A recent survey indicated an inordinate number of millennials prefer "safe" investments. Many have speculated as to why this is so (see "Time for Naïve 401k Millennials Opting for "Safe" Investments to Stop Hurting Themselves," FiduciaryNews.com, July 14, 2015). I think I've figured out the real reason…
Shortly after graduating from college, and shortly before they closed it down forever, my best friend Angelo and I decided to visit our old elementary school. We spent the first three years of our public education within the walls of the former one-room school house called Big Tree Elementary. My father went there when he was a kid. I'm not sure that particular legacy accrued to my tenure, and I didn't think it would matter since it had been more than a decade since I last entered those concrete block corridors.
So imagine my surprise when my second grade teacher spotted me walking among the munchkins in the hallway. That she recognized me was plausible. That she treated me like the returning prodigal son was kinda unexpected. I don't know how many alumni returned to Big Tree. I also didn't know of the school's imminent closure. Nonetheless, the experience took on a more or less surreal aura.
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What would you do if you had a chance to go back in time and ask one question to someone who knew your younger self? Culturally, economically, and politically, much had changed since I sat in those second grade desks. I asked Miss Wilson this simple question: What's the biggest difference between her current students and the students of my era?
In a word (actually two) she immediately shot back: "Sesame Street."
"So it's made them smarter and better prepared when they went to school?" I surmised.
"No," she said glumly, "It's made them harder to teach. They're attention span is about 30 seconds."
Ah, the cultivation of the "Fast Food" Generation, where everything is delivered in short sound bites, gratification is instant, and an hour can seem like an eternity. Teaching methods changed to accommodate the growing inability to concentrate among Gen Xers (a.k.a. "the Baby Bust generation" and the parents of the millennials). No longer could students simply read of the ordeal of Donner Party, but they had to play The Oregon Trail. What Sesame Street hath wrought, the secondary school syllabus further enabled.
Understand this and we begin to understand the plight of the millennial (a.k.a. "Gen Y" and the children of Gen Xers). It's not that they are spoiled or self-centered, it's just that they grew up in an environment where, if they wanted it now, they got it now, just like their parents.
How did this play out in terms of financial literacy? Remember "The Stock Market Challenge" or any other similar massive open (increasingly online) course-related investment game. It began with the noble idea to instill stock market principles in the hearts and minds of our country's youth. Unfortunately, as endorsed through the authority of the public school system, "The Stock Market Challenge" only reinforced the same short-term thinking financial professionals have been trying to wean their clients away from for years.
This short-term emphasis occurred because of the artificial constraints of the marking period. What can you realistically teach someone about long-term investing if you're running a simulated real-time investment game for only ten weeks (20 at most). Worse, these games typically "reward" those "investors" who pick the best performing stocks. In other words, it's virtually a day-trading game, not an investing game. Investing is long-term. Trading is short-term.
If millennials didn't actually participate in "The Stock Market Challenge," then they probably heard about it from their friends. More importantly, they've spent their entire lifespan focused on the short-term. Is it any wonder that's what they're focusing on for their retirement investments? How can we expect to undo a lifetime of incorrectly framed thinking?
For financial professionals, maybe we should call this "The 401(k) Challenge."
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Christopher Carosa
Chris Carosa has been writing a weekly article and monthly column for BenefitsPRO online and BenefitsPRO Magazine since 2011 and is a nationally recognized award-winning writer, researcher and speaker. He’s written seven books, including From Cradle to Retire: The Child IRA; Hey! What’s My Number? – How to Increase the Odds You Will Retire in Comfort; A Pizza The Action: Everything I Ever Learned About Business I Learned By Working in a Pizza Stand at the Erie County Fair; and the widely acclaimed 401(k) Fiduciary Solutions. Carosa is also Chief Contributing Editor of the authoritative trade journal FiduciaryNews.com and publisher of the Mendon-Honeoye Falls-Lima Sentinel, a weekly community newspaper he founded in 1989. Currently serving as President of the National Society of Newspaper Columnists and with more than 1,000 articles published in various publications, he appears regularly in the national media. A “parallel” entrepreneur, he actively runs a handful of businesses, including a small boutique investment adviser, providing hands-on experience for his writing. A trained astrophysicist, he also holds an MBA and has been designated a Certified Trust and Financial Advisor. Share your thoughts and story ideas with him through Facebook (https://www.facebook.com/christophercarosa/)and Twitter (https://twitter.com/ChrisCarosa).
