The 2-Minute Thought: Millennial Risk Aversion

Japan’s risk aversion is famous: There’s the devotion to saving in accounts yielding close to zero rather than spending or investing in stocks.  There are the perennial poor rankings in global surveys on entrepreneurialism.  There is the fact that relatively few Japanese students choose to study abroad compared to those in other nations. 

Several years ago, in an article called “Japan’s Fear of Risk Is Getting Dangerous,” Bloomberg noted that, “Even in the sporting world, Japanese tend to avoid risk: Rather than swing for the fences, professional baseball teams in Japan bunt twice as often as Major League Baseball teams in North America, sacrificing a runner in order to increase the chances of a safe score . . .”

There may be a tendency to exaggerate here.  But the penny-pinching in Japan is conspicuous.  Last October, a Bank of Japan survey found that only 5% of respondents planned to spend more next year, while 48% intended to cut spending.

Especially among youths who missed the boom years and have known only stagnation, the tendency is to play it safe, hunker down, and focus on downsides rather than look for opportunity.  

It has been much reported that Japanese youths often live with their parents or in “group homes,” diligently search for e-coupons on their phones, and don’t dare leave humdrum jobs to aspire for something better.  The Wall Street Journal reported recently that automobile, beer, and cosmetics firms have slashed their advertising budgets for youths in order to focus more on retirees.  It quoted one former economy minister contrasting younger generations with his own in this way: “Their expectations are low.  We wanted to own the excellent cars.  They don’t seem to want to.”

The risk aversion extends to entrepreneurialism.  The Economist wrote recently that Prime Minister Shinzo Abe is trying to create an environment that is friendlier to start-ups, but the big problem remains risk aversion.  More financing can be made available and the regulatory environment can be eased, but fear of failure is harder to wipe out.

Note, however, that fear of failure is high among American millennials as well. 

While the U.S. gets high marks for fostering entrepreneurialism overall, most businesses are started by older people.     

In the U.S., the share of people under the age of 30 who own their own businesses has fallen by 65% over the last two decades.  The Atlantic quoted John Lettieri, the cofounder of the Economic Innovation group, saying that “Millennials are on track to be the least entrepreneurial generation in recent history.”  In fact, the only age group that has become more entrepreneurial the last two decades is 55- 65. 

What explains low entrepreneurial activity among millennials?  The most often cited reasons are high student debt and fear of failure.  American millennials may not have experienced Japan’s decades of deflation, but they did come of age during the Great Recession (and as a result, are not avid stock investors either).  High debt levels make a steady salary infinitely more appealing than a risky venture.  And surveys show that 25-34 year-olds today fear failure more than the same age group did in the early 2000s.  Was it all that helicopter parenting?