Cryptocurrency, stocks, and NPFs are the most attractive investment goals of Ukrainians aged 25+ — research of AIN.UA

Despite the lack of economic stability in Ukraine, there is still a high interest in private investments. In particular, young people aged 25-35 are interested in investing to capitalize, receive passive income, and guarantee a decent future for themselves.

AIN.UA researched how the private investments of young people have changed over the past few years, the reasons for those changes, and why we should save for our future pensions right now.

When and why do the youth start to invest?

According to the AIN.UA survey, which had 82 participants, most people begin investing at the age of 21-25 (34.6%) and 26-35 (34.6%). People younger than 20 and older than 40 are less likely to make investments (5% each).

Over the past ten years, based on my experience, many more young people started thinking about investing,

Halyna Trytiak, a Financial Advisor, said AIN.UA.

She noted that people continue to invest or only begin to invest even though Ukraine has not experienced stability in recent years.

“Under stresses and risks, we tend to care about our future. People started saving more during the pandemic and are now considering investing. Generally, we think less about resources during stable periods, and more likely, we would think of security at unstable times,

Trytiak explained.

The respondents had different opinions regarding the influence of the full-scale war on investments:

  • 31% stated the full-scale war had no influence on their intentions to invest;
  • 26% admitted that war negatively influenced their wish to invest. About a fifth of them see no perspectives in investing in Ukraine;
  • 20% answered that the full-scale war positively impacted their intentions to invest, and one-third of them made the first investments in their life.

Where do young people invest?

The most popular investing goals, according to AIN.UA survey, are:

Cryptocurrencies

Compared to the previous investor generation focused on real estate and deposits, the current youth prefers to invest in stocks and cryptocurrencies, the founder of the Simeinyi Budzhet, a financial literacy project, and a partner at iPlan.ua, Lyubomyr Ostapiv, emphasized.

So, the respondents recalled low entry threshold, accessibility, and high profitability as the main advantages of cryptocurrency investments.

Cryptocurrencies seemed to be the fastest and easiest way to multiply your capital,

said a survey participant, Roman, a QA Engineer.

He started investing in cryptocurrencies in 2021 after mining Ethereum for two months. His first $1,000 was invested in diverse coins: ETC, Solana, XRP, Luna, Matic, and Ada. He spent another almost $4,000 on a mining farm.

Roman continues investing in cryptocurrencies, while many of his contemporaries find it only a backup option.

Speaking of cryptocurrencies as an asset, it becomes more attractive when increasing value. When it decreases, all the hype also disappears. So I wouldn’t say many investors regularly go in and out,

Halyna Trytiak summarized.

She calls cryptocurrencies one of the riskiest assets with the lowest substantial base and asks to pay attention to such high-risk investments.

Despite all their popularity, Ukrainians don’t show a general trend to save in cryptocurrencies. Only 13% of the survey participants prefer this kind of saving. Most Ukrainians, 93.9%, prefer the US Dollar, 53.7%, the Euro, and 41.5%, the Hryvnia.

Stocks

The second most popular investment target of AIN.UA readers is company stocks. It is a long-term saving plan, Lyubomyr Ostapiv stated.

Ukrainians invest more in foreign companies because of apparently lower risks. That interest in foreign stocks has been stable for a few years already.

Clients are mostly interested in Eurobonds of Ukraine or blue chips — Apple, Microsoft, Tesla, etc.,

said Yevheniia Hryshchenko, Deputy Director at ICU Group, in an interview for Minfin.

In early 2022, foreign securities grew popular in Ukraine since people could purchase them via mobile banking apps. However, the trade volume decreased with the beginning of the Russian full-scale invasion when Ukrainian regulatory bodies temporarily paused the trade.

First, there were transaction amount limits: Ukrainians could transfer not more than UAH 100,000 a month to foreign broker accounts. In May 2022, the regulator entirely forbade external transactions to buy securities, stocks, and bonds and pay broker fees.

In August 2022, the National Securities and Stock Market Commission lifted most equity and commodity market transaction restrictions.

