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Group CEO of Capital.com, Jonathan Squires explains how persistently low interest rates, rising disillusionment with pension plans and a high adoption of technology have unwittingly given rise to a young and hungry herd of yield hunters.

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

It remains unclear what will happen as priorities continue to be in conflict. On the one hand the BoE will want to keep inflation in check but on the other hand it will want to keep rates low and continue to buoy financial markets. But even if the BoE does go ahead and raise rates, with markets now accustomed to a low interest rate environment, any upward revision is likely to be small and spread out across a few quarters.

It seems hard to imagine now, but it wasn’t always this way. In April 2008, prior to the financial crash, the rate stood at 5% and, at its highest, in 1981, the rate hit 15%.

Since February 2009 however, a period when central banks were scrambling to contain the fall-out from the financial crash, the base rate hasn’t risen above 1% and low interest rates have become the new normal.

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

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


So, what impact has this had on the outlook of this generation when it comes to financial management?

At Capital.com, we recently commissioned a survey of 2000 people across the country to try and find out – and the results reveal a stark generational divide when it comes to perceptions of saving and different ways to generate returns, such as investing in stocks and shares or trading in derivatives.

‘Armchair trading’ has been in the headlines recently. 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 toward this new approach to generating returns are highly correlated with age. Asked whether 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.

Alongside this, younger respondents also expressed general distrust towards ‘legacy’ financial institutions. Asked why they chose to invest online rather than via a bank or a financial advisor, 45% of 18-24 year olds cited a lack of trust, compared to 16% of 41-56 year olds.

So, what does this data mean?

No doubt there are factors at play here beyond interest rates. Technology has allowed for the democratisation of trading and greater participation in the markets. Long gone are the days where trading was the sole preserve of pin-stripe suited men in the city.

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

Younger people are more accustomed to self-directed online learning. While it’s not easy, it is true that more or less anything can be learnt online, often for free or at minimal cost, including how to trade.

Another emerging trend that has invariably led to the rise of young traders is the value they place on traditional sources of authority and information. Over the years there has been a gradual shift in trust away from institutions, including financial institutions, towards ‘peers’ and more informal, online channels such as social media platforms. The emergence of ‘peer trust’, where people favour and trust the opinions of their peers over traditional sources of ‘authority’ , has given rise to a generation of young people who feel most comfortable engaging , learning and advocating online. For this generation of young people, doing most things via their mobile phones is intuitive. They are comfortable buying their groceries online as they are trading and investing online.

Given this, younger people are naturally going to feel more comfortable investing and trading for themselves, online. In a world where younger people have only ever known low-interest rates and failing pension funds, we shouldn’t be surprised to see them looking for other means of generating returns on their capital, including trading online for themselves.

Add to that the fact that younger people are also often locked out of other forms of investments such as property, that 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.

Having said that, generating returns from trading isn’t easy, and people should take the time to educate themselves on the risks and the basics of the markets before attempting it. Nevertheless, given the different interest rate environments that younger and older generations have grown up in, it is unsurprising to see different generational attitudes towards saving and investing coming to the fore. It will be interesting to see if the mood changes when and if interest rates move higher.

Jonathan Squires is Group CEO of European trading and investing platform, Capital.com.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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