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55% of Americans Think They Don't Earn Enough Money to Invest, Survey Finds

GOBankingRates logo GOBankingRates 2/3/2019 Karen Doyle
a person looking at the camera: African American businessman comparing stock market quotes on his tablet and in the newspaper.© NicolasMcComber / Getty Images/Vetta African American businessman comparing stock market quotes on his tablet and in the newspaper.

One of the key ways to build your wealth is to invest — but many people don’t, found GOBankingRates in a recent survey.

To find out why some Americans are reluctant to invest their money, GOBankingRates surveyed 508 non-investors and asked them why they’re not investing (not including their retirement accounts). The results revealed the biggest obstacle stopping Americans from investing in their futures.

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55% of Non-Investors Think They Don’t Earn Enough Money to Invest

Respondents who indicated they don’t invest their money were asked to provide a reason. The majority of people (55 percent) who do not invest think they don’t earn enough money to do so.

This was a surprising answer — the common belief is that people don’t invest because they don’t want to lose money. However, just 8 percent of respondents said fear of losses was their primary reason for not investing.

a screenshot of a cell phone: The primary reason survey respondents gave for why they aren’t investing is because they simply can’t find room in their budget to do so — that’s what more than half of respondents said. Just 9 percent of people answered that they didn’t understand how to get started, indicating that higher wages and/or better budgeting would appear to be the bigger issue than financial literacy. However, the belief that you need a large income to start investing is a misconception. “Beginning to invest can seem like a high hurdle to climb,” said R.J. Weiss, CFP at The Ways to Wealth. “Especially considering most experts recommend a savings rate of at least 10 percent. That number can be hard to swallow for those living paycheck to paycheck. A good message for beginners to hear is that it’s OK to start small — even if it’s saving only 1 percent of their income.” In some ways, the most troubling result was the 15 percent of respondents who said they simply didn’t want to invest. This indicates a lack of understanding about the essential role investing should play in your financial life.© ©iStock.com

The primary reason survey respondents gave for why they aren’t investing is because they simply can’t find room in their budget to do so — that’s what more than half of respondents said. Just 9 percent of people answered that they didn’t understand how to get started, indicating that higher wages and/or better budgeting would appear to be the bigger issue than financial literacy. However, the belief that you need a large income to start investing is a misconception.

“Beginning to invest can seem like a high hurdle to climb,” said R.J. Weiss, CFP at The Ways to Wealth. “Especially considering most experts recommend a savings rate of at least 10 percent. That number can be hard to swallow for those living paycheck to paycheck. A good message for beginners to hear is that it’s OK to start small — even if it’s saving only 1 percent of their income.”

In some ways, the most troubling result was the 15 percent of respondents who said they simply didn’t want to invest. This indicates a lack of understanding about the essential role investing should play in your financial life.

Meanwhile, 4 percent said they don’t have enough time to invest, 9 percent said they weren’t knowledgeable enough about the stock market and another 8 percent said they don’t trust it. Fifteen percent of non-investors simply said they don’t want to invest their money.

Try These: 25 Money Experts Reveal the Best Ways to Invest $1,000

Age Insights: Adults 45-54 More Likely to Say They Don’t Make Enough to Invest

The age group that was most likely to say they don’t earn enough to invest was 45 to 54-year-olds, 68 percent of whom gave this reason. Sixty-two percent of 55 to 64-year-olds and 61 percent of 34- to 44-year-olds also said they don’t think they earn enough.

Q: What is the primary reason you’re not investing?
I’m afraid to lose moneyI don’t have enough money to investI don’t know how to invest/never learned how to investI don’t trust the stock marketI simply do not want to investI would not have enough time to manage my investments
Ages 18-243%39%24%10%20%5%
Ages 25-3412%45%12%10%16%6%
Ages 35-4412%61%5%4%12%5%
Ages 45-5410%68%5%3%10%4%
Ages 55-6412%62%6%5%12%3%
Ages 65 and older3%57%2%16%18%4%

The fact that well over half of those aged 35 to 64 feel they don’t earn enough money to invest is concerning. These are the peak earning years, so those who feel they don’t earn enough at this point in their lives are unlikely to earn more at another time.

Investing is particularly important for this age cohort as well because they are approaching retirement — and many are behind on their retirement savings. A recent GOBankingRates survey found that 42 percent of Americans will retire “broke,” meaning they have less than $10,000 saved.

Gender Insights: Women Don’t Earn Enough Money to Invest — But Men Are More Afraid to Lose Money

Women are more likely than men to say they do not have enough money to invest, with 58 percent of women choosing this response and 52 percent of men. The reason behind this disparity is likely the gender pay gap, which can range from $6,725 to $19,414 per year, depending on where you live, according to GOBankingRates research.

