Much has been written about the financial habits of the so-called ‘millennial’ generation—and, to a lesser-but-rapidly-growing degree, their successors, Gen Z. Studies contradict one another regarding whether Y and Z generations are fiscally responsible or irresponsible, prone to spending or saving, and so on, ad nauseum.
Even if they can’t agree, everyone concurs that things have changed for the young’uns. Legacy financial institutions are scrambling to stay relevant—and largely falling behind. “When you’re 22 years old like me,” says Clint Groves of Midvale, UT, “traditional investment opportunities feel like a dated and old-fashioned hustle stacked against you.”
The Great Recession smacked the economy down hard in the late aughts, right as the millennial vanguard was only a few years into the workforce. Younger millennials faced a tough job market from the moment they entered. Gen Z saw the fallout from the sidelines and registered that something had failed within The System.
Fiscal irresponsibility precipitated the recession. Irresponsibility on the part of many individual Americans? Sure, but also on the part of our largest financial institutions. The younger generations internalized that bankers can wreck millions of lives and get a slap on the wrist (if even that), while petty criminals can face serious jail time for an offense that doesn’t much harm anyone much.
Maybe the system had always been rigged, but the subprime economic fallout shredded whatever garments of respectability the financial sector had heretofore concealed itself with.
Even after taxpayers shored up Big Finance, the hanky-panky kept coming. Equifax was breached, exposing roughly half of Americans to the possibility of identity theft and other privacy-related troubles. Wells Fargo got caught with its hand in the cookie jar (the cookies, of which it took some 3 million, being ‘fake’ or non-requested accounts and services created on behalf of customers without their knowledge or consent). And so forth.
In light of the above, it’s no great surprise that millennials overwhelmingly don’t trust financial institutions. Especially when it comes to making investment decisions. “Why should I give my money to the very companies that wrecked our economy?” Salt Lake City native Paul, who prefers to remain anonymous, asks me. “I’d rather put it in my mattress.”
Agree or not with Paul’s investment thesis (to his credit, he later said he’d “probably buy a couple duplexes and rent them out” if he had the capital) his resentment toward banks is understandable. Paul dropped out of college after his family could no longer bear the cost. He’d had dreams of practicing international business law; now he works in the service industry.
Paul is not alone in his dismissal of legacy finance. According to Rick Yang, “millennials have a massive distrust of existing financial services.” Mr. Yang is a partner with VC firm New Enterprise Associates, and he notes that millennials “tend to trust technology more than the recognized stalwart brands, like a JPMorgan, Chase, or a Wells Fargo.”
Which brings us to cryptocurrency. It’s volatile, highly-speculative, mostly unregulated, controversial, and hyped. It’s also one of the hottest investments for generations Y and Z. It’s the perfect counter to stodgy mutual funds and manipulative Wall Street jocks. It is—at least in the ideal—pure technology.
Coinciding with the financial meltdown of 2007-2008, a secretive entity (could be a single individual, could be a collective) operating under the pseudonym of ‘Satoshi Nakamoto’ released a paper that would go on to impact the financial landscape in ways we are only beginning to grasp. Titled “Bitcoin: a Peer-to-Peer Electronic Cash System,” the paper proposed an alternative model to the one indicted by the subprime crisis. Satoshi Nakamoto published the paper online some seven months after the Bear Stearns collapse.
Citing the “inherent weaknesses” of a system that relies on “financial institutions serving as trusted third parties,” Satoshi Nakamoto proposed “an electronic payment system based on cryptographic proof” that would allow “any two willing parties to transact directly with each other.” Thus appeared Bitcoin.
On the heels of Bitcoin came thousands of other ‘coins’ or ‘tokens’ collectively known as ‘cryptocurrencies.’ Bitcoin is the granddaddy of them all, both by chronological right and also through having a total market capitalization slightly greater than all other cryptocurrencies combined.
