Financial education gaps are the biggest barrier to retail investing in capital markets – Eurasia Review

A new study by the World Economic Forum reveals that 40% of non-investors have chosen not to invest because they don’t know how or find it too confusing. Additionally, around 70% of people would be more likely to invest, or invest more, with expanded financial education.

Produced in collaboration with BNY Mellon and Accenture, The Future of Capital Markets: Democratizing Retail Investing also notes that the increased participation of retail investors in capital markets is a largely positive trend. While some concerns remain about riskier investments, retail investors are cautious about using the markets to build long-term wealth.

“Even in a volatile market environment, participation in financial markets can empower people to take control of their financial future,” said Meagan Andrews, chief investment officer at the World Economic Forum. “We are only beginning to understand the new wave of retail investors and the power they wield in the market. It is important that industry leaders take steps to empower individuals so that they can optimize financial decisions for their best, whether they are currently investing or not.

Based on a global survey of more than 9,000 respondents from 9 countries and interviews with experts, the report highlights the importance of improving personalized advice for retail investors and improving the reliability of information and the protection investors. It also highlights opportunities to improve education, trust and access to increase inclusion in global financial markets.

With the current market volatility, industry players, policy makers and