In recent years, young people have become increasingly interested in investing worldwide. However, whether they have access to the right tools and educational resources to navigate this landscape effectively remains uncertain. Currently, 70% of retail investors are under 45, likely due to the growing number of technological advancements across various industries, reduced obstacles to entry, and market democratization.
Despite the newfound intrigue the youth possesses for investing, global financial literacy rates continue to hover below 50%. This highlights a critical gap: while the appetite for investing increases, the necessary financial education to support informed decision-making often lags behind.
The Challenge: A World of Financial Complexities
Over the past four decades, the financial world has experienced a significant shift in its operations, priorities, and procedures. Traditional pension plans have since become a rarity, with many employers closing or freezing their pensions in favor of something more novel. Now, companies commonly offer retirement savings plans like 401(k).
Additionally, there’s been a significant increase in financial products that require more decision-making. Many younger individuals are under pressure to navigate increasingly complex financial systems, factoring in rising living costs and limited access to reliable guidance.
Furthermore, the financial industry includes investment products that carry significant risks, such as trading CFDs (contract for difference). CFDs are complex instruments that are not suitable for all investors, as they carry a high level of risk and may result in significant losses. As low financial literacy rates persist, it can be challenging for individuals to make informed decisions. Anyone considering CFDs should ensure they fully understand the risks involved and seek educational materials before trading.
The Purpose of Financial Literacy
Financial literacy is an important skill to fine-tune for many reasons. If young investors take an interest in being financially literate, they could reach their investment goals with an increased level of efficiency and a reduced amount of effort. While it does not guarantee success, improving financial knowledge equips individuals to:
- better debt management
- greater returns on investments (ROIs)
- reduced borrowing expenses
Developing financial literacy also enhances retirement planning and empowers individuals to make choices aligned with their goals and priorities. Education can provide the foundation for better decision-making, helping individuals approach investing with greater awareness and responsibility.
The Fence Around Financial Education Opportunities
While financial education materials are invaluable, they are also inaccessible to those who need them most. These resources are often filled with complicated content that’s difficult for inexperienced individuals to read and understand. There’s also an increasing lack of financial education in school curriculums, making it hard for students to make well-informed decisions after graduation.
Currently, only 33% of adults internationally are financially literate. While many investing platforms have worked to increase accessibility, the literacy rates remain below 50%, showcasing the critical need for academic efforts online, in school systems, and even in workplaces.
Ways to Build Financial Literacy Across Communities
While there’s no easy way to build financial literacy within these existing systems, there are steps to consider taking.
Collaborative Efforts
Collaborative solutions can help boost the financial well-being of inexperienced individuals. Community organizations, financial institutions, and policymakers alike could create a multi-stakeholder approach to providing increasingly accessible, appealing, and unbiased resources.
Educational Efforts in Academic Spaces
Implementing financial-based criteria in early academic spaces like high school, junior high, or even elementary educational environments could benefit younger audiences. This effort would allow the youth to develop healthy financial habits in the long term.
Embedded Learning in Financial Materials
Banks and brokerages could integrate financial education into their platforms with interactive modules or engaging pop-ups to attract younger audiences.
Gamification & Technology
Applications and tools that gamify financial education could pique the interest of young investors who prefer more digestible and accessible methods of becoming financially literate. Popular media formats like YouTube or podcast platforms could be a gateway for many inexperienced individuals to start investing.
Workplace Programs
For workplaces with financially illiterate workers, employers could offer courses and workshops that teach the key takeaways of finance.
Empower a Generation with Financial Literacy
Low financial literacy among younger investors remains a pressing challenge, but addressing this gap can promote more responsible and informed participation in financial markets. Both public and private sectors must prioritize accessible, practical education across schools, workplaces, and online platforms.
Financial literacy does not eliminate risk, but it empowers individuals to make better-informed decisions as they work toward their financial goals. Whether investing for retirement, savings, or other milestones, education plays a critical role in navigating the complexities of today’s financial world.
