Millennials are widely bagged for their lack of go-getter attitude. We’ve even had ‘motivational speakers’, like Simon Sinek, saying that it’s the parents of Millennials who must take responsibility for the ‘lazy, narcissistic’ mind-sets of this much-maligned generation, for telling them that they were special all the time, and giving them medals for coming in last.
Well, shame on you for trying to do the best for your kids! The thing is, that while Millennials don’t seem to be living up to other people’s expectations, they are doing things their own way, and like it or not, that’s how society evolves. And one of the things that Millennials are doing better than anyone else, is investing in consumer finance.
The consumer finance model developed following the financial crisis. While the hard-pressed banks reined in their lending, a huge number of potential borrowers found themselves devoid of options. They needed funds to grow small businesses, to buy new cars to be able to get to work, or to re-decorate homes to welcome new babies, but because they lacked the significant collateral the banks suddenly required, they found themselves at a loss. Consumer lending put the financial control back into the hands of the public – and so far, those hands have proved to be far more trustworthy than the big financial institutions! From ‘Angel Investors’ to P2P (peer to peer) loan providers, the public took up the slack that the ailing banks left, helping borrowers to find the funds that they needed, and investors to make their money work for them. Despite all the nay-sayers and the accusations of ineptitude, it’s Millennials who are leading the way in this financial revolution.
How Did Millennials Get Such a Bad Name for Fiscal Responsibility?
The widely held belief is that Millennials lack cash because they spend it all – largely on over-sized coffees, avocado toast and attending festivals. While some of these things might be true – who isn’t partial to the occasional Starbucks? – the real truth of the matter is that Millennials never had much money in the first place. They graduated into a world beset by financial crisis. There were more people being made redundant than there were new jobs being created. Wages were being frozen and have since stagnated – the biggest wage increase since 2007 happened in 2015, and that was only 2% - barely higher than the rate of inflation. Consequently, it’s believed that Millennials typically earn £8,000 less during their 20s than their parents did at the same age. The cost of living has continued to creep higher and higher, while interest rates have stayed at an historical low – just 0.25% until November 2017 – causing significant concern for savers and investors of all ages.
Taking all of this into consideration, there’s little wonder that Millennials are notoriously short of cash… Although that doesn’t explain why they spend what little spare they do have, rather than putting it in banks… Except that, actually, it does.
Millennials and Banks
Coming of age at the peak of the Global Economic Downturn, Millennials first began turning their thoughts towards the grown-up outside world at a time when every single headline in every single newspaper, and every single leading story in every single news programme screamed out about the misconduct of the bankers. Northern Rock collapsed, taking the savings of millions of investors with it - that was how Brits first became aware that the boring rumblings of economic reports should actually be taken rather seriously. After that, story after story of rogue traders (who may or may not have had their actions sanctioned from higher up the food chain) hit the headlines. Then we had PPI, and literally millions, in fact, the vast majority of people in the UK, being mis-sold payment protection plans. Next came Libor-fixing, interest rate hedging, foreign exchange rate manipulating, and money laundering, while all the while the bankers delivered themselves hefty bonuses.
Millennials have been wary about allowing their hard-earned to rest in bank vaults because – somewhat understandably – they don’t trust traditional financial institutions. They’ve seen what banks and bankers do, and they don’t like it, and they don’t want to be involved in it, so why shouldn’t they spend their cash?
While all of this is completely understandable, it doesn’t take away from the fact that without money there come times in your life when you're basically stuffed! You can't buy a house, in fact, you can't even scrape together a rental deposit. You have no back-up when things go wrong… And you get a reputation for being flaky, irresponsible, lazy, and all of the rest. Millennials, of course, know all of this, and that’s why so many of them have been so keen to turn to alternative investment platforms, and the new wave of consumer lending.
A New Way to Invest
As we’ve already mentioned, while the financial crisis was deterring Millennials from saving, millions of other people were struggling to access temporary capital. There was a desperate need for a new infrastructure which would allow those without surety but with a strong credit rating to borrow money. And that’s where consumer lending emerged.
With faltering interest rates, people with savings needed to find a way to get a worthwhile return for their money, but with the stock exchanges struggling under the weight of the recession and banks a less than attractive proposition, the idea of loaning funds to those who both needed it, but could also afford to repay it, became a very attractive option. The idea of Angel investors developed, whereby wealthy individuals stepped in to assist SMBs and startups with potential, in return for a stake in the company, while for individuals, P2P lending began to take shape.
Peer to Peer investment is the process whereby individuals apply for their lending needs to be fulfilled via a form of crowdfunding. They make their application, the details are checked by a certified credit institution, and then individual investors offer to contribute to the fund. Loans are usually relatively small and for a short-term – usually in the region of one to twelve months – which means that investors are not making daunting or lengthy commitments. In most cases, P2P loans are satisfied by multiple parties; although there is nothing to stop one person offering the full sum, from a risk point of view it makes more sense to spread your funds among several different investments.
For the borrower, this form of lending makes sense because, first and foremost, it grants access to funds they may not otherwise be able to obtain, but also because they can deal with their financial needs on their terms.
For the investor, P2P means a far better interest rate than traditional banking can offer, without the risks of established investment techniques, or the irritation of having to become involved with banks.
FastInvest launched in 2015, bringing to P2P a commitment to democratise investing. The FastInvest platform allows for clients to invest as little as €1 (or as much as €100,000) while delivering a typical return of 9-13%. In providing both buyback and default payment guarantees, the company also makes sure that the minimal risk associated with P2P is all but eradicated, and that’s why the FastInvest P2P platform has proven so popular with all investors, but especially Millennials.
Are Millennials Really Making Money from P2P?
Yes. All around the world.
Jagriti Mishra, 25, from Bengaluru began P2P investing with 8,000 rupees (approx. £90). Within eight months, the amount that she had invested had grown to 60,000 rupees (£700). Why? “I tried traditional investment options like recurring deposits that gave an interest of about 7 percent,” she said. That compares with the average interest of 22 percent interest that she earns on her chosen P2P platform.
Jagriti is just a single example, but there are thousands more like her because consumer lending is simple. You don’t need a broker, you don’t need to cover any other kinds of overheads, you just need to find a reputable platform and decide which projects take your fancy.
How to Invest in Consumer Lending
If you’re interested in joining the consumer lending revolution, all you really need do is to find a platform to work with, the rest is as easy as pie.
With FastInvest, for example, pre-checked loan requests are listed on the homepage, so once you’ve opened a free account, you simply need to make a deposit (from €1 up), peruse the available investment options, take your pick and commit your cash. Each request is completed with anonymised information – requested amount and loan term, age, sex, location and salary of the borrower, and the purpose of the loan – so it's possible to make an informed decision about where to put your money. Once a loan has been filled, all you need to do it wait for the monthly payments to roll in. As with any loan, the borrower commits to a certain minimum monthly repayment, and each investor will receive a return proportional to their original investment until the investment and interest have been cleared. And that’s it.
If you use the FastInvest Auto Invest tool you can arrange for your payments to be reinvested to make your money work even harder, but that's something for you to decide for yourself.
Consumer lending appeals to Millennials because it comes with a sense of openness and honesty. There are no hidden fees, and no need for extensive knowledge; everyone can take part, and everyone benefits – apart from the City fat cats, who’ve had it their own way for too long. Some people will say that it’s going down these alternative routes that makes Millennials seem arrogant – why can’t they just do what everyone else has always done? Because, quite simply, new ways are sometimes better. And consumer loan investment is one of those cases.