The current younger generation of adults needs to think differently about their future finances. Job hopping has become common as the need for long term job security has fallen lower on the list of priorities. The young people don’t want to depend on the pension’s benefits which are matched by their employers. The age spans are also increasing. Hence the stability of social security is changing. Nowadays everyone is looking for different means to make and save money. Thus, more people have opted to non-traditional investment options such as peer to peer lending (p2p). P2p lending is a platform which matches people who want to borrow money called ‘borrowers’ to people who want to invest money called ‘lenders’. This service allows low-interest rates for borrowers and high return rates for investors. However, just like any other investment, there are some risks involved. In this article, we are going to discuss the reasons for which young people are turning towards peer to peer lending.
Young people choose to cut out banks
Since millennial came of age during the time of financial crisis and had to graduate from university when there was a scarcity of jobs in the market. This caused them to have high students’ debt, therefore the young generation doesn’t trust the traditional financial institution. Banks offer a lower interest rate which makes it an unlikely option for investment for those who want to save money.
As we have mentioned above the P2p option cuts out the bank. Any borrower can take out a loan using a P2p lender platform. Then the company directly goes to an investor to fund the loan. Since P2p lending services are administered online hence they have comparatively lower overheard which allow investors higher returns. Also, the borrowers get lower interest rates compared to banks and don’t have a stringent criterion.
Young people favour flexibility and simplicity
P2P lending and p2p ISA services are mainly offered online, which offer several choices for automation. To millennials ‘online’ simply means user-friendliness. The process of lending and borrowing is simplified by removing the middle man (banks) and is made even simpler through the automation option, user-friendly online portals, and other added tools.
Every millennial wants flexibility, whether it is employment or their financial decisions. P2p lending is not just simple, but it is also flexible. With p2p the lenders have fewer limitations compared to those placed on banks and the borrowers get more flexibility. Furthermore, the investors get a lot of flexibility regarding how much they want to invest, account liquidity, their entry, and exit timing, and the borrower segments they want to avoid or target. In turn, they have better control over their investments.
P2P lending is more tech-driven
Another reason that the millennials opt for p2p lending is that they find traditional banks outdated and inefficient. Therefore, they are not applicable to a lot of modern-day situations. Since this generation has grown up in the digital age the millennials are more tech-driven than the previous generations.
In addition, the digital age has allowed more global communication and connectedness across the globe. The online element of p2p lending services allow for borrowing and investing across borders, this the main attraction for a lot of people who are looking to expand. A user-friendly interface is very significant for younger generations since it is becoming the norm.
It is easy to create a diverse portfolio with P2P lending
Since p2p offers flexibility it also provides an opportunity for diversification. All financial planners or investment advisers stress the importance of a diversified portfolio. However, appropriate and true diversification can be tricky across multiple kinds of investments and multiple asset classes when you are just starting out.
As young people enter the market of investing and start creating a diversified portfolio it is natural that they are drawn toward the p2p lending platform. The peer to peer lending allows for diversification within its service rather than just investing in one loan. P2P investors can distribute their money across different kind of loans. This way in one loan defaults they will still have another loan investment to fall back on.
Young people are also less risk-averse and favour higher returns
In conclusion, it can be said that young people usually are inherently less risk-averse compared to previous generations. These people are more willing to take on high risks to receive high returns. Unlike the previous generation, millennials do not want to tie up their money in something which offers mediocre returns. Young people want their investments and time to be optimised and they favour high risk for high returns over stability. Generally, peer to peer lending companies offers higher returns compared to the traditional investment methods. However, there is always the risk that someone will default on their loan. The diversification and flexibility within the p2p platform respond to this by providing high risk/high return options to those who are motivated.
Essentially, the millennials do not shy away from the unknown and embrace innovation, disruption, and change. Even though p2p lending services has been around for years it still is considered unique within the financial industry. Regardless of, how much they are criticised the young people are actually forward thinkers, industry shakers and trendsetters. Hence, it is natural to see them fluctuating to new investment options which are changing the finance world.
Other than all the reasons that we have mentioned above, p2p lending is just an easy and perfect option for millennials to earn experience and dip their toe in the investment world. Since increasingly more fintech businesses understand the fluctuating needs and demands of the younger generation.