>Over the past two and half years, the COVID-19 pandemic revealed gaps in the U.S. healthcare system that were temporarily addressed by emergency relief efforts of the federal government. The Trump administration developed several vaccines, and the succeeding Biden government made testing widely available and rolled out a far-reaching vaccination campaign. Nevertheless, Americans experienced insecurity differently due to systemic economic and political inequalities, many of which were exacerbated during the COVID-19 pandemic.
One phenomenon that served as a nexus point for these inequalities was the “meme stock” craze, which saw record retail investments in the stock market. Similarly, cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin skyrocketed in value due to unprecedented interest among new investors. Some believe the hundreds of billions directed by more youthful investors induced a short squeeze that caused several hedge funds to lose billions, and ultimately a congressional hearing over the fairness of markets. Why were millennials willing to risk their limited savings on such risky investments?
The view here is that the COVID-19 pandemic was the perfect storm for risky investor behavior. Between February 12 and March 23, the Dow dropped 37%, and seven of the ten biggest one-day stock market losses occurred in 2020. Fast forward two years, and the S&P 500 is on pace to have its worst performance since 1970.
Millennials and Gen-Z were largely unaffected by the market crash due to the lack of savings and investments. However, with the advent of mobile trading apps such as Robinhood and WeBull, which made trading cheap, easy, and convenient, the stock market saw record participation among Millennials and Gen-Z. Moreover, stay-at-home government orders, several rounds of stimulus payments, and the rise of financial YouTube channels and social media groups empowered retail traders like never before. More broadly, cultural trends such as FOMO (fear of missing out) - a term originating in the early 2000s but truly taking off after the 2008 housing crash – and a meme culture that turned even the most serious issues into punchlines created a new type of investor that swam against conventional wisdom. Young investors were willing to hold onto losses, “buy the dip” or dollar cost average, and engage in risky all-or-nothing investments.
Traditional hedge funds and mainstream media were critical of retail traders, blaming greed and ignorance for adding volatility to the market. However, they missed more fundamental reasons why retail traders were willing to engage in such high-risk behavior. Between the posts about purchasing luxury vehicles were scores of testimonials on Reddit about the desire to pay off debt and have a fresh start in an economy no longer serving the average American. As of April 2022, 43 million Americans, or 12.9% of the population, held college loan debt, totaling over $1.75 trillion. Similarly, Americans are saddled with significant medical debt. This crisis becomes more apparent during a pandemic. In 2019, 23 million Americans owed medical debt to a tune of $195 billion. College and medical debt have made the American Dream increasingly out of reach, exemplified by the difficulty of homeownership among Millennials and Gen-Z. Over the last two years, home prices increased approximately 18%, and rents have increased even more.
Understanding a Crisis
Millennials are the first generation to have less wealth than the previous generation, a fact that does not bode well for an economic model dependent on consumption growth. Contrary to previous generations, they cannot just save and invest as wage growth has not kept up with inflation.
The record investments in meme stocks and cryptocurrencies will undoubtedly lead to a significant windfall for some retail traders but will likely result in crippling losses for most investors. Several cryptocurrencies, such as Terra (LUNA) and Squid Game token, saw 99.9% drops in value, and many popular growth stocks have fallen between 70% and 90% in the last six months. This risky investing behavior has far-reaching impacts beyond Wall Street. The underlying economic precarity of millennials, exemplified by college debt, made loan forgiveness a major issue in the 2020 presidential election and can determine the outcome of the 2022 midterms.
Economist Albert Hirshman argues that people have three options when dissatisfied with the status quo; exit, voice, or loyalty. Redditor Keith Gill, also known as “Roaring Kitty,” made millions on a risky YOLO (you only live once) GameStop investment and was called upon to speak in the House Financial Services Committee hearing on the 2020 meme stock craze. Gill, who has become somewhat of a folk hero among the online investment community, began his testimony by talking about how the 2008 financial crisis was challenging for a recent college graduate and investing in the market was one of the few ways to generate financial stability. Gill’s testimony demonstrated that despite all the hardships, millennials were still invested in the American Dream because they were willing to put their hard-earned dollars in the US economy. However, the 2020 COVID-19 market crash was the third “once in a lifetime crash” in the last 25 years, and experts predict a possible fourth crash in 2023 due to record inflation and supply chain issues. Trust in the government to regulate the market is also at an all-time low. When considering the aging and declining population globally and to a lesser extent in the US, environmental catastrophe, the Russia-Ukraine War, and other macro forces, millennials are losing hope that there is a path towards economic security at all. If this is the conclusion, then all they have left is voice (voting or protest) or exit (migration or violence against the system), which would be far more devastating than risky investments.
