Millennial parents join the crypto craze. Should you? Here's what experts say.
- Bitcoin, the world’s most popular digital coin, has been highly volatile.
- Young Americans see cryptocurrency as a long-term investment opportunity to build wealth.
- Although millennials are the largest generation in the U.S. labor force, they own 5% of U.S. wealth.
Nick Halversen was skeptical when his friends started piling into high-flying, volatile cryptocurrencies like Dogecoin amid the coronavirus pandemic.
“It seemed silly. I’m not trying to get rich quick. That’s like gambling,” says Halversen, 27, a marksmanship instructor for the U.S. Marine Corps. “My father taught me to play the long game when it comes to investing.”
But once he started doing more research and saw the potential for cryptos to boost his wealth in the coming decades, he decided to set aside a small portion of each paycheck to invest in ether, bitcoin and Dogecoin through the online currency exchange Coinbase and the trading app Robinhood.
Still, he remains cautious about the currencies, which are essentially digital coins created and exchanged over a decentralized computer network where transactions are secured and verified through coding.
"I'm not an expert in these coins," says Halversen, who lives in Chula Vista, California, with his wife, Vanessa, a 31-year-old flight attendant, and their daughter. "I’m not looking for a quick buck. If you’re investing, you should feel comfortable putting that money away and wait for it to grow over time."
Despite a relatively low understanding of cryptocurrencies among the general public, a broad coalition of young American parents, particularly millennials, are joining the crypto craze.
Overall, just 13% of Americans own cryptocurrencies – but among millennials, that number is far higher at 25%, according to Harris Poll data given exclusively to USA TODAY.
About 29% of millennial parents own cryptocurrencies, the data shows. Roughly 21% of them "aren't at all concerned" that their value of their cryptocurrency may go to $0, while 63% are at least "somewhat concerned."
Young Americans see it as a long-term investment opportunity to build wealth after being hit by two “once in a lifetime” recessions early in their prime earning years while being burdened by student debt loads and stagnant wages.
Some young families like the Halversens have taken a measured approach to crypto investment. But others are committing large sums to this speculative corner of the market, putting themselves at risk of losing more money than they can spare, especially if they're not financially prepared and have low levels of financial knowledge.
You could lose your crypto investment
“Any money used to invest in speculative investments like cryptocurrencies should be money that investors are willing to walk away from and not used as money dependent for financial goals,” according to Shelly-Ann Eweka, senior director of financial planning strategy at TIAA. “There’s a significant amount of risk, and you could lose all of your investment.”
Many young people feel pressure to quickly fill up savings and retirement balances that remain low and to pocket enough cash to buy a home, a life milestone that boomers and Gen Xers did at higher rates when they were the same age, financial experts say.
So for some money managers, it comes as no surprise that millennials with kids want to profit from cryptos now that they are in their mid-20s and early 40s.
"Millennials are the bagholders of student debt who’ve been unable to outearn the liability they took on," says Douglas Boneparth, president of Bone Fide Wealth, a financial adviser. "Even for those who were able to get out from under it, they’ve pushed themselves to the limit to succeed professionally, satisfy that debt, still buy a home and start a family."
Investing a small amount in cryptos
Building a family pushed the Halversens to prioritize their financial goals by budgeting, saving and paying off credit card debt even as they maxed out their retirement contributions. That has helped them reach a new milestone over the summer: first-time homebuyers.
With that milestone achieved along with a growing retirement fund, Halversen said, he feels "more comfortable investing a small amount in cryptos.”
Although millennials are the largest generation in the U.S. labor force, they own just 5% of wealth through the first quarter of 2021, according to data from the Federal Reserve. In 1989, when baby boomers were around the same age as millennials are now, they controlled 21% of the nation’s wealth.
"Millennials don’t necessarily have it harder than other generations because there are a lot of things they have easier, mainly through technology," Boneparth says. "But the financial-economic landscape that they’re dealing with is more challenging than (it was for) their parents and grandparents."
Millennials, however, came of age at the same time that online platforms and social media gave them the ability and power to invest in new ways with online brokerages, which shaped their investment behaviors. Now many of them believe hot trades like cryptocurrencies have become a more attractive asset class after their latest boom this year.
Technology lures young traders
“As millennials get older, they’re starting to have more investable assets,” says John Gerzema, CEO of the Harris Poll. “They’re a generation that’s poised to become more financially literate than other generations because they came of age with the rise of fintech and are more digitally savvy when it comes to retail investing.”
Despite having the technology at his fingertips, Spencer Ewing, 32, still feels as if he faces a learning curve in trading.
“I’ve been an amateur trader long enough to realize I still don’t know anything,” says Ewing, a naval officer who lives in Annapolis, Maryland. “The brokerage apps make it easier to trade, but they still don’t make me feel like I’m making the right investment decisions.”
Ewing, who took two college classes in economics as a mechanical engineer, is frustrated that there aren’t more investing courses offered in schools.
Experts point to a lack of financial literacy in the U.S. overall that has contributed to the recent crypto FOMO.
