Gen Z investors turn to high-risk crypto and prediction markets amid wealth inequality concerns

A 2026 report from the World Economic Forum indicates that more than 70% of Generation Z investors allocate over a third of their portfolios to cryptocurrency, a significant shift away from traditional wealth-building strategies. This preference for high-volatility assets, including penny stocks and prediction markets such as Kalshi and Polymarket, is largely driven by rising living costs and persistent wealth inequality. According to the Congressional Budget Office, the share of wealth held by the top 10% of the US population has grown to 60% since 1989, while the bottom half holds just 6%, creating a financial environment where traditional saving methods appear insufficient for many young investors.

The allure of rapid gains is evident in the experiences of young traders like 25-year-old Preston Coots, who described the initial thrill of profiting from microcap stocks as feeling like a "genius." However, Coots noted that his 30% return over six years from high-volatility assets significantly underperformed a simple investment in the S&P 500, and he has "wiped out completely multiple times." This anecdotal evidence aligns with broader market data showing that only 13% of day traders make money annually, with less than 1% consistently outperforming the market over the long term.

Economic pressure is a primary driver of this behaviour. Ish Lukhey, a 23-year-old investor, told Bloomberg that the high cost of living makes it difficult to achieve financial goals that were previously attainable on a single high or medium-to-high income. Research from economists at the Universities of Miami, San Diego, and Colorado at Denver supports this trend, finding that "lottery-like" investments increase as inflation rises. However, these same economists noted that such stocks tend to perform worse when more people invest in them due to overpricing.

The rise of prediction markets has further complicated the landscape for young investors. Kalshi and Polymarket, which allow users to bet on outcomes ranging from political events to sports, have seen significant uptake among Gen Z. A survey by Northwestern Mutual found that 32% of Gen Z respondents have used or are considering using these platforms, a higher proportion than any other generation. Despite their marketing as financial products, a University of Toronto study found that almost 70% of Polymarket users incur a net loss.

Underpinning these risky behaviours is a significant gap in financial knowledge. On the 2026 Personal Finance Index (P-Fin Index), Gen Z scored the lowest among all generations, answering only 38% of questions correctly. The investing portion of the index saw an even lower average score of 35% for this demographic. While the S&P 500 has historically delivered an average annual return of 11.5% over the past 40 years, the combination of low financial literacy and a preference for speculative assets suggests that many young investors are facing substantial headwinds in building sustainable wealth.