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In one of our most recent episodes, 4 Ways You Are Investing Your Money Wrong, mistakes with cash were revealed as one of the biggest money mistakes. Cash mistakes include keeping too little or too much cash on hand in an emergency fund, and also include investing too much in cash. Surprisingly, millennials are the only generation that currently favors cash investments over other investments like stocks, bonds, and real estate. The youngest generation, that should be taking the most risk, instead favors the least riskiest investment type. Why are young people afraid to take risk?

The spooky stock market

The younger generation is the most afraid of the market, with 66% of people age 18-29 (and 65% of those 30-39) saying investing in the stock market is scary or intimidating, compared with 58% of 40-54 year olds and 57% of those 55+. The stock market is probably scarier to younger people because they grew up during the Great Recession; many millennials were just entering the workforce, and many younger millennials saw their parents lose jobs and retirement savings.

Older generations experienced job loss and many saw their retirement savings plunge, but they aren’t as afraid of the stock market. They already had experience in the market, and weren’t as impressionable as younger investors. Older workers also had the upper hand in the job market, with their extensive experience often granting them the advantage over college graduates or young professionals.

The ghastly job market

In October of 2009, the civilian unemployment rate reached 10%, the highest it had been since 1983. All groups weren’t affected equally, however; the unemployment rate for 20-24 year olds was 15.8%, but the unemployment rate for those 45+ was only 6.8%. The fear of another recession like 2008 has stuck with millennials, who in many ways (such as the job market) were the hardest-hit by the recession.

More importantly, millennials were at a very impressionable age. Many of them were experiencing investing for the first time, or searching for their first “real” job. If your first experience with the stock market is a major recession, you might remain wary of investing in the future. If you are entering the job market in a period of the highest unemployment rate ever recorded for your age group, you might be more likely to hoard cash in the future in preparation for the worst.

Millennials don’t fit the stereotype

A study of millennial attitudes towards money released several years ago shows that they aren’t who we thought they were. When asked how they plan to achieve success, working hard (69%) and saving/living frugally (45%) were the top 2 answers. Long-term investing was near the bottom of the list, with only 28% of millennials believing long-term investing would be an important factor in achieving success. 52% of non-millennials believed long-term investing was important to achieving success, so there is clearly a generational gap.

The study also asked what millenials (and non-millennials) would do with a sudden windfall of cash. Only 22% of millennials would invest the money, while 52% of non-millennials said they would end up investing the unexpected money. 42% of millennials surveyed said they would use the money to pay off debt, so some may not be afraid of investing, but instead are prioritizing different financial goals.

As millennials continue to move up the ladder in the workplace, pay off their debt, and build up their savings, attitudes towards investing may shift. Right now, though, a fear of financial markets is holding a generation back from achieving the same level of wealth as their parents and grandparents. If this attitude persists, retirement may be delayed or become impossible for many millennials.

To learn more about the other 3 huge mistakes investors are making with their money (and to make sure you don’t repeat them), check out our recent show on YouTube.