Commonwealth Finds Barriers Hinder Student Investors

The results of a new survey from nonprofit Commonwealth highlighted significant challenges that college students, especially those from low- and moderate-income backgrounds, face in entering the world of investing.

According to the research, 80% of LMI students who are not yet investors express interest in the stock market, suggesting that the desire to grow wealth is widespread across both two- and four-year institutions. However, despite this interest, only a fraction of students is investing, with just 44% currently participating in the stock market.

Furthermore, among those who are investing, nearly two-thirds have less than $1,000 in their portfolios, and more than one-third have less than $500, underscoring that even those who are investing are doing so on a limited scale, according to Commonwealth, a nonprofit focused on building financial security in the U.S.

The national survey of more than 1,000 students found that 71% of non-investing students acknowledge the potential of investing to build wealth, yet barriers prevent many from acting on this belief. Among students with dependents, 48% are likely to invest, compared with 38% of those without dependents. This suggests that the motivation to invest may increase with financial responsibility, even as a significant number of students struggle to navigate the steps from interest to active investing.

As students with low to moderate incomes navigate their financial futures, starting early with investing becomes increasingly important. Citing a recent study from Schwab, Paula Grieco, senior vice president says on average Gen Z adults began saving and investing more than a decade earlier than baby boomers.

“This means plan advisers have a real opportunity to support these young adults early on. One way to do this is to create a sense of belonging, a sense that ‘this is for me,’” she says.  

Grieco suggests advisers have their marketing campaigns and website reflect young investors through representative images, so they see others who look like them. Advisers can also provide social networking support, create nonjudgmental educational resources on investment strategies and explore how seed funding could play a supportive role.

“Ultimately, develop the inclusive product features that address this group’s needs,” says Grieco. “These types of resources can help students cultivate an investor mindset and become confident, informed investors, setting the stage for long-term success.”

Financial Fears and Knowledge Gaps

Fear of losing money emerged as a prominent obstacle for students, with 65% of interested non-investors citing this as a deterrent.

Financial aid recipients showed a heightened sensitivity to potential losses, with 65% indicating fear of loss as a primary barrier, compared with 49% of students who are not financial aid recipients. Limited financial literacy compounded this hesitation, with 62% of students pointing to a lack of knowledge as an additional challenge.

The survey also found that a lack of confidence holds many students back from investing, particularly women. While 50% of men in the study were actively investing, only 34% of women reported doing the same. Additionally, 64% of non-investing women cited a lack of confidence in their ability to invest, compared with 49% of non-investing men, highlighting a significant gender disparity in financial self-assurance.

The study’s findings called for targeted support programs and educational resources to equip students with the necessary tools to make informed and confident investment decisions. Addressing the emotional and informational barriers to investing, especially for underrepresented groups and those from lower-income backgrounds, could be key to helping more students become active participants in the financial markets.

The participant pool for Commonwealth’s The New College Investor: Opportunities and Challenges for Building Wealth included 1,012 respondents, made up of 52% students from four-year colleges, 33% students from two-year colleges, 10% recent graduates and 5% students on a leave of absence.