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Generation Z: The excessive financial hubris

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Generation Z: The excessive financial hubris

everything is small The counter, the shelves, the shopping carts. Because everything is made for children. In “Ludwig’s Little World“, a replica supermarket next to the Fürth Town Hall, schoolchildren are to learn the basics of economics in a playful way, from dealing with money and units of measure to calculating prices. “This is an investment in the future and should start with the little ones,” says Evi Kurz. She is chair of the board of directors of the Ludwig-Erhard-Zentrum (LEZ), which right next door watches over the legacy of Germany’s first economics minister and runs the learning supermarket.

A current survey commissioned by the fund company Union Investment shows how necessary this is, the results of which are available exclusively to WELT AM SONNTAG. This reveals major knowledge deficits in the area of ​​economics and finance among those who have just finished school – young people between 18 and 24 years of age, the so-called Generation Z. The paradox: At the same time, this age group considers itself to be above-average competent and well informed in this field , she also likes to invest in the financial market.

The contradiction is dangerous because bad investments are preordained. Experts have been calling for a separate school subject for years, which should bring such topics closer to young people, but so far there has been little progress. Therefore, other ideas now seem more promising – and there are quite a few of them, including those from “GenZ” itself.

More about money

Bond market anomaly

Around 2,000 Germans who invest in shares or funds were interviewed for the survey. The young generation is therefore very open to equity investments. Nine out of ten Generation Z respondents associate it with positive emotions, and 60 percent even have fun. While the survey participants are all people who are already investing, this is not entirely surprising.

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However, Generation Z is far more positive than all other respondents. “It seems that the major reservations that German savers used to have about equity-based investments have given way to a more open approach to equities and other forms of investment, especially at GenZ,” concludes Oscar Stolper, Chair of Behavioral Finance at the University of Marburg. who evaluated the survey.

This is also reflected in another question. For example, 48 percent of the baby boomers surveyed – the survey includes everyone over 55 years of age in this group – agree with the statement that stocks are a tool to make the rich richer. Only 33 percent of 18 to 24 year olds shared this view. That is less than in all other age groups.

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Quelle: A-Digit/Getty Images/Digital Vision Vectors; Infografik WELT

The younger generation also does some things right, for example by investing their money very often in savings plans. Around 90 percent of them use this form, with baby boomers it is only 75 percent. Young people also often rely on ETFs, i.e. exchange-traded index funds. 84 percent of them have invested at least part of their assets in these particularly cheap investment vehicles, in the other age groups it is only between 51 and 63 percent.

However, there are large gaps in the questions on financial knowledge. 27 percent of younger people believe that stocks or funds fluctuate less over a twelve-month period than over a period of twelve years, and 32 percent believe that the swings in funds are higher than in the case of individual stocks. 53 percent state that the correct reaction to these fluctuations is constant reallocation. With these misjudgments, they clearly stand out from the other age groups.

At the same time, 43 percent of Gen Z say they believe they can rely on their expertise when it comes to stock investing. In fact, 54 percent think they are good at identifying the right entry and exit times – something that even professional investors rarely claim to be able to do and that only a minority in the other age groups consider realistic.

Quelle: A-Digit/Getty Images/Digital Vision Vectors; Infografik WELT

“We are dealing here with a real illusion of competence,” sums up the economist Stolper. On the one hand, Generation Z has little knowledge of the financial market, but at the same time they consider themselves to be highly competent – and have corresponding expectations. For 47 percent of them, people who quickly made a fortune are role models. “You get the impression that a ‘get rich fast’ mentality often dominates among young people,” says Stolper. An attitude, then, of wanting to become very wealthy in a short time.

Edmund Pelikan takes a similar view. The business journalist founded the Financial Education Foundation, which has been holding the “Young Businesses” competition in Bavaria for ten years. Here, high school students can submit projects that deal with financial or economic topics related to money.

“The work is usually very in-depth and detail-oriented,” says Pelikan. But they often take on a niche special topic, such as cryptocurrencies. “At the same time, however, you notice that there is often a lack of basic knowledge about the financial markets and an understanding of the connections,” he says.

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School subject “Economics” as a way out?

But where should the basic knowledge come from? It is usually not taught in schools. Therefore, ten years ago, a broad alliance of cultural and economic politicians, employers, chambers of commerce and trade unions called for more knowledge transfer on the subject of economics in schools, ideally in a separate subject.

“Because ultimately, equitable access to the topics can only be guaranteed through the education system,” says Sven Schumann, co-chair of the Alliance for Economic Education, an association of more than 100 institutions. At least 200 hours would have to be devoted to economic and financial education in the lower secondary level – i.e. in grades 5 to 10.

Since then, there have also been attempts to change something in individual countries. “But that only works if the teachers are trained accordingly,” says Schumann. “And that’s where the problem lies.” This was only really successful in Baden-Württemberg, where the green-red government of all places implemented a corresponding concept in 2016. “But we haven’t really gotten that far beyond that,” says Schumann.

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It would be important right now to use the fundamental openness of Generation Z for financial and economic topics. “The attitude of the young people is fundamentally correct,” says Giovanni Gay, member of the Board of Management at Union Investment. This is shown by the great importance that shares have for them according to the survey. If you really want to build wealth, you cannot avoid securities-based investments.

He also praises the way the money is put back. “Savings have become a normal thing for them now,” says Gay. “This raises the quality of savings to another level.” It would be all the more important to fill the gaps in knowledge.

Financial education beyond school?

But if the school can’t do it, private initiatives might be able to step in. “In my twelve school years, I learned the Pythagorean theorem, but nothing about dealing with money,” says 23-year-old Nils Feigenwinter. “No wonder my generation has poor financial skills.” For some of his friends, this led to them getting into debt early on, according to the Swiss.

Feigenwinter founded a company three years ago that releases an app called “Bling” that aims to improve the financial literacy of the younger generation. With functions such as savings pots and task planners, girls and boys should be accustomed to using money responsibly at an early age. “My goal is to help families teach their children how to handle money in a playful but also very practical way,” says Feigenwinter.

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The Ludwig Erhard Center, which has also released an app, is taking a similar approach: the educational game “Erhard City”. “Our goal was to develop an economic simulation that makes current economic challenges – such as climate change or problems relating to old-age provision – playable and explains the fundamental principles of the social market economy,” says CEO Evi Kurz.

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Dark side of national debt

Juri Galkin and Lorenzo Wienecke chose a different approach. In 2017, when they were still student representatives in Kassel, they launched the non-profit “Initiative for Economic Youth Education”. This sends experts to the upper and final classes, who teach the students the basics of taxes, their first home, health insurance and finances. “Every young person should have a basic understanding of economic relationships by the end of their school years,” say the initiators. In 2023, 50,000 schoolchildren should be reached in 400 project days.

It is crucial for the success of all these approaches that parents and teachers support the younger generation in acquiring the missing knowledge. And this is exactly where Edmund Pelikan from the Financial Education Foundation, who also works a lot with classes himself, sees a bottleneck. “Many teachers in particular are still critical of financial markets or stocks,” he says.

Pelikan believes that they would rather have essays written that criticize capitalism than independently illuminate the opportunities and risks of different investments. Something may first have to change in the minds of the parents’ generation before the offspring can become fit for the financial markets.

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