financial nihilism young people no American dream risky investing

When Jacob Kaplan thinks about his path to financial security, he sees a need to take big risks.

For years, Kaplan has been betting on major sporting events through online platforms, often dedicating 30 hours a week to the hobby. The 25-year-old regularly trades tips with fellow enthusiasts through Discord and bought a membership to sports data platform Bookie Beats to help level up his bets.

“There’s the risk that goes into each individual bet that you take,” Kaplan told CNBC. “But if you surround yourself with the right people and you know what you’re doing, then it kind of answers that problem that my generation is looking to solve of finding some financial security.”

Kaplan is part of a cohort of young people pushing typical investing strategies to the side for higher-risk alternatives. They’re looking for a stroke of luck amid broad feelings of direness about the economy as home prices skyrocket, loan debt grows and the job market tightens.

This phenomenon has been dubbed “financial nihilism.” It can help explain the rise of speculative investments like meme stocks, leveraged exchange-traded funds and crypto, as well as booming interest in forums like sports betting platforms and prediction markets.

“I view this as more of a rational response on the part of the young investors who would like to achieve certain goals using their investments,” said Simon Oh, an assistant professor at Columbia Business School.

“Relatively to the past, it’s become much more difficult to do that using traditional means of wealth accumulation,” Oh said. “As a result, sort of the rational thing to do is to swing for the fences.”

A crop of risk-on trades have gained followings since the pandemic took hold of society just over five years ago.

Outside traditional markets, sports betting platforms and prediction markets allow people to gamble on outcomes of everything from the latest NFL game to whether singer Justin Bieber will announce a tour this year.

Digital currency trading has also earned relevance, an umbrella that includes everything from bitcoin to “meme” coins. Gen Z was the most likely of any generation to say they were either curious about or planning to invest in cryptocurrencies over the next five years, according to a U.S. Bank survey released this week. 

Within the stock market, there’s the short-squeeze stock craze that began with GameStop and AMC during the pandemic. This year, a new class of so-called meme stocks such as OpenDoor and Kohl’s have burst onto the scene. OpenDoor shares are up nearly three-fold this year. Kohl’s stock has doubled in the last three months.

Fund creators have aimed to ride the risk wave with leveraged ETFs, which amplify investments to provide larger returns or losses. Leveraged ETF launches in 2024 hit a record going back more than 15 years, according to data from VettaFi and Bloomberg.

Options trading allows investors to bet on whether they think a security will go up or down. The Options Clearing Corporation said total contract volume topped 1.2 billion in August alone, a jump of 18% from the same month a year prior.

Marketing consultant Marcellous Donyae turned to options trading about five years ago as he was looking for ways to make money while attending school. He was hoping to avoid the fate of counterparts across the country grappling with student loan debt.

“I’ve always wanted to have a source of income that kind of gave me a sense of financial freedom and control over my life,” said Donyae, 22. “Options was just the one thing that I felt like gave me that.”

While there’s an evolving slate of risk-on investments, Columbia’s Oh said the demand for this type of bet hasn’t changed. Looking historically, he said commodities were once considered a similar way to make high-risk wagers.

Still, Donyae’s desire for a financial security blanket underscores the anxiety felt by this generation of investors as traditional economic goals now feel more like distant dreams.

Rising housing prices and high interest rates have made the dream of home ownership — long considered a core tenant of financial success — appear increasingly unattainable. Three out of every 10 members of Gen Z have given up on buying a home altogether due to cost, according to U.S. Bank’s survey.

These investors experienced young adulthood during the inflation spike that accompanied the pandemic and now face a white-collar job market slowdown. Even if they can get a job, fears of a Social Security cliff leaves them feeling longer-term uncertainty. Rising credit card debt levels and the continued overhang of student loans (with loan suspensions ending under the Trump Administration) can also throw cold water on their outlooks.

“Anything that you would think about on the traditional economic ladder is increasingly out of reach,” said Kyla Scanlon, an economic commentator and author of “In This Economy?” Young people are “feeling left out of the market and feeling like there’s no future, so you might as well just gamble it away.”

Scanlon said social feelings of rejection tied to dating apps and college acceptance can amplify the insecurity that young people are already experiencing financially.

Accordingly, data tracked by the University of Michigan shows 18-to-34-year-olds have had the worst consumer sentiment readings for much of this year out of any age group. That marks a reversal from previous trends.

Young adults in this boat acknowledge that this flavor of high-risk investing doesn’t necessarily equate to a life-long market strategy.

Kaplan, the sports bettor, said he earmarks much of his earnings for index funds or savings accounts. The Maryland resident knows one day that he’ll have to give up such a time-consuming practice — but he hopes to raked in enough profit by then to be set up for success.

“I don’t see this as a sustainable, long-term form of income,” Kaplan said. “It’s been beneficial financially for now, and at some point I’ll put it away and take my money and run.”