This article can’t begin to address the viability, or lack thereof, of cryptocurrencies and their underlying distributed ledger technology (DLT, also known as blockchain). Amid the thousands of ‘cryptos’ one finds a spectrum, from ‘ground-breaking technological solution’ to ‘outright scam.’ Broadly speaking, it’s safe to say that crypto will bring less benefit than the table-thumping crypto-evangelists prophesy it to, yet has more potential than the Paul Krugmans of the world would have us believe (Mr. Krugman, it should be noted, notoriously bashed a new technology called the internet as well).
Regardless, one’s assessment of cryptocurrency generally, from the perspective of the millennial or Gen Z investor disillusioned by the naked emperor, crypto brings a revolutionary, egalitarian aspect to investing. Clint Groves wants to bypass traditional clunky onramps and invest directly in “companies working to progress technology and social/humanitarian issues.”
Crypto levels the playing field. In theory, everyone can be their own VC firm: “Investing in blockchain projects allows me to… put my capital towards teams who want to change the world,” and Mr. Groves gets to invest while these projects are, “in the start-up phase. With cryptocurrencies, I’m given the opportunity to invest in endless different projects with different goals, ranging from transforming ecommerce, making charity more accessible, and securing private data.”
Mr. Groves concludes that “in cryptocurrency, we are equal players with equal opportunity so long as you work hard.” Even granting the reality to be messier than Mr. Groves’s rosy portrayal, his description sounds the very opposite of the fumbling, antiquated, miscreant behemoths that melted down the financial markets.
Meritocracy. Instant access. A level playing field. A multitude of options. Granular control over one’s investments. These are the missing elements in traditional finance, and—again, regardless of one’s outlook on crypto—financial institutions old and new would be wise to heed the message. The new batch of investors wants a better experience and better ethics, and they aim to find it—regardless of whether they need to jump ship to do so.
Even though a far higher percentage of gens Y and Z are into crypto than their predecessors, these investors are still in the minority among their peers. For others, disillusionment with Big Finance manifests as disinterest in investing generally. Some millennials and Gen Z-ers may lack the adventurous nature to plunge into crypto, but that doesn’t mean they’re running into the waiting arms of JP Morgan.
Sonja Madsen, a freshman at the University of Utah says her future priorities include “getting a good job,” “paying off my student debt,” and “building up savings.” Notice what’s not on that list? Investing. “I don’t think about that at all. It just seems, like risky, or too good to be true.” When I pressed her further, asking “what if in the future you had more money than you even needed; would you invest it then?” she responded, “if I had more than enough, why would I even need to invest it?” Touché.
Andrew and Ally Goaslind are newlyweds in their early twenties. Mr. Goaslind acknowledges that “our situation is different, because most millennials aren’t married,” but says that, like Ms. Madsen, “I don’t think a ton about investing.” When I posed the “what if in the future you had surplus money” question, he said he’d “probably put it in savings.”
Ms. Goaslind added that “one thing we’ve thought about doing, when we can afford it, is getting a house with an apartment we can rent out.” Not on the list: the tried-and-true of their parents’ and grandparents’ generation. Mutual funds, stocks, bonds—none of these appear on their prioritization radar.
The world is changing, and even finance changes with it. Somewhere between the total antiestablishment playground of crypto and the total-establishment arena of traditional finance, a crop of ‘fintech’ (financial technology) firms have already begun disrupting financial access.
Robinhood lets people invest in stocks and ETFs, commission-free, from their smartphone or tablet. (Robinhood recently rolled out a crypto investment product as well, though the menu of ‘coins’ it offers is rather limited.) YieldStreet connects borrowers with investors and democratizes venture capital by making small loans available for the average person to give or to receive. Acorns connects to your card and rounds purchases to the nearest dollar, distributing the spare change to the investment of your choice.
These are but a few examples of the new crop of finance. Collectively, however, they’re miniscule against legacy financial structures. These legacy structures, however, were built in a zeitgeist long outdated. They’re at risk of obsolescence; they just don’t know it yet. Or do they?