Online trading

Why e-commerce appeals to young people

Capital.com Group CEO Jonathan Squires explains how persistently low interest rates, growing disillusionment with pensions and high adoption of technology have unwittingly spawned a young and hungry herd of yield hunters.

At 0.1%, the Bank of England’s base rate is at an all-time low, but with inflation on the rise, could the BoE’s dovish sentiment be about to change, driving higher rates next month?

It remains unclear what will happen as priorities continue to clash. On the one hand, the BoE will want to control inflation, but on the other hand, it will want to keep rates low and continue to support financial markets. But even if the BoE goes ahead and raises rates, with markets now accustomed to a low interest rate environment, any upward revision should be limited and spread over a few quarters.

It seems hard to imagine now, but it wasn’t always like this. In April 2008, before the financial crash, the rate was 5% and, at its highest, in 1981, the rate reached 15%.

However, since February 2009, when central banks struggled to contain the fallout from the financial crash, the policy rate has not exceeded 1% and low interest rates have become the new normal.

Add to that that traditional methods of long-term savings, such as pension plans, have gone through something of a crisis. With pensions falling in value, pension fund fees high and underperforming managers, it’s no wonder young people are disillusioned with pension funds and traditional forms of savings. For those who want to save, invest and grow their money, the situation can be frustrating – and has been for over a decade.

A whole generation has grown up since the financial crisis for whom traditional savings accounts and pension plans just don’t make sense.

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So what impact has this had on this generation’s outlook on money management?

At Capital.com, we recently commissioned a survey of 2,000 people across the country to try to find out – and the results reveal a stark generational divide when it comes to perceptions of savings and different ways to generate returns, such as investing in stocks and shares or trading derivatives.

The “armchair market” has recently made headlines. Earlier this year, legions of young, tech-savvy armchair traders took on and beat institutional investors during the GameStop rally.

Our survey reveals that attitudes towards this new approach to generating returns are strongly correlated with age. When asked if they had traded or invested in stocks and shares online, 57% of 18-25 year olds said they had. This compares to 35% of 41-56 year olds and just 28% of 57-75 year olds.

Our survey also looked at the impact of memestock stories on younger investors. 44% of 18-24 year olds surveyed decided to trade after seeing the GameStop story earlier this year, compared to 16% of 41-56 year olds and just 6% of 57-75 year olds.

At the same time, younger respondents also expressed a general distrust of “traditional” financial institutions. Asked why they chose to invest online rather than through a bank or financial adviser, 45% of 18-24 year olds mention a lack of confidence compared to 16% of 41-56 year olds.

So what does this data mean?

Undoubtedly, there are factors at play here beyond interest rates. Technology has enabled the democratization of trade and greater participation in markets. The days when commerce was the preserve of men in pinstripe suits are long gone in the city.

Young people have grown up surrounded by the technology that makes online commerce possible, with 96% of 18-24 year olds in the UK owning and regularly using a smartphone.

Young people are more used to self-directed online learning. Although it is not easy, it is true that more or less everything can be learned online, often for free or at minimal cost, including how to trade.

Another emerging trend that has consistently led to the rise of young marketers is the value they place on traditional sources of authority and information. Over the years, trust has gradually shifted from institutions, including financial institutions, to “peers” and more informal online channels such as social media platforms. The emergence of “peer trust”, where people prioritize and trust the opinions of their peers over traditional sources of “authority”, has given rise to a generation of young people who feel more comfortable to engage, learn and advocate online. For this generation of young people, doing most things via their mobile phone is intuitive. They are comfortable shopping online as they trade and invest online.

Given this, young people will naturally feel more comfortable investing and trading for themselves, online. In a world where young people have only known low interest rates and failing pension funds, we should not be surprised to see them looking for other ways to generate returns on their capital, including online trading for themselves.

Add to this the fact that young people are also often excluded from other forms of investment such as real estate, which were more readily available to their older peers. Older generations, on the other hand, grew up in a radically different environment of affordable homes and higher interest rates.

That said, generating returns from trading is not easy, and people should take the time to learn about the risks and the basics of the markets before trying it. Nevertheless, given the different interest rate environments in which younger and older generations have grown up, it is not surprising to see different generational attitudes towards saving and investing. manifest. It will be interesting to see if the mood changes when and if interest rates rise.

Jonathan Squires is the group CEO of the European trading and investment platform, Capital.com.

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