Why are young investors so obsessed with passive income right now?

There are a number of reasons to like dividends.

Smiling woman upside down on a swing with yellow glasses, symbolising passive income.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Passive income is becoming increasingly popular with young investors (and other investors). Dividends are a great way to receive some of the investment returns and in this article, I'll talk about some of my favourite things about passive income.

MIT AgeLab and Transamerica research showed that younger adults are more interested in information about passive income (29.4%) compared to saving for retirement (23.7%).

That's an interesting result and shows things have certainly changed from a couple of years ago.

More options available

There are a variety of different options for people to utilise to generate good passive income these days such as savings accounts, term deposits, bonds, property, ASX shares and so on.

Interest rates have jumped higher and now we're able to get a better level of passive income in most places.

I love that I'm now able to get a solid amount of interest from my savings accounts.

Why is passive income so attractive?

The idea of passive income is that we don't need to do any ongoing work to generate that money.

Once the money is in the savings account, the bank just pays the interest each month.

We don't need to work in the businesses we're invested in for it to make a profit or pay dividends to us.

I can only write so many articles in a week, but the passive income from ASX dividend shares could (in theory) be significantly more than what I earn from my work. Obviously, I need to do the hard work of earning money to invest and then choose the investment. But I don't need to lift a finger for those ongoing dividend payments to hit my bank account each year.  

Not all the income eggs are in one basket

A lot of the Australian adult population works to make a living. A household may be entirely reliant on their job to pay the bills, afford holidays, get a pet and so on.

How awesome would it be for a household's income to be supplemented by passive investment income?

What if passive income could pay for a tenth of a household's expenditure? A quarter? Half? All of it?

If a household didn't have to rely on their job, they could invest some time in education/skills to improve their earning potential. Someone could choose a job they'd prefer to do, even if it didn't pay as much. Financial independence could mean someone didn't have to work at all, if their finances (conservatively) allowed that.

Diversifying our income seems like a smart thing to do so that we're not so reliant on that particular work, especially if the earnings are relatively short-term (such as for sports stars), cyclical or not reliable in some way.

I continue to invest regularly in ASX dividend shares from the S&P/ASX 200 Index (ASX: XJO) which I believe can pay me growing passive investment income for the foreseeable future.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Man sits smiling at a computer showing graphs
Broker Notes

Morgans names more of the best ASX 200 shares to buy in December

These ASX 200 shares have been given the thumbs up by analysts at Morgans in December.

Read more »

A woman looks unsure as she ladles mixture into a pan surrounded by small appliances

My 2024 warning: Don't get (completely) lost in the passive income sauce

It's easy to become fixated on BIG yields to ease the cost of living pressures next year. Here's my word…

Read more »

a diverse groups of about twenty people stand together in a crowd staring to the front with angry and annoyed looks on their faces.
Share Market News

10 popular ASX stocks that faced shareholder revolts this AGM season

Investors vented their fury and frustration over high CEO salaries amid some mostly uninspiring share price performances this year.

Read more »

Smiling office workers fling a stack of papers into the air.
Share Market News

Here's how the ASX 200 market sectors stacked up this week

The ASX 200 gained 0.5% and the real estate sector led the way this week.

Read more »

A woman leaps into the air with loads of energy, in a lush green field.
Share Market News

Here are the top 10 ASX 200 shares today

Do you own any of today's top ASX 200 shares?

Read more »

Three Archer Materials scientists wearing white coats and blue gloves dance together in their lab after making a discovery
Healthcare Shares

Here's why I can't wait to buy Chemist Warehouse shares

Chemist Warehouse would ticks all of my boxes for a great investment.

Read more »

Four young friends on a road trip smile and laugh as they sit on roof of their car.
Share Market News

Why these 4 leading ASX 200 shares grabbed the Motley Fool's headlines this week

New all-time highs and a potential mega-merger saw these four ASX 200 shares leap into the Motley Fool’s headlines this…

Read more »

A young man goes over his finances and investment portfolio at home.
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »