Millennials aren’t just risk averse, they are the most risk averse generation since The Great Depression. Based on what has taken place over the past two decades if you put yourself in their shoes, can you blame them? And look at what’s taking place right now. We have a stock market that is based more on Federal Reserve action than the actual economy. Additionally, interest rates have been at record lows for years, which has fueled debt and speculation. U.S. stocks might be the “only place to put your money” right now, but in the early- to mid-2000s, real estate was the ideal investment because “they weren’t building anymore land.” These types of arguments are dangerous because when people begin to believe them, it leads to prices being pushed much higher than actual values.

Compounding and Deflation

According to a 2014 study by The Brookings Institution, 52% of Millennials have the majority of their money in cash, whereas other generations have 23% of their money in cash. The standard argument is that young investors should take the most risk for compounding reasons and because any losses can be made back with income generation. But when it comes to the Millennials, what income generation? Sure, plenty of Millennials have jobs, but wage growth opportunities are limited, and most don’t feel as though they have job security. (For more, see: Money Habits of the Millennials.)

Many Millennials have their money in certificates of deposit (CDs) and money market accounts. With such low interest, how are they going to beat inflation? Two answers here. One, making very little on your money is better than risking everything you worked for in an environment where stocks could shed at least 50% of their value at some point over the next three years. Two, we’re now quickly approaching a deflationary environment, which the Federal Reserve has been trying to fight against. When deflation is the backdrop, you want to be in cash because your money will go further. In a deflationary environment prices for goods and services come down.

In a deflationary environment, many jobs will also be lost. Fortunately, many Millennials will have savings to help get through a difficult time. And while Millennials are well known for being stuck with more than $500 billion in student debt, they’re much less likely than Generation X was to buy a home (more debt) or run up their credit cards at a young age. Generation Xers were more prone to running up credit card debt because the economy was strong when they were younger and it was assumed that debts could be paid off in the future. (For more, see: 10 Tips for Managing Your Student Loan Debt.)


As far as savings go, the following information from the Transamerica Center for Retirement Studies might surprise you:

  • Baby Boomers began saving at an average age of 35
  • Generation X began saving at an average age of 30
  • Millennials began saving at an average age of 24

Most Millennials thank their parents for pounding home the importance of savings. Millennials also have to worry about Social Security benefits, which are expected to be depleted by 2035. Tax income is expected to pay 73% to 79% of benefits until 2094. According to Pew Research Center, 51% of Millennials don’t expect Social Security to be there when they hit retirement age, and 39% expect Social Security to pay at reduced levels. (For more, see: As Boomers Slow Down, Will the Economy Follow?)

Now factor in that the largest generation in history – Baby Boomers – are also the biggest spenders in history. But they’re retiring at a pace of 10,000 per day. This reduced income will lead to reduced spending, which will have a negative impact on the economy. Then take Millennials, who like to save as opposed to spending. This will also have a negative impact on the economy. Where will the consumer spending come from? Without Federal Reserve assistance, the underlying economy is weak, and it will be for many years prior to a rebound. (For more, see: Millennials: Finances, Investing, and Retirement.)

The Bottom Line

Millennials are definitely risk averse, and for good reason. They have seen the worst and they’re preparing for this boom-bust economy to plunge again. Millennials might take a lot of heat for their actions – mostly for being addicted to technology – but from a financial perspective, they can be described in one word: responsible. This might sound inaccurate because of their student debt, but those student debts were taken on as an investment in their future. (For more, see: The Affluent Millennial Investing Survey.)