OK, Zoomer
Why I fear young people will lose their future earnings potential as well as their shirts on stocks
I saw that phrase in a recent Bank of America report on economic implications from Covid-19. It was the headline for a section on why the pandemic will permanently reshape an entire generation of young consumers. Like the “Greatest Generation” and the Boomers themselves, both of which were shaped by the chief economic events of their time, consumers who’ve come of age in the post-corona era will have unique challenges but also opportunities.
Millennials and their younger “Gen Z” peers are in some ways perfectly positioned for the age of remote work and simpler living. They are digital natives who live and breathe streaming, social media, ecommerce and such. They are well-positioned to sell themselves to employers and start businesses in the new and much more digital era.
And they’ll need to, because they are more exposed to long-term decreases in earning power than any other group. Economic research shows that when you start your working career during a period of high unemployment and compressed wages, you never recoup the losses fully. Zoomers, as they may now be called, will be at increased risk for poverty and retirement insecurity.
Which may be why some are frantically trying to play the stock market. I was slightly suspicious when my 13-year-old son asked me if he could open a brokerage account last week because “Mom, you want to buy the dip!” (um, no, not this one — see my latest column on that score).
But I was downright alarmed by this Financial Times piece on how millennials are moving into “gamified investing”, using investing apps to trade stocks at high velocity. Robinhood, a no-fee digital trading platform, added 3m users in 2020 — half of whom were first-time investors. E-trade added 363,000 in retail investors in the first quarter of this year.
According to Axios, these young people are driven by both a glut of free time and a sense that they will miss out on their one chance to get rich quick by buying stocks that appear cheap.
But check out this Deutsche Bank chart on 12-month forward-looking price/earnings ratios, which tell a different story, my Padawan apprentices. The Federal Reserve is driving this market. As more and more companies start to go under (J Crew and Neiman Marcus are just the beginning), I think we may see another dip:
My fear — we are about to see Zoomers lose both their earnings potential in labour markets and, now, their shirts in the stock market. Yet more fodder for generational political wars over a shrinking pie.
Ed, how do you imagine that will play out after November?