Sharon Benson was highly commended, in the 18-19 age group in this year’s Young Financial Journalist competition. Her article explores how to encourage more consumers to invest in the stock market.
According to Forbes, the stock market is a constellation of marketplaces where securities like stocks and bonds are bought and sold. It helps companies raise money to fund operations by selling shares of stock, and it creates and sustains wealth for individual investors. Technology plays a huge role in investing now more than ever, this is either through financial news, prediction software like Bloomberg Terminal, stockbroker apps/websites, artificial intelligence, etc.
With this, individuals for example, could become situationally aware. This is due to the fact that investors are being targeted via social media advertisements that push high risk products disguised as higher returns, and newer investors are more inclined to rely on these social networking sites to identify new investment opportunities. The charts by Britain Thinks indicates that 47% of individuals who don’t currently invest in high risk, high return products and 51% of those who currently invest in high risk, high return products have a fair amount of confidence in their knowledge about investing. These statistics are similar to that relating to their confidence in picking investments. This means that even those who are currently investors are not receiving the information that aligns with their investments and as a consequence, the FCA found that there is a lack of awareness of the risks associated with investing, with 45% of non-advised investors failing to recognise that ‘losing some money’ was a risk of investing.
What technology do consumers use for investment?
In regard to how technology can be used to improve these statistics, the FCA also found that only 8% of UK adults received financial advice and only 1.3% of adults made use of online robo-advice in 2020/2021. This is a result of the UK ban on payment of commission for retail investment products, restricting access to advice for consumers. As a solution, the idea of robo advisors was introduced in 2019. With Robo Advisors, you can seek financial planning and stock market advisory with little to no human interaction, this could be used to provide widespread and affordable solutions.
However, it was met with great resistance as 57% of a nationally representative sample of 1,800 individuals rejected the offered robo advice due to multi-faceted factors including resistance from the aging population, women being more accepting than men, trust, and financial literacy. This means that for AI technology to be accepted and embraced, the listed factors must be considered. Although, it is important to mention that this study was completed in 2019, before Covid-9 and lockdown as during this time individuals had to adapt to using their devices to stay connected with the rest of the world. Therefore, attitudes towards robo advice may have changed and individuals are now willing to accept this approach toward financial education and advice, leading to a possible encouragement to invest in the stock market with substantial knowledge.
Other financial software includes apps like the Trading Game and the Blomberg Trading online game, which simulate the stock market and allow users to engage with fake money to invest in various stocks, learn how to stop, hold, and close positions, and learn about trade terminology with chapter quizzes.
Gender gaps in the stock market
For this essay, I asked a number of female acquaintances why they are hesitant about investing in the stock market, and the prevalent reaction was that the industry is male dominated. Looking at it from a demographic standpoint reveals an issue that is sometimes neglected in finance and investment as studies show that there has been a considerable gender investment gap for decades, since males have traditionally been far more inclined to invest than women. The Motley Fool also states that the gender wage gap limits how much women can save and invest, especially in the current financial climate when combined household incomes are still insufficient to meet costs. With this in mind, how are women to feel encouraged to invest?
Furthermore, research by Wells Fargo in 2022, shows that single female and female-led joint accounts had the highest risk-adjusted returns in comparison to returns for single male and male-led joint accounts. This statistic illustrates how women have a more successful approach to investing with characteristics like being conservative and less impulsive. However, without the confidence in their abilities and results, women do not feel encouraged to take these steps and make these decisions. Therefore, in order to encourage general consumers to invest in the stock market, I believe the issue should be approached by addressing why each demographic may not want to invest.
Other methods include regulation of the consumer investment market by the FCA (i.e., Consumer Duty) to improve consumer confidence, educate consumers about fraud and pyramid schemes on social media and discouraging young people from taking financial news from platforms like Reddit which falls under the Blogs and social media section of Unit 4 topic 4 in the DipFS curriculum.
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