“The equity and commodity markets worked manually during the first five months of the full-scale war. The regulator monitored and analyzed the results of each permitted transaction. It would be nonsense in a peaceful life, but the war brought new circumstances. Thanks to that individual approach and conservative politics, we have managed to overcome panic, save assets, and avoid defaults for several securities,” 

A PHP Engineer, Mykyta, started investing in stocks of foreign companies even before the full-scale war. He had to choose a broker available in Ukraine. “There were Interactive Brokers. There was also Freedom Finance Ukraine, which, however, had Russian roots and was already fucked up at that moment.

About Freedom Finance Ukraine

Freedom Finance Ukraine is a company owned by a stockbroker, Timur Turlov, who holds Russian citizenship. Sanctions were imposed on the company in 2023. According to the EP, the total value of the assets blocked on the company’s accounts—shares and bonds of more than 280 issuers—is UAH 3.5 billion.

I chose Interactive Brokers for their protected complicated registration process, equity protection up to $500,000, and access to many tools.”

Mykyta invested mainly in US-based companies over NYSE and NASDAQ. Initially, he traded via Exchange Traded Fund (ETF) and later purchased separate stocks.

I have invested in SCHD, AAPL, COIN, Alphabet Inc. (GOOGL). At that time, the shares of Apple cost me much less. And now they are at the peak level [$208.14 on June 25, 2024 — edit.]. In addition, I invest in dividend funds and buy stocks on hype, which means the most spoken and growing securities at the time. In January, it was CoinList. The most recent one is Nvidia. Or I can invest in some perspective area, for example, related to AI. In general, my portfolio contains preferably technology companies,

said Ruslan Mahomedov, the Director of the Commission, about lifting restrictions.

With the beginning of the full-scale invasion, Mykyta stopped to invest for some time and had to sell most of his portfolio. Later, he resumed his trading activity and almost caught up with the volume he had before. Now, he invests in stocks and cryptocurrencies, plans to invest in real estate and not rely on known domains anymore.

Domestic government bonds

As of April 2024, nearly 178,000 Ukrainians invest in the domestic government bond (DGB) market, 90% of which are military bonds, according to the National Bank of Ukraine’s statement for AIN.UA.

For Tetiana, who works in the digital advertisement industry, an investment in bonds was the second in her life. Before this, she invested in her boyfriend’s company once.

I decided for the bonds to help our army quickly and conveniently, via monobank, and most safely, as it could be during a war,

she explained.

Her motivation to invest was to help the Armed Forces of Ukraine. “My boyfriend, for instance, had invested all his savings in military bonds even though he could purchase stocks of foreign companies. However, risks were not a case here,” Tetiana added.

The ROI of bonds decreases due to increasing inflation and interest rates, Halyna Trytiak explained. However, the existing ROI is high enough to cover the inflation and UAH to USD exchange devaluation. A low entry threshold is a pro. You can start investing with only ₴1,000.

Experts recommend looking at corporate bonds as an alternative. For example, NovaPay and !FEST Coffee Mission, a part of !FEST Holding, issued their corporate bonds. The NovaPay bonds are available via its app.

The bonds of !FEST Coffee Mission are fixed to the US Dollar — it’s an innovation in the Ukrainian market,

said the founder of the Simeinyi Budzhet financial literacy social project and a partner at iPlan.ua, Lyubomyr Ostapiv.

Halyna Trytiak emphasized that the corporate bond market in Ukraine develops because Ukrainians willingly purchase bonds to support businesses they like.

Why do pension investments become more and more popular among young people?

17% of the respondents indicated their concerns about pensions as a reason to invest.

The government can guarantee only minimum social welfare (in 2024, it’s ₴2,361 — edit.). But for more, you must work as long as possible. The First Deputy Minister for Social Policy, Darina Marchak, stated this in a live stream at Espreso.TV in June 2024.

According to her, the demographic situation in Ukraine is critical: one taxpayer works to pay pension one pensioner. “And this situation will highly likely get worse,” the Deputy Minister for Social Policy added.

It is due to the war-related negative migration, the low birth rate that decreased even more during the full-scale Russian invasion, and high early mortality because of warfare.

“Ukraine must be an active longevity nation. We must be interested in and work as long as we can and retire when we feel no physical capacity to work,” thinks Darina Marchak.

Lyubomyr Ostapiv recommends officially working employees to think about long-term pension investments. He noted that people ideally should save for 20 to 30 years. Compound interest, a result of an accumulation from a principal sum and previously accumulated interest, would work better for such a long-term deposit.

