The rise of low-cost, user-friendly trading apps has made investing easier and more accessible than ever before. Despite this, and a surge in investor numbers during Covid-19 lockdowns, a minority of Europeans invest in shares. Only 15 per cent of Germans and 33 per cent in the UK have a direct investment in the stock market, compared to 55 per cent in the US.
A lack of sufficient financial literacy in most European countries helps explain the low investor numbers, according to the European Fund and Asset Management Association (EFAMA). Without a good grasp of the capital markets, people are unlikely to be able to make informed decisions regarding investments or even know where to start.
In its 2022 Fact Book, the EFAMA points out that a vast majority of European households keep a disproportionately high share of wealth in bank deposits, as opposed to investments. As a result, people are seeing the purchasing power of their deposits decrease as a result of low interest rates and inflation. The EFAMA is calling upon the European Commission to include new initiatives to help people understand the ways capital market instruments can help.
So, what can be done to help improve the knowledge of investors, what opportunities does this present asset managers and fintechs, and whose job is it to improve our financial literacy anyway?
Financial education starts at school
Most people in the EU do not receive any formal financial education in school and so it would be fair to argue this would be a good place to start. Commenting in EFAMA’s latest report on investor education, Mairead McGuinness of the European Commission agrees that most people are left to source their own information online and via social media. Education is the responsibility of national governements and it should be kept in mind that improving financial literacy in schools is inherently a long-term endeavour.
Another consideration here is the pace at which financial products are evolving. Alternative investment assets like cryptocurrency and non-fungible tokens have risen in popularity recently, particularly among younger investors. While building financial education into school curricula will undoubtedly provide young people with the fundamentals, it may be difficult to keep up with emerging trends.
Investment management firms and associations also play a role in education via collaborations with schools and universities. We will take a look at some examples of these later in this article.
The rise of social media
Social media has quickly become a key source of investor information, particularly among younger generations. Around 16% of 18-23 year olds in the UK invested for the first time in the 12 months to May 2021. More than half of these investors directly follow advice from social media, according to research from F & C Investment Trust.
There have been some well-publicised examples of the reach and impact social media has had in the investment space. In 2021, followers of Reddit’s WallStreetBets forum took on the professionals holding short positions in stocks like GameStop, causing major financial consequences. Video sharing platforms like YouTube and TikTok have also become extremely popular means of accessing investment information, with thousands of financial influencers rising to social media fame.
While the power of social media-driven trading is plain to see, it can be far more difficult for would-be investors to distinguish sound financial advice from excessively risky or even fraudulent strategies. This is where social media can fall down, since almost anyone can offer advice regardless of their actual knowledge or financial qualifications. Analysis by FT Money supports this, finding many accounts offering quality financial advice alongside posts inciting short-term speculation.
While some of the most popular social media platforms have only been around a few years, the practice of social education among investors has been around a while. During the end of the 90s there were lots of online communities hosted by financial magazines and business newspapers, facilitating knowledge sharing and investment discussion.
Investment firms and trading apps are now seeking to align themselves with today’s most popular social media formats, engaging with influencers and even baking social media into their investment propositions.
Asset managers & investment apps
Distributors of investment services are in a prime position to offer education and resources to their customers at the point of need. There are some clear benefits to doing so, like attracting new investors and retaining existing customers by providing valuable resources. Investment apps like Invstr have built this into their offering, with their Fantasy Finance learning platform and educational resources geared towards kids and families.
More traditional investment management firms are also offering educational platforms such as Allianz’s Global Investors Academy. Contributors to the website are AllianzGI’s investment professionals and the platform is promoted via social media channels. BlackRock, meanwhile, is supporting financial education with collaborations throughout Europe targeting students at schools and universities.
Other digital trading apps have sought to capitalise on the popularity of social media and knowledge sharing. TikTok-style investing app Zeed combines access to stocks with content from verified creators. Meanwhile, Shares is an investment app designed for friends to invest and build strategies together.
While different investor education initiatives and resources are being utilised by investment firms, it is important that these should be ready to adapt and evolve in terms of approach, design and delivery channel to meet the needs of target audiences, according to Martin Moloney, Secretary General, International Organization of Securities Commissions.
Investment firms and startups can take advantage of modern investment operations software to launch and automate digital wealth propositions. This way, they can focus on delivering exceptional value to customers through initiatives like investor education, and adapt faster and more easily to changing customer needs.
Investment management associations
National investment associations throughout Europe have committed to fostering investor confidence and education in the financial sector. Fondbolagens förening, the Swedish Investment Fund Association has developed a comprehensive financial education website, Fondkollen, with interactive tools geared at secondary school students.
The UK’s Investment Association has operated its Investment20/20 initiative since 2013, providing an inclusive approach to careers outreach, recruitment and the development of young people.
AFG, the French Asset Management Association, has developed a number of financial education tools and conducted a communication campaign via social networks.
Improving access to investor education will play an important part in the democratisation of investing. Progress is being made in several areas, and the significance of digitalisation and channels such as social media is evident. Fintechs and investment managers have a great opportunity to align themselves with quality education and resources for their customers, where the channels, formats and delivery methods will be key in meeting customer demand.