Q: What is the primary reason you’re not investing?
I’m afraid to lose moneyI don’t have enough money to investI don’t know how to invest/never learned how to investI don’t trust the stock marketI simply do not want to investI would not have enough time to manage my investments
Females5%58%10%9%15%3%
Males12%52%9%7%15%6%

The survey also found that men are more likely to not invest because they’re afraid to lose money, with 12 percent of respondents choosing this response compared to only 5 percent of women.

Too Much Debt Might Also Be Keeping Americans From Investing

When asked, “What would need to happen for you to begin investing?” more people (43 percent) said they would need to have less debt. A close second was getting a raise or a larger salary, which was cited by 41 percent of respondents.

Meanwhile, 37 percent said gaining investing knowledge would get them to start investing, and 18 percent said having an investment professional help would do the trick. Twenty-one percent said they’d start investing if they cut down their discretionary spending.

a screenshot of a cell phone: Given how many survey respondents answered that they lack the money to invest, the fact that over 40 percent of them replied that they would need a raise and/or need to have less debt before they would consider investing should come as no surprise. However, more than a third of respondents stated that they would need more investment education before they would start investing, indicating that even for Americans who do have the money to start building their financial future, they’re not confident they have the know-how. “While it may be true that most household budgets cannot leave much room for investing, the actual practice could be a valuable step towards financial freedom and responsibility,” said Lex Sokolin, global director fintech strategy with Autonomous Research. “A number of micro-investing services — from Acorns to Digit in the U.S. — have developed a low friction way to save a few dollars per month using automation and AI. Investing is all about cumulative returns, so even a small amount growing into a travel goal or a purchase over several years can be an instructive experience.” Learn which investment services have the best trading apps. About one in five of those polled answered that they would also want to cut down on discretionary spending and/or have an investment professional to help them pick investments. The fact that even the least-selected responses still garnered 18 percent of responses would also appear to indicate that many respondents felt it was a combination of issues keeping them from investing.© Provided by ConsumerTrack, Inc.

Given how many survey respondents answered that they lack the money to invest, the fact that over 40 percent of them replied that they would need a raise and/or need to have less debt before they would consider investing should come as no surprise. However, more than a third of respondents stated that they would need more investment education before they would start investing, indicating that even for Americans who do have the money to start building their financial future, they’re not confident they have the know-how.

“While it may be true that most household budgets cannot leave much room for investing, the actual practice could be a valuable step towards financial freedom and responsibility,” said Lex Sokolin, global director fintech strategy with Autonomous Research. “A number of micro-investing services — from Acorns to Digit in the U.S. — have developed a low friction way to save a few dollars per month using automation and AI. Investing is all about cumulative returns, so even a small amount growing into a travel goal or a purchase over several years can be an instructive experience.”

Learn which investment services have the best trading apps.

About one in five of those polled answered that they would also want to cut down on discretionary spending and/or have an investment professional to help them pick investments. The fact that even the least-selected responses still garnered 18 percent of responses would also appear to indicate that many respondents felt it was a combination of issues keeping them from investing.

Household debt could very well be keeping more Americans from investing their money. A 2017 GOBankingRates survey of more than 2,500 people found that the average American has about $140,000 in overall debt, including mortgage debt. And it doesn’t look as though that’s going down any time soon.

The Federal Reserve Bank of New York’s Center for Microeconomic Data’s most recent quarterly report states that total household debt increased by $82 billion in the second quarter of 2018, marking the 16th consecutive quarter in which debt increased.

Q: What would need to happen for you to begin investing? Check all that apply.
Raise at work/bigger salaryObtaining more knowledge on investingHaving less debtCutting down discretionary spending (eating out, shopping)Having an investment professional helping me handpick my investments
Ages 18-2449%46%35%20%15%
Ages 25-3445%35%45%29%18%
Ages 35-4451%36%42%20%19%
Ages 45-5449%39%44%19%15%
Ages 55-6434%37%48%21%23%
Ages 65 and older25%29%46%20%18%

Older adults felt that having less debt would enable them to invest, with 48 percent of those aged 55 to 64 and 46 percent of those 65 and older choosing this response.

Q: What would need to happen for you to begin investing?
Raise at work/bigger salaryObtaining more knowledge on investingHaving less debtCutting down discretionary spending (eating out, shopping)Having an investment professional helping me handpick my investments
Females42%39%44%19%19%
Males40%36%43%23%17%

A nearly equal percentage of women and men say they would need to have less debt to begin investing, with 44 percent and 43 percent choosing this answer, respectively.

Most Non-Investors Know the Right Time to Start Investing

Although they’re currently not putting their money in the stock market — outside of possible retirement investments — many non-investors seem to know that it pays to start investing early. Two-thirds of respondents say that investing should start by age 35.  Of those who do not invest, 35 percent said the ideal age to begin investing is 18 to 24, and 31 percent said it is 25 to 34.

a screenshot of a cell phone: The results to this question would seem to indicate that the vast majority of people who aren’t investing still understand that starting early is the way to go — something that reinforces the conclusion that it’s a lack of funds that’s really standing in most people’s way. About a third of respondents — 35 percent — said that you should start investing while aged 18-24 and another third or so said that 25-35 was the right age with no other response getting more than 12 percent. It’s troubling, though, to see that the third-highest response was age 65 and older. The fact that over one in 10 people in this survey believed you should put off investing until retirement would appear to demonstrate a fundamental misunderstanding of how investing can benefit them. The goal should be to invest early and reap the benefits in retirement. It’s easier to save for retirement than you might think.© Provided by ConsumerTrack, Inc.

The results to this question would seem to indicate that the vast majority of people who aren’t investing still understand that starting early is the way to go — something that reinforces the conclusion that it’s a lack of funds that’s really standing in most people’s way. About a third of respondents — 35 percent — said that you should start investing while aged 18-24 and another third or so said that 25-35 was the right age with no other response getting more than 12 percent.

It’s troubling, though, to see that the third-highest response was age 65 and older. The fact that over one in 10 people in this survey believed you should put off investing until retirement would appear to demonstrate a fundamental misunderstanding of how investing can benefit them. The goal should be to invest early and reap the benefits in retirement. It’s easier to save for retirement than you might think.

When people actually start investing for retirement is a bit different from when they think they should start. According to an older Gallup poll, 26 percent of investors started saving before age 25. By age 40, 77 percent had put money away, and only 8 percent waited until they were 50 or older to start.

Knowing when to start investing and actually doing so are two different things. It’s quite possible that many people are overwhelmed at the idea of having enough money when retirement rolls around, or they don’t bother because they don’t think they can earn enough to make a difference.

Americans Should Educate Themselves Before Investing

Over a third of survey respondents said that they would need to “obtain more knowledge on investing” in order to begin. When asked which investments they knew the most about, banking products was the clear favorite, named by 55 percent of respondents. Real estate was also a popular answer and came in at 44 percent.

a screenshot of a cell phone: When asked to score their knowledge of different financial vehicles on a scale of one to six — with one indicating most knowledgeable and six the least — Americans who aren’t investing were most confident in their knowledge of banking products. Over half the respondents said that bank accounts are what they know the most or the second-most about. Real estate, stocks and bonds, and whole life insurance got the lowest scores after banking products. Cryptocurrency, though, was least likely to be what people understood, followed by ETFs and mutual funds. This is surprising because ETFs and mutual funds represent an ideal entry point to investing.© Provided by ConsumerTrack, Inc.

When asked to score their knowledge of different financial vehicles on a scale of one to six — with one indicating most knowledgeable and six the least — Americans who aren’t investing were most confident in their knowledge of banking products. Over half the respondents said that bank accounts are what they know the most or the second-most about.

Real estate, stocks and bonds, and whole life insurance got the lowest scores after banking products. Cryptocurrency, though, was least likely to be what people understood, followed by ETFs and mutual funds. This is surprising because ETFs and mutual funds represent an ideal entry point to investing.

Over a third of respondents (34 percent) said they knew the most about stocks and bonds, and the same percentage named whole life insurance. Fewer respondents (17 percent) named ETFs and mutual funds, and the same percentage said cryptocurrency.

If a lack of knowledge is holding you back from investing, here are some tips:

  • Invest in what you do know. Banks offer savings accounts and CDs to get you started. You can invest in real estate by buying investment properties or investing in real estate companies.
  • To improve your knowledge, start with one investment vehicle, like mutual funds. Once you learn how they work, you can start looking into the best ones to invest in.
  • Start small, and make regular additions to your investment account. Investing apps make it easy and automatic, and provide education as well.

But no matter your age or level of experience, investing is better than nothing — consider starting today.

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Methodology: In a survey conducted by Survata, GOBankingRates asked the following questions: “Are you currently investing your money (not including retirement accounts i.e. 401k, IRA etc)?”; “What is the primary reason you’re not investing?”; “If you were to invest, at what age do you think it would be the best to start investing?”; “What would need to happen for you to begin investing?” and “Which investment vehicles do you know the most to least about?” The survey ran from Sept. 13-17, 2018 and had a sample size of 508 people.

This article originally appeared on GOBankingRates.com: This Is the No. 1 Obstacle Keeping Americans Out of the Stock Market, Survey Finds

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