Back to Blog
This article was originally posted on AltFi.
These days, it can be easier to open a brokerage account through retail investors like Robinhood than it is to open a savings account through traditional banks. Applying for a brokerage account is simple and can be done within ten minutes. By almost anyone.
But just because these brokerage accounts can be easily opened, doesn’t mean they should be, as we know that increased access does not equal increased literacy. In fact, a quarter of millennials (aged 18 to 34 years old) have accrued over $30,000 in debt. This includes the 11 percent of millennials who hold above $100,000 in debt.
I believe this is largely due to a gaping void of mandatory financial education. While the stock market has become more accessible to the general public, Gamestop is just the latest example of the risks that this can present.
Even before the Gamestop episode, Robinhood came under scrutiny for their acquisition and in-app marketing tactics culminating with the death of Alex Kearns following a $730,000 negative balance, a figure that was high partly due to trades that were not yet completed.
While Robinhood’s democratisation spiel of redirecting “financial power into the hands of everybody” lures first-time investors, the reality is that compared to other brokerages, Robinhood users are trading some of the most high-risk products, at the quickest pace, as revealed by an analysis published in The New York Times.
This is what makes Reddit’s investor army a risky game for those who do not fully understand what they are doing. It raises bigger questions, such as this: just because someone can download an app, does that mean that they should? Do Reddit's investor army actually know the risks they are encouraging others to take when advising them to redirect money that many cannot afford to lose?
If the Gamestop episode has shown us anything, it is the dangers of ‘casino capitalism’ (which many users do not realise they are signing up to) and its potential to negatively impact individuals’ financial health.
Of course, this isn’t to say that the stock market is an inherently dangerous place, because it isn’t, much like a swimming pool is not dangerous as long as someone knows how to swim. When it comes to proactively benefit from the potential upside of retail investors, as opposed to becoming a passive victim, financial education is the great differentiator.
But this education is not happening through the school system: a mere five states require high school students to pass a (minimum) six-month Personal Finance course before they can graduate. Perhaps that explains how a survey of 15-year-olds in the United States discovered that 18 per cent had never learned the fundamental financial skills necessary for day-to-day situations. Without these skills, people will not know how to save, invest and spend money wisely so they can make better decisions for themselves.
While Reddit's investor army has made the Gamestop story visible, the more important but invisible story is that there is a new baseline needed for mandatory financial education.
This would teach people to understand the basics of banking and money, with the potential to advance them into investing.
Parents, despite their best intentions, are ill-prepared to help. In one survey, only 16 per cent of parents said that they were given financial education via their employers, while 34 per cent of parents expected that their children would learn financial education through a job.
Teenagers are a particularly important demographic - polling by Ipsos and Sallie Mae revealed credit card balances among students 18 to 24 were on average over $1,000. This ramps up the possibility for limited finances as they are just starting out their careers.
While parents and teenagers are united in their shared goal of the teenager’s financial independence, this needs to happen in a safe environment where the teenager can get access alongside proper guidance.
It’s important to bundle education with access because what we have seen is that pulling education and access apart has historically not worked. The legacy financial banks are not prioritising better early financial outcomes as the entirety of the system is arguably set up to profit from the lack of literacy, whether it is ill-informed trading or falling victim to predatory credit at a young age.
I believe that unifying learning directly into a teen’s first primary bank account and debit card provides the best financial outcome. It means that from a young age, there is a baseline of financial knowledge in both theory and practice. Bit by bit, the teenager gets taught about more advanced topics, such as investing. This means that when it comes to releasing them out into the broader ocean of financial possibilities, they will at least know how to swim.
After engaging with 1,200,000+ Banking app users, Copper automates and simplifies real-world investing for teens from the ground up.
As we close in on 1M users, we are excited to announce that we have raised $29 million in Series A funding!
We are excited to announce that we have closed $13.3 million in seed funding!