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It’s not surprising that Gen Z – the generation born between 1997 and 2012 – has a flair for risk when it comes to investing.
As they should. They have the luxury of time and given their respective ages, a case can be made that Gen Z should have minimal, if any, fixed income exposure. A municipal bond or Treasury crowd this is not. On the other hand, investing risk is like anything else in that it’s best consumed in moderate doses.
Same goes for allocations to cryptocurrency – an asset class to which younger investors are highly devoted. Gen Z’s affection for crypto is attributable to various factors, including the oldest members of the demographic maturing as bitcoin was doing the same and a preference for consuming financial advice and investing tips via social media.
Relative to baby boomers, Gen X and millennials, a smaller percentage of Gen Z currently work with advisors. Owing to age and assets held, that stands to reason, but advisors should take note of Gen Z’s crypto affections for at least two reasons. First, more members of this age group will hire advisors over time. Second, data indicate Gen Z may be too enthusiastic about crypto.
Is Gen Z Getting Carried Away with Crypto?
Maybe and a case can be made that answer is “yes.” One of the biggest issues with cryptocurrency as an asset class is that it’s filled with too many pretenders and not enough contenders. Said differently, the list of legitimate digital currencies, such as bitcoin and a few others, is short, but group of cryptocurrencies with dubious prospects is densely populated.
As a recent YouGov survey points out, that’s not deterring Gen Z. In fact, tales of instant riches created by fly-by-night digital currencies could easily be one of the reasons Gen Z loves this asset class.
“Despite 83% of investors aware of cryptocurrency viewing it as a risky investment, an increasing number of Americans are investing in crypto,” according to YouGov. “This is especially true among Gen Z investors, who are nearly 4x more likely to own cryptocurrency than have a retirement account (42% own crypto vs 11% have a retirement account).”
More points to consider. The YouGov survey notes that 48% of Gen Z investors use a crypto broker, such as Binance or Coinbase, compared to just 29% of all market participants. That Gen Z figure is also well ahead of the 40% that invest with old fashioned banks. Potentially amplifying those concerns is the fact that just 32% of Gen Zers currently work with an advisor.
The YouGov study reveals other concerning points about Gen Z’s affinity for crypto. Forty-two percent of Gen Z owns digital currencies, but their COMBINED ownership of stocks, retirement accounts and mutual funds is just 45%. That 42% is also more than double the demographic’s combined ownership of exchange traded funds and bonds.
Making those data points all the more interesting is that 84% of Gen Zers list crypto as the asset class they view as the most risky.
Confidence May Be the Problem
As noted above, less than a third of Gen Z – 32% to be exact – works with an advisor. Part of the reason for that low percentage is that 70% of the demographic describes themselves as “confident” or “very confident” when it comes to managing their own investments, according to YouGov.
Youth can breed such confidence, with age comes wisdom. Part of that wisdom is realizing that myriad studies and surveys confirm investors working with advisors are more confident and less stressed than their self-directed counterparts. That’s worth mentioning to Gen Z prospects.