On a global scale, young people are investing more than ever before. Whether due to technological advancements, reduced barriers to entry, or the democratization of markets, studies indicate that 70% of retail investors are under 45 years old. At the same time, young people worldwide reportedly have poor financial literacy rates, hovering below 50%.
Young people might understand the technology they use to invest better than anyone else. Still, they either lack access to financial information or may lack the necessary education to understand the associated risks fully.
A Changing Financial Landscape
In the past 40 years, the financial landscape has developed to promote more complex and diverse options for saving and investing. Notably, this period has shifted away from traditional pension plans, with employers preferring retirement savings plans like the 401(k).
Where pensions are typically funded by the employer with possible contributions from the employee, a 401(k) is funded by deductions from employee paychecks. While 401(k)s provide valuable long-term benefits, they also place greater responsibility on individuals to effectively plan and manage their retirement savings.
Additionally, the release of new financial products, which require more decision-making, has pressured individuals to plan for the future. Coupled with rising living costs and limited access to financial education, younger individuals are left looking for more potential earning options.
Many Investment Opportunities Require Financial Literacy
Investment opportunities like trading CFDs (Contracts for Difference) are among many examples that require extensive financial literacy to understand the risks and potential outcomes involved. CFDs are complex financial instruments that carry a high level of risk and may not be suitable for all investors. Young people should take time to fully understand the risks associated with such investments and seek educational materials before making decisions.
Practical financial literacy can help young investors make more informed decisions. This may involve understanding investment returns, managing debt, reducing borrowing costs, planning retirement, and improving overall financial well-being. However, it’s important to remember that all investments carry some level of risk, and results are never guaranteed.
Making Financial Education Accessible
Financial information can often be challenging to understand due to complex jargon or a lack of foundational education. Many school curriculums don’t focus on financial literacy, making it difficult for individuals to find a clear starting point when trying to educate themselves. Introducing financial education early can help foster good habits over time.
Beyond schooling, there are plenty of other ways to develop financial literacy. Employers might start offering courses and workshops to employees—after all, a financially literate employee may likely manage their resources effectively.
Apps and tools that gamify financial education may make learning engaging and accessible if the information provided is unbiased and accurate. Banks and brokerages could also play a role by integrating tools like pop-up infographics or offering concise educational modules to enhance financial literacy.
The Need for Financial Literacy
Young retail investors may benefit from improving their financial literacy in the coming years, whether through self-education or public and private sector efforts. Understanding economic matters better can help them manage risks and work toward their financial goals.
Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial advice. The views expressed are based on current trends and may not apply to all individuals or investment situations. Investing involves risk, including the potential loss of principal. Before making any financial decisions, readers are encouraged to seek advice from qualified financial professionals and conduct thorough research. The author and publisher are not responsible for any financial losses or other consequences that may arise from the use of the information provided.
Published by Iris S.
