The CEO of Vanguard Group publicly expressed his worry that young people would lose faith in the financial system. At a speech in Chicago last week, William McNabb said "we are on the brink of losing a generation of young investors. As I talk with young people, I hear it. They don’t like this volatility."
A number of factors weigh on many youths’ sentiments. For one thing, the soaring cost of college has saddled graduates – the most likely class of investors – with an average of $21,000 in debt. As long as the returns on the stock market are less than the interest rates being charged on that principal, it doesn’t even make sense for anyone carrying expensive loans to invest.
Instead, extra income is put to better use paying down those obligations at a faster rate.
Another factor is the recent history of turbulent markets and sharp shocks to the financial system. Young people are loath to trust banks which nearly collapsed in 2008, or buy assets on a trading system which allowed a sudden 1,000 point crash in just a few minutes due to "glitches" last May.
The problem, however, is that youth non-participation might seriously affect the prospects for all investors and the markets in general.