Gen Z Is Investing Earlier Than Millennials, But Are They Investing Better?

Why does Gen Z appear more comfortable investing than millennials were at the same age? The answer lies not just in technology or income, but in the vastly different Indias they grew up in. 

Experiences Shape Investing Behaviour

We don’t invest according to markets; we invest according to memories. We make investment decisions based on the world we grew up in or experienced. Our financial decisions are mostly shaped by the economic environment, family experiences and opportunities we grow up with. That is why millennials and Gen Z, despite living in the same country, often approach money and investing very differently.

Indian millennials and Gen Z are not simply separated by age - they are separated by the economic India they grew up in.

India’s wealth management opportunities are driven by sustained growth in people’s per capita income. Our per capita income in 1991 was just Rs 11,500, which has grown to about Rs 2.50 lakh today. The increase in per capita income leads to surplus and thus investing.

The Millennial Money Experience: Most Indian millennials grew up under the constraint of limited resources, where monthly budgets were carefully managed. Their parents waited for years for a telephone connection, foreign brands were rare, government jobs were the most preferred and safest career choice, home ownership symbolised success, fixed deposits were the default investment, gold was family asset and not investments.

The Millennial Investment Experience: India’s liberalisation started in 1991. The Indian IT and services boom led to increased job opportunities. The privatisation of mutual funds happened in 1993. The MF industry faced a major hurdle when the UTI fiasco surfaced initially in 1998.

“The real crisis erupted in July 2021, when UTI suspended sale and repurchase of US-64 units for six months; reduced the dividend payout sharply and admitted that the scheme could not honour redemptions in the normal course. US-64 was considered the safest investment product and many retirees depended on its regular dividend income. This scam affected 20 million investors in India. The UTI fiasco was faced by their parents and the millennials’ investment decisions were influenced by their parent’s experience,” says Tanwir Alam, Founder and CEO, Fincart, a financial planning and wealth management company.

Friction Reduced Easy Adoption: Investment products were harder to access. They had to visit banks, fill paper forms, complete physical know-your-customer (KYC) and understand complex products. The process created friction that led to delayed investing.

“These are the top three reasons that shaped the financial personality of the millennial investors. They often think, ‘I don’t want my family to face financial uncertainty’. Their investment mindset is protection first and growth second. This was a strong underlying reason why the millennials started investing a bit late,” says Alam.

To sum up, this is the generation who migrated from “the scarcity to stability generation” with the mindset that it is better to be safe than sorry.

The Gen Z Investors

The Feeling of Abundance: The Gen Z memories are very different. The mushrooming of the nuclear family system; each nuclear family having 1-2 children; their parents, coming from a scarcity mindset, did not want their children to face a similar situation. So, they provided almost everything. This generation has mainly seen abundance.

The Digital Experts: Their childhood memories are shaped by completely different experiences - they grew up in the era of smartphones, shopping malls, online shopping, online investing, rapid digital payments, Unified Payments Interface (UPIs), learning from influencers on social media, and the start-up ecosystems. Many have never experienced a world where investing was difficult.

Their subconscious lesson is: "Opportunities are everywhere."

Are they making the right choices?

Alam says Gen Z is a very smart and confident generation. “They can figure things out online. They don't want to wait; they want money to grow fast, and technology makes investing easy for them. These beliefs make them confident - but sometimes also overconfident,” he adds.

Early Investing - their biggest win: The biggest win of this generation is that they have started investing early. Time is their biggest asset. They can truly leverage the power of compounding to create significant wealth.

They will surely win, provided they rein in the following:

Information vs. Knowledge: Alam says not all Gen Z, but many generally do the mistake of assuming easy access to information for investment expertise. 

“They have consumed enormous amounts of information, but have experienced relatively few market cycles. Further, a lot of the financial influencers have also not seen many market cycles, often making unverified claims to making abnormally high profits easily, which traps impatient investors,” says Alam.

Patience is a Virtue: The two most fundamental rules of wealth creation are asset allocation and compounding. But compounding takes time.

Financial Planning Tip

Alam says if Gen Z can guide their fast-paced growth mindset with disciplined financial planning, then no one can stop them from becoming rich. Financial planning adds the framework to their desire to live life on their own terms, accumulate wealth early, spend money on experiences, and live an enriched life that they have rightly prioritised.