Why Young People Aren’t Investing Their Money and What That Means for You

If you're a young person just starting out in the world, investing your money might seem like an alien concept. It can also seem highly intimidating due to the risk of potentially losing the money you worked so hard for. Keep in mind that investing greatly benefits you as well as others. This guide explains its benefits and how you can get started.

Reasons Why Young People Are Not Investing Their Money

The primary reason why young people are reluctant to invest their money is budgetary restraints. Many people, even those who are highly educated, find themselves living from paycheck to paycheck. High housing prices and low incomes mean that saving is challenging enough on its own, without even factoring in investments. And if you're a young parent, your budget is stretched even thinner as you cover the costs of child-rearing.

Many young people are also afraid of investing because they lack knowledge of the process. Fears about an upcoming recession and volatile markets might make it seem like the wise thing to do is save their money instead of investing it. Young people may also lack the time to follow their investments and make the necessary decisions to keep their bottom lines healthy.

The Consequences of Not Investing

When young people shun investments, it can have a wide range of effects. For individual investors, it's a lot harder to build a nest egg for a new home or future retirement without a solid investment vehicle. Saving money is definitely important, but it can't grow money as smart investing does. As a result, young people will need to put off their financial goals for a lot longer.

Not investing can also impact the public as a whole. Many young investors choose to put their money into socially and environmentally aware companies. These companies may be dedicated to reducing carbon emissions, building a more sustainable environment, or creating technology to improve farming practices and reduce hunger. Without the assistance of investors, many of these companies will not have the capital to make great strides.

How to Begin Investing While Also Maintaining a Budget

Investing can certainly be intimidating, especially when you're new to the process. However, the benefits can outweigh the risks when you're smart about your money. First and foremost, review your income and expenses to determine just how much money you have available to make investments. Don't worry if it's not a substantial amount of money right now, the goal is, to begin with what you can so that you can begin growing your next egg while you're still young.

Next, take a moment to familiarize yourself with different investment vehicles. You will most likely choose from the following:

  • Stocks - Investing in stocks means you're purchasing a share of a company. As the company experiences financial success, the money you invested will also grow. However, you can lose money if the company dips in the market. 
  • Mutual Funds - Mutual funds feature a combination of investment vehicles in one package. Because you'll be purchasing several investments at once, mutual funds are not as risky. 
  • Bonds - Bonds are also less risky, but they generally produce lower yields. In this case, you provide money to a company or governmental organization and receive the interest on the money you provided. You'll also receive the initial investment you provided after a certain number of years. 

Most people experience success with a combination of investments, which helps offset risk. You can also find brokerage firms that will charge a reasonable fee to help with your investments if you're worried about doing it on your own.

Investing smartly ensures you can accomplish all the financial goals in your life, including retirement. It also creates a safety net as you grow your money and establish a stronger foundation for your income and savings. It's never too late to get started, but early investing ensures you have more time to grow your money.