What’s the point of saving and investing?

We all know that we should be doing it, but do you ever stop and really think why?

For a lot of people (myself included) you will come to some sort of conclusion that it’s about having a better, more comfortable future and some sort of financial independence where you can pursue the thing you want in life.

So what happens when that future becomes so unaffordable, that even the old school, safe, sensible and patient investing preached by legends like Benjamin Graham and Jack Bogle won’t cut it anymore?

Welcome to Financial Nihilism.

So what the hell is Financial Nihilism?

The World Economic Forum says:

The sense that the economic system no longer rewards prudence or long-term planning. It is shorthand for a generation’s apparently self-destructive relationship with money, which includes crypto bets, prediction markets and retirement accounts raided to pay off credit cards.

Basically the younger generations are saying

F**k it

There isn’t any realistic point in saving traditionally so I might as well not bother. Or if I do invest, I’ll roll the dice with riskier assets in the hope I get lucky and can then afford that house deposit.

South Korea,

Last week in South Korea there was a perfect example of this attitude playing out right in front of us.

A lot of retail investors in South Korea recently lost huge sums during the KOSPI index crashing. Many had leveraged funds that were backing the index to keep rising and faced margin calls, and in some cases their accounts were terminated. I wrote a full explainer a few articles ago.

The people who took the brunt in South Korea were Gen Z – young people (14-29 years old) who took a punt on leveraged ETF’s hoping to make enough money to change their lives.

South Korean society apparently has very entrenched norms. Get a good job -> buy a house -> get married. (If you are South Korean and I have this part wildly wrong please let me know!)

So what happens if the job no longer gets the good house? Well you have to find the money somewhere else.

With the social pressure bearing down on young South Koreans, they saw leveraged ETF’s as a method of escape. A way of quickly securing their financial future in a way no traditional investment method could do.

All around the world we have seen this dynamic. A booming housing market with sky rocketing prices, matched with stagnant wages. This leaves the young with nowhere to go (literally).

In the US, the median wage for a bachelor’s degree holder, when adjusted for inflation, has barely moved from $58,138 in 1990 to $60,000 today.

Research from The University of Chicago and Northwestern University also showed that if the achievability of owning a home drops - rates of consumption increase.

Is it any wonder that they are getting more and more desperate?

Distrust in institutions

We have seen a recent breakdown in trust of politicians across the board.

“They are all the same, they are all in it for themselves”

Now whilst I don’t particularly agree with the above, and believe it leads to complacency. It is hard to argue that in the last few years there hasn’t been an increasing sense of corruption in the world.

From frequent crypto fraud and rug pulls, to certain presidents buying stocks before announcing government investment in them. Then we have the ever frequent financial crises that dominate headlines (but lead to very little change or accountability) combined with talks of AI bubbles and circular funding.

The whole financial system seems to be lurching from crisis to crisis.

People growing up in this environment can be forgiven for thinking

“What’s the point in doing things the traditional way? The games rigged.”

Monetary Policy

Now I ask you to put on your most cynical hat and think:

“Why should I care about the Swifty loving Gen Z? I’ve got my house and pension, unlucky for them, but that’s life”.

Other than the basics of compassion for our fellow humans, there is a very important reason why you should care about the rise of financial nihilism – monetary policy.

Our central banks are entrusted to guard our economies, currencies and through that – our wealth.

They often beat us with a big stick to do this, that big stick is called interest rates.

Economy running too slow? Cut interest rates, mortgage rates go down and people start splashing the cash. (Yes I know this is a gross oversimplification, no hate mail please).

Now what happens if Gen Z (who will be the largest population group by 2030) don’t care about interest rates, because none of them can afford a house, don’t put any money in traditional savings accounts, and instead are throwing it into Dogecoin.

Well suddenly we may enter a dynamic where central banks lose effective control of their economies. When a generation ignores traditional risk-reward incentives they have may have to try and find new sticks to beat the population with.

How do we turn this around?

I’m not sure - what a depressing ending I know.

Whilst I have a think and get part two of this topic written, please don’t put all of your money into Dogecoin.