Young Investors Embrace High-Risk Strategies for Financial Security
Jacob Kaplan envisions that attaining financial stability necessitates taking considerable risks. The 25-year-old has devoted countless hours to betting on major sports events through online platforms, often spending around 30 hours weekly on this pursuit. He actively engages with fellow bettors on Discord and has subscribed to a sports data platform called Bookie Beats to enhance his betting strategies. “Each individual wager carries its own risks,” Kaplan shared with CNBC. “However, surrounding myself with knowledgeable peers and understanding the landscape helps address the challenge my generation faces in seeking financial security.”
Kaplan is indicative of a growing trend among young adults who are moving away from traditional investment methods in favor of more speculative opportunities. Faced with rising home prices, escalating student debt, and a tightening job market, many are hoping for a stroke of luck to improve their financial prospects. This trend has been characterized as “financial nihilism,” which sheds light on the increasing popularity of high-risk investments, such as meme stocks, leveraged exchange-traded funds (ETFs), and cryptocurrencies, as well as a surge in interest for platforms focused on sports betting and prediction markets.
A Shift from Traditional Investing
Since the onset of the pandemic over five years ago, there has been a notable rise in risk-oriented trades. Outside of conventional financial markets, sports betting and prediction markets have gained significant traction, allowing individuals to wager on a wide array of outcomes, from NFL games to potential concert announcements by celebrities like Justin Bieber. The trading of digital currencies, which encompasses everything from Bitcoin to various meme coins, has also gained prominence. A recent survey conducted by U.S. Bank indicated that Generation Z is the most interested demographic when it comes to investing in cryptocurrencies in the next five years.
Within the stock market, the frenzy surrounding short-squeeze stocks, which began with GameStop and AMC during the pandemic, has continued to evolve. Recently, new meme stocks such as OpenDoor and Kohl’s have captured attention, with OpenDoor shares nearly tripling in value this year, while Kohl’s stock has seen a twofold increase in just three months. Fund creators are capitalizing on this appetite for risk by launching leveraged ETFs, designed to magnify investments for greater gains or losses, with 2024 witnessing the highest number of such launches in over 15 years, according to data from VettaFi and Bloomberg. Additionally, options trading has gained traction, allowing investors to speculate on the movement of securities. The Options Clearing Corporation reported that total contract volume reached 1.2 billion in August alone, marking an 18% increase compared to the previous year.
Marketing consultant Marcellous Donyae turned to options trading five years ago while pursuing his education, seeking ways to generate income and avoid the burden of student loan debt that many of his peers face. “I have always aspired to have a source of income that grants me financial freedom and control over my circumstances,” stated the 22-year-old. “Options trading felt like the best avenue for achieving that.” While the landscape of high-risk investments continues to evolve, experts like Columbia’s Simon Oh note that the demand for such speculative bets remains robust. Historically, commodities were once viewed as a similar avenue for high-stakes gambling.
Financial Dreams Feel Distant for Young Adults
Donyae’s quest for a financial safety net highlights the anxiety that pervades this generation of investors, as conventional economic aspirations seem increasingly unattainable. The surge in housing prices and high interest rates has rendered the dream of homeownership—a long-standing benchmark of financial success—seemingly out of reach. According to the U.S. Bank survey, nearly 30% of Generation Z has abandoned the idea of buying a home due to prohibitive costs.
Having navigated their formative years during an inflationary period linked to the pandemic, these investors now confront a slowing job market for white-collar positions. Even when employment is secured, concerns regarding the future of Social Security contribute to a sense of uncertainty. Compounded by rising credit card debt and the lingering pressure of student loans—especially following the suspension of loan repayments under the previous administration—many young adults are left with a bleak outlook. “Traditional markers of success are increasingly elusive,” remarked Kyla Scanlon, an economic commentator and author. Young people feel marginalized in the current market and may resort to gambling as a response to their perceived lack of options.
Data from the University of Michigan indicates that individuals aged 18 to 34 have reported the lowest consumer sentiment levels of any age group throughout much of this year, reversing a trend seen in previous years. Young adults in this demographic recognize that while high-risk investing may not represent a viable long-term strategy, it offers a temporary escape. Kaplan, the sports bettor, allocates a significant portion of his earnings into index funds or savings. He is aware that he may eventually need to abandon this time-intensive hobby but hopes to generate enough profit to secure his financial future. “I don’t view this as a sustainable long-term income stream,” Kaplan reflected. “For now, it has been financially beneficial, but I plan to eventually cash out and move on.”