Non-state pension funds

The experts advise non-state pension funds (NPF) to invest in private pensions. It is a long-term investment. You can conduct a contract with the fund for several years and pay contributions to your own pension account.

There are traditional risks connected with NPFs: How reliable an NPF is and whether it can offer a ROI more than the inflation rate,

Oleksandr Panchenko, an Advisor of the National Securities and Stock Market Commission Director, said in his commentary for AIN.UA.

He recommends paying attention to how long a fund operates, what its partners are, if they are well-known, etc.

Then, compare the ROI for past years with inflation rates. “If a fund could overcome inflation in a long-term perspective (over ten years in a row), it is worth your attention. There are such funds in Ukraine, and usually, the more assets the fund has, the better the numbers,” Panchenko summarized.

There are 63 officially registered non-state funds in Ukraine, and 58 are active nowadays. After January 1, 2024, non-state pension funds lose the status of financial entities and become organizations under finance service regulations.

Here are the largest Ukrainian NPFs by assets:

  • OTP Pension (since 2009) — ₴550 m, 64,000 members;
  • Privatfund (since 2004) — ₴428 m, 51,000 members;
  • Ukreximbank Fund (since 2005) — ₴394.4 m, 6,000 members;
  • Emeryt Ukraine (since 2006) — ₴278 m, 70,000 members.

An alternative can be bank deposits (a possible contra is taxed income) and pension life insurance, Panchenko added.

After planning long-term investing, Roman began investing in MetLife — one of the largest global providers of insurance, annuities, and employee benefit programs, represented in Ukraine with the MetLife PJSC — in his 25.

“I have a 50-year agreement,” Roman explained. “I pay one thousand Hryvnia monthly, plus inflation. So, my recurrent payments will increase with time. The total investment should be around UAH 500,000, which will become ₴1.2 million in 50 years.”

Other international life insurance companies also work in Ukraine: UNIQA, GRAWE, or PZU.

The pension system of Ukraine. The context

The pension system reform started in Ukraine in 2003 with the passing of two bills: “On Compulsory State Pension Insurance” and “On Non-State Pension Provision.” It aimed a shift to a three-level system.

  1. Tier 1 is based on solidarity and subsidizing principles. The current pensioners are paid with companies’ and employees’ Pension Fund contributions. Working people’s contributions should also pay the next generations of pensioners.
  2. Tier 2 represents an accumulation system of compulsory insurance. The contributions are invested on the contributor’s behalf. The amount of contribution shall not exceed 7% of salary. Retirement savings can be inherited.
  3. Tier 3 is voluntary contributions to non-governmental pension funds. The pension fund creates an account on a member’s behalf and accumulates contributions from the individual, their employer, or the member’s family.

Ukraine has a mixed pension system today, where Tier 1 and Tier 3 are functioning. The second level had to pass in 2009, but it is still not working. The draft law “On Compulsory Accumulative Pension Provision,” according to which there should be compulsory accumulative pensions, has not been adopted by the Ukrainian Parliament yet and has remained there since 2021.

In 2023, Prime Minister Denys Shmyhal of Ukraine announced a pension reform that should make solidarity pensions not less than 30% of the average salary of an employee during his life, plus a cumulative component, that Tier 2 component, possible.

The Advisor of the National Securities and Stock Market Commission Director, Oleksandr Panchenko, believes that the launch of Level 2 this year is plausible.

He underlined it should not be about fast paying of contributions. Ideally, it would be a topic for the time after the victory in the ongoing war, stabilization of the economy, and at least two years of building the required infrastructure.

We have been speaking about the launch of the 3-level pension system for 20 years. The longer it takes, the fewer citizens make pension savings, and the lower pensions — solidary and cumulative — they get in the future,

A faster de-shadowing of the labor market can be a benefit of an accumulative pension.

“An accumulative pension is formed from pension contributions and income from their investment. The higher the pension contributions, the higher the pension payable,” explains Oleksandr Panchenko. “Pension contributions are paid from the official salary. If it is low, contributions will be negligible.”

He adds that the accumulation reform will encourage people to get officially employed rather than receive salaries “in envelopes” because their pensions will depend on the amount of official payments.

