand their Baby Boom parents’ retirement plans absolutely shattered by two stock value crashes and essentially zero capital gain in stocks over the past fifteen years.
  • Investigations of the 2008-09 debacle in the mortgage and stock markets have highlighted what Wall Street is all about: grotesquely enriching itself, period, most often at the expense of small investors.
  • The youngest adult generation is extremely media savvy. They’re smart enough to get decision-making information from many and independent sources as opposed to prejudiced sources like, say, Mr. Andy Smith.
  • The job market for young people ain’t what it used to be. Investing in stocks while living in Mom & Dad’s basement and searching for something that will pay more than $15 per hour feels incongruous to Millennials, and I’d agree.
  • This may be the biggest reason why Millennials eschew stocks: they’ve got better stuff to do with their money. Times have never been better for tech savvy, energetic, smart young people to put money into their own enterprise. Their icons are entrepreneurs like Mark Zuckerberg and Elon Musk, not money manipulators like Warren Buffett and Lloyd Blankfein.

What Do You Think?

Why do you think Millennials favor cash? Are they making a mistake? Are you of the same mind as Andy Smith, or do you drink the Money Counselor Kool-Aid?

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  • I agree on why they like cash. Stocks are probably scary since they have seen them fail so much, but most generations have and I think keep their money in cash will prove to be ineffective for retirement. Good article!

  • John Preston

    If you ask me, it’s really targeting boomers. Odds are, if you running an ad about what millennials are doing with money, will likely illicit the exact opposite response from boomers.

  • squirrelers

    There are myriad possible reasons as to why millennials might be focused on cash. I wrote about this topic recently, from a different angle. Really, over the long-run, they are potentially risking a ton of wealth accumulation by being so focused on cash. That being said, the run up in stock in recent years generated returns that aren’t likely to be sustainable – and it’s good if millennials (or anyone else) takes that with a grain of salt. There are some short-term timeframes where cash might outperform stocks.

    • But the trick is identifying, in advance, “short-term timeframes where cash might outperform stocks”, right? And who among us can do that better than a chimpanzee? 🙂

  • I’d say I disagree on the biggest reason why Millennials prefer to keep their money in cash. Yes, there are start ups that got successful like Facebook that makes Mark Zuckerberg as rich as he is now, but sometimes people forget there are a lot more start ups that get nowhere, which means building up your own enterprise isn’t always the best thing to do to make lots of money. Also, I don’t think it’s a bad thing to be a money manipulator like Warren Buffett — something definitely worked for him that made him one of the richest people in the world. Google and Facebook are also a part of S&P 500. I guess 1.7% average annual increase is better than close to 0 interest — if we only put our money in the bank without turning it into CDs. Nevertheless, I’d agree that Wall Street should have better marketing pitch to entice Millennials to invest their money there, after the 2008-2009 recession which makes them have a bad (or maybe worse?) image in the eyes of Millennials.

    • Hi Stu, thanks for you comment.

      Interest rates have been zero for the past 5-6 years. You could get a respectable rate on CDs, money market funds, and short-term bond funds in the first 2/3rds of the 2000s. But the point I was perhaps clumsily trying to make is that highlighting, as Wall Street does, that stocks are up 17% the past year and comparing that to the return on cash is misleading, at best. It’s easy to cherry-pick periods of time in history to promote any investment you can name relative to alternatives, right? But doing so would make us would-be thieves, in my book.

      My mention of Zuckerberg and Musk was to make the point that modern technology means that all anyone needs to develop and launch an enterprise is a laptop, an Internet connection, and drive. I’m old enough to remember when that was very much not the case. Of course the probability of any one of us staring the next Facebook is approximately zero. But making tidy side income, or even a comfortable living, through our own business is very do-able. Investing in oneself seems to me eminently smarter than turning money over to Wall Street money managers where investors have no control. I have a nephew who makes great money through a couple of Facebook games he’s developed. He’ll soon be quitting his job working to make someone else wealthier to devote all of his time to his own enterprise. He’s 30 years old.

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