FOMO and crypto
“What makes crypto so appealing is the FOMO,” Boneparth says. “Everyone is getting rich but you. It’s a lottery ticket mentality. But it’s not necessarily people’s fault. Some of our own bad behaviors come from a lack of financial education, which is a systemic issue with our education system.”
Ewing is another young parent who started investing in cryptos a few years ago but found it too frustrating to deal with the taxes that came with trading them.
He took the profits he made in his Coinbase account and moved it into Robinhood right before the pandemic hit. He felt he missed out on the latest crypto wave but has instead been investing in other speculative assets, including trading options, which are considered risky.
“I promised my wife that the $2,000 I put into Robinhood was completely separate from my asset management account that I used to buy our house,” Ewing says.
Similar to the Halversens, Spenser and his wife, Sarah, don’t carry debt, have emergency savings and have carved out their long-term financial goals. He also maxes out his retirement contributions.
“The technology makes it fun, but we’re not throwing away our life savings,” says Ewing, who has a young son. “I use this money to get my gambling fix and to buy my wife an iPad.”
Bitcoin's volatile run
Bitcoin, the world’s most popular digital coin, has been highly volatile. In late 2017, the digital token rose to nearly $20,000 before crashing to almost $3,000 the following year. It had a dizzying rise earlier this year when it doubled in value to above $64,000, but then it briefly tumbled below $30,000 this summer as regulators continued calls for tighter controls on cryptocurrencies.
“No matter who you are, if you’re a millennial or the Greatest Generation, if you’re investing in crypto it’s a speculative bet,” says Isabel Barrow, a financial planner at Edelman Financial Engines. “It is a gamble, largely because of the lack of regulation around the crypto market and volatility.”
Some financial planners such as Barrow expect that crypto could play a larger role in investment portfolios in the future.
“Crypto is going to be a part of our lives as investors going forward,” Barrow says. "But if you don't understand crypto, you shouldn't invest in it."
But she says it's OK for families like the Halversens and the Ewings to dabble in cryptocurrencies because they've already set up their short- and long-term financial goals and are saving for retirement.
What percentage of your portfolio is crypto?
“For millennials with young children who are looking to buy a home and build retirement, they need to work with a financial planner or sit down with their spouse and make their financial goals and saving sufficiently,” Barrow says. “If they’ve accomplished that and now they want to invest about 1% or so of their portfolio in crypto, I don’t see any problem with that.”
About 37% of millennials believe that investing in cryptocurrency is a viable way to increase their financial security, according to a survey from finance firm TIAA. And roughly 44% of them indicated that they would like to invest or own cryptocurrency in the future.
Older millennials, now in their 40s, may feel as if they’re sacrificing their own financial future as they support aging parents who may have undersaved for their nest eggs.
“Their parents are either retired or set to retire, but they may not have enough to cover their own expenses," Eweka says. "Now millennials' finances might be stretched with helping out older loved ones. It’s a lot of financial stress, especially in a pandemic.”
Overall, two-thirds (65%) of crypto owners say they are holding their cryptocurrencies for the long term, compared with only one-fifth (20%) who say they are holding it over the short term, Harris Poll data shows.
Owners of crypto use it as a financial tool rather than cash for splurging, according to Gerzema. Crypto holders, for instance, say they plan to put any profits from crypto sales into stocks (37%), a home (33%), reinvesting in other crypto (31%), their retirement (31%) or to pay off credit card debt (30%).
Concerns are growing about a regulatory crackdown on bitcoin. Turkey’s central bank, for instance, banned the use of cryptocurrencies from the end of April, saying crypto payments came with “significant risks.”
Still, two-thirds of millennials are more open to using crypto than they were a year ago, according to a recent survey from Mastercard's New Payments Index.
But there's still some way to go in educating millennials about crypto, financial experts say. About 77% of millennials are interested in learning more about crypto, and 75% of millennials agreed that they would use cryptocurrencies if they understood them better.
Getting advice from social media
Millennials have mostly turned to social media for advice on investing in cryptocurrencies, according to Harris Poll. Roughly half of millennials aware of crypto get their information from social media as opposed to financial websites (40%) or financial TV (37%). Boomers, meanwhile, are most reliant on financial TV (60%) and only 14% get information about cryptocurrencies from social media.
For those young investors who seek cryptocurrencies as a long-term investment opportunity, Barrow and other financial experts suggest doing the following: Draw a personal financial road map and figure out short-term and long-term goals; create and maintain an emergency fund; have a budget; pay off credit cards and other high-interest debt; max out retirement accounts such as a 401(k) and/or IRA; get life and health insurance coverage; and create a will and set up estate planning.
Young investors, particularly those who've experienced unexpected life changes or are building their families, should check with their employers to see whether they provide complimentary or low cost financial services to help them build a financial plan, Eweka suggests.
“Should every American invest in crypto? No," Boneparth says. "But everyone should learn more about it. As crypto becomes more mainstream, there’s a greater likelihood they’ll become a fixture in portfolios in the future.”
GRAPHICS: George Petras/USA TODAY