80% of Gen Z Investors Took On Debt to Invest

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Updated on Tuesday, May 25, 2021

It takes money to make money, or so the saying goes. But if you don’t have money to invest, should you take on debt to try to make more? A recent MagnifyMoney study found that many people have done so.

While investors took on different types of debt and were driven by various motivators, MagnifyMoney’s survey of more than 2,000 respondents — nearly 1,000 of whom were investors — found that 40% of investors took on debt to invest, with younger people the most likely to do so.

But this can wade into risky territory, says Ismat Mangla, MagnifyMoney senior director of content.

“There’s always the chance your investments will lose value, making it difficult for you to pay back the principal and interest. So the thing to keep in mind is: Can you afford the risk? There’s no one-size-fits-all answer.”

Key findings

  • Many consumers have taken on debt to invest, with Gen Zers leading the charge. 40% of investors said they have taken on debt to invest, including 80% of Gen Zers, 60% of millennials, 28% of Gen Xers and 9% of baby boomer investors.
  • Personal loans were the most popular choice among those who took on debt to invest, followed by borrowing from friends or family. 38% of those who went into debt to invest took out a personal loan, while 23% borrowed from friends or family.
  • When it comes to taking on debt to invest, many went big. Of those who took on debt to invest, nearly half (46%) borrowed $5,000 or more.
  • Saving for the future was the biggest motivator among indebted investors. 37% went into debt to beef up their retirement plan. Others wanted to buy a specific stock (32%) or participate in day trading (31%).
  • Should you invest when you have debt? Americans were split almost down the middle. 49% said yes, because it’s important to build wealth for the future, while 51% said no, because people should pay off debt before investing.
  • Most said taking on debt to invest won’t be a one-time occasion. Of those who previously took on debt to invest, 61% would do it again and 33% would consider it.

4 in 10 investors took on debt to invest, led by Gen Zers

Debt is a four-letter word (yes, both literally and figuratively), but 4 in 10 U.S. investors have taken it on to invest.

The younger generations led the way, with 80% of Gen Zers (ages 18 to 24) and 60% of millennials (ages 25 to 40) reporting that they’ve taken on debt to invest. Their elders were significantly less likely to do so, with just 28% of Gen Xers (ages 41 to 55) and 9% of baby boomers (ages 56 to 75) reporting the same.

Investors turned to personal loans and friends or family for help

As for what type of debt investors took on, personal loans were the most frequent source at 38%. Another relatively large contingent (23%) reported turning to Mom, Dad, their rich uncle, another family member or a friend for a loan.

Other means of funding investments included:

  • Taking on credit card debt
  • Borrowing or withdrawing from a 401(k) plan
  • Tapping into home equity
  • Refinancing or taking out a home equity line of credit (HELOC)

A mysterious 2% took on “other” sources of debt.

Gen Z investors were the most likely (29%) to turn to friends or family for a loan, while millennial and Gen X investors were more likely to take out a personal loan — 45% and 36%, respectively. Baby boomers were the only group who chose credit card debt over other forms to fund their investments, with 23% reporting doing so.

When trying to figure out whether one type of debt is better to take on than another to fund investments, Mangla cautions against those that come with high interest rates.

“If you are planning to finance your investments with debt, ideally you’d use an option that comes with a fixed low interest rate and that you’re not required to pay back the funds immediately,” she says. “You want to be confident that your investment gains will exceed the costs of your loan. If they don’t, you should be confident that you could take that financial hit.”

Nearly half who took on debt to invest borrowed at least $5,000

Nearly half (46%) of indebted investors have taken on what’s arguably a pretty big chunk of change for investing — $5,000 or more.

The percentage who have taken on less than $1,000 to invest (22%) is almost the same as those who have taken on more than $10,000 in debt to invest (20%).

Gen Xers (41%) and baby boomers (36%) were the most likely to take on $10,000 or more in debt to invest, as just 17% of millennials and 7% of Gen Zers said the same.

Meanwhile, 65% of those who took on investing debt are still paying it off, including 73% of Gen Xers, 67% of millennials, 66% of Gen Zers and 18% of baby boomer investors.

Saving was the biggest motivator among indebted investors

Many people taking on debt to invest have their eye on the future, with more than a third reporting they did to invest in a retirement plan. The stock market is the other major motivator, with buying a particular stock and day trading following closely behind as reasons for taking on debt. One in 10 investors said they took on debt to buy cryptocurrency.

While Gen Zers, millennials and Gen Xers all reported saving for retirement as their biggest motivator for going into debt to invest, 50% of baby boomers said they did to buy a certain stock they wanted.

Should you invest while you have debt?

Let’s say you already have debt, as the vast majority of Americans do. Of the MagnifyMoney survey respondents, about 4 in 10 have non-mortgage debt, including credit card debt, student loans and auto loans, while another 4 in 10 report having no debt at all. Meanwhile, about one-fifth only have mortgage debt.

So, is it a good idea to invest before paying off that debt? In general, respondents were nearly split here, with 49% saying it’s a good move and 51% saying debt should be paid off before you start investing.

Those who are already in debt were much more likely to say consumers should still invest even if they’re in the red — 59% with non-mortgage debt and 50% with only mortgage debt agreed, compared with 37% who are debt-free.

Mangla sides with those who believe in investing even if you already have debt.

“Don’t wait till you are completely debt-free to start investing,” she says. “Saving, paying off debt and investing don’t have to be mutually exclusive. Just be smart about how you’re allocating your budget for competing priorities. Focus on paying off high-interest debt first, and make sure you have a basic emergency savings fund.”

Even if you invest a small amount while you are also paying off debt or focusing on other financial priorities, according to Mangla, those investments could still reap you big rewards in the long run. And if you only focus on paying down debt before you start investing, you could miss the chance to take advantage of the benefits of compounding returns from your investments.

“Remember that investing early in your life impacts your long-term success when it comes to retirement savings,” she adds.

Interestingly enough, if $10,000 fell out of the sky, 44% said paying off debt is the best step to make, while 35% said splitting it between paying off debt and investing would be the right way to go. Just 15% would straight up invest it.

Final note: Of those who took on debt to invest, 63% said they regret it. But would they do it again? Maybe. Overall, 45% of consumers said they would consider taking on debt to invest. Of those who took on debt to invest, 61% would do it again and 33% would consider it.

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 2,046 U.S. consumers — of which 994 were investors — from March 30 to April 6, 2021. The survey was administered using a non-probability-based sample, and quotas were used to ensure the sample base represented the overall population. All responses were reviewed by researchers for quality control.

We defined generations as the following ages in 2021:

  • Generation Z: 18 to 24
  • Millennial: 25 to 40
  • Generation X: 41 to 55
  • Baby boomer: 56 to 75

While the survey also included consumers from the silent generation (defined as those 76 and older), the sample size was too small to include findings related to that group in the generational breakdowns.

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