Even if there were no absent Tier 2 and no demographic crisis, the Ukrainian pension system would still have many problems. Debts for pension recalculation are one of them. State’s debt under court decisions has grown to UAH 66 billion, Darina Marchak said on the Chronicles of Economy podcast.

The debt is related to court cases of ex-military and law enforcement officers. They are subject to special pension legislation that links their pension payments to the current amount of remunerations or salaries of active military and law enforcement officers. The debts also apply to payments to Chornobyl victims.

Other challenges include a possible sharp increase in the number of pensioners. Currently, the Constitutional Court is considering a case on the legality of raising the seniority requirements for retirement for specific categories of citizens. It is a reform adopted in 2017 by the government of then-Prime Minister Volodymyr Groysman. The Verkhovna Rada increased the retirement age: For example, if a person does not have enough work experience at 60, they must work another 3-5 years to qualify for a pension higher than the minimum. De facto, this government decision was equal to a retirement age increase.

If the retirement age requirements amended in 2017 are ruled unconstitutional (and the process is still ongoing), the number of pensioners in Ukraine could increase by tens or hundreds of thousands. Economic Pravda, citing calculations by the Ministry of Social Policy, notes that additional spending on pensions could reach UAH 10.5 billion a year.

Financial literacy of young people

According to the study “Financial Literacy, Financial Inclusion, and Financial Well-Being in Ukraine in 2021,” financial literacy in Ukraine has improved in past years.

Ukrainians aged 25-34 and 30-59 are the most financially literate. The least literate are young people aged 18-19 and over 60.

There is no correlation between gender and awareness: Ukrainian men and women are equally knowledgeable in financial matters (12.3 and 12.2 points, respectively). At the same time, there is a connection between the level of financial literacy and education: The higher the level of education, the higher the financial literacy score. In the AIN.UA survey, almost 95% of young investors reported having a university degree.

Ukrainians are more likely to develop financial literacy by themselves, as the older generation did not teach them how to invest wisely.

According to financial consultant Halyna Trytiak, this is due, in part, to the negative financial experience of the parents of modern youth.

For example, in the 90s, many Ukrainians lost money on the so-called “savings books.” Because of this, parents taught children not to trust financial institutions. Today, under capitalism, the playing field has completely changed, and behavior has not adapted. Still, some people dramatically distrust banks,”

the expert believes.

“All I knew about finances was that “you have to have something behind your soul.” As my grandfather says, you have to save for a rainy day,” Roman, a survey participant, answers the question about financial literacy in the family. Before investing, he worked overtime at several jobs for a long time because he knew he had to use every opportunity to make money.

Another participant, Mykyta, has almost the same situation. “My family had no rules of financial literacy at all, and even saving money was difficult,” he says.

In general, the country’s economic stability also influences the level of financial literacy, Halyna Trytiak emphasizes.

Since independence, we have not had long-term stability in the financial sector for more than five years in a row,” she explains. “Regular devaluation of the Hryvnia, inflation, revolutions, and the full-scale war affect the sense of security and the ability to plan for the long term, for example, for 10-20 years,

Even before the full-scale invasion, according to the study “Financial Literacy, Financial Inclusion, and Financial Well-Being in Ukraine in 2021,” Ukrainians focused more on short-term plans and spending than saving. However, almost 47% of young people surveyed by AIN.UA are ready to invest long-term — for five years or more.

The trend of spreading financial literacy is positive, says financial expert Halyna Trytiak: “Nowadays, young people actively engage in personal financial literacy and teach their children to do the same. There are also financial literacy courses for children and teenagers. Over time, this will ensure positive results.”

Investment tips

Consider your own goals and planning, and only then consider investment prospects. “The correct sequence is to determine your financial goals, whether they are short- or long-term, and what level of risk you are willing to take,” says Tritiak. “If the goal is short-term, up to a year, and you are planning a long-term investment, for example, five years or more, then you should decide whether it is appropriate at this stage.

Analyze investment opportunities: the entry threshold and conditions, the possible investment amount, and taxation conditions for residents or non-residents.

Consider agricultural land as a long-term investment. “Ukraine has great prospects in the agricultural sector. It is both an option that generates passive income and an asset that can grow in value in the future,” Trytiak says. However, she adds that one should take into account the entry threshold: for agricultural land, it is several hundred thousand hryvnias.

Pay attention to public investment based on the REIT (Real Estate Investment Trust) model.

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