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Are Millienals All About Responsible Investing?

The Millennial generation is rapidly taking over the workforce as older generations retire. However, these young people born between 1982 and 2004 (although those dates aren’t always agreed upon) have a list of unique aspects that make them vastly different from those that came before. For instance, they carry more student debt than their predecessors, earn less than earlier generations and will likely have to retire with diminished Social Security checks. The millennial generation is highly educated yet is seen as lazy and entitled, but one thing about the differing generations that's rarely considered is how they invest.

Differences in Money Management

The hardest part about understanding money management styles is that generations don’t (or can’t) understand how other generations are able to justify their decisions.

For instance, when a Gen-Xer wants to buy a house, he likely asks his parents which realtor they used. However, when a Millennial wants to buy a house, she either chooses a friend in the profession or looks online for the best rated agent in the area. There's no desire to compromise individual choice.

Similarly, when someone from Gen X opens an investment account, they go to the brokerage that their parents use. A Millennial, on the other hand, conducts more investigative work and picks from those that had the best online presence.

The key difference is that Generation X and prior generations seek financial advice, whereas Millennials often seek financial approval. (See also How Millenials Use Tech & Social Media To Invest.)

Differences in Investment Choices

While it's easy to look at generational differences and see different approaches, what's less noticeable are the choices. For instance, someone from the Greatest Generation may be more likely to invest in oil stocks, a Gen-X member might invest in retail, and a Millennial may opt for solar panel companies. Are there differences between the choices? Are Millennials actually more likely to invest in socially and environmentally responsible companies?

A recent report by Morgan Stanley indicates that they are. The report, Sustainable Signals, shows that 84% of Millennials are interested in sustainable investing. Compare that to just 66% of Baby Boomers, and there is a clear rise in interest.

The difference, however, is that currently Millennials don’t have quite as strong a presence in the stock market. The generation is in their early thirties at the oldest; they simply haven’t had enough time to accumulate the wealth that prior generations have been able to. That does not mean the potential isn’t there, though. The Millennial generation is by far the largest in history, outnumbering Baby Boomers by as much as 20 million (again, depending on age ranges). As long as the responsible investing sentiment keeps up, then that investing niche is poised to see huge gains.

There is one major downside though. Young people are big dreamers. They love to dream and “express interest” in socially responsible investing. Historically though, ETFs​ that track the social index have lagged behind those that have tracked the S&P 500; this may lead Millennials away from socially responsible investing to a more cost effective method.

Responsible Investing

On the surface, responsible investing is a great idea. It helps people and the environment, and it allows investors to reap the rewards of putting money away. However, as you dig deeper, there's always a winner: the investment that provides the best rate of return. (See also Go Green With Socially Responsible Investing.)

The Bottom Line

As Millennials age and realize that they could be gaining an extra percent per year by shifting away from responsible investing to a more traditional approach, we may see that interest start to wane. But for the time being, we can safely say that Millenials are much more in tune with where their money is going than earlier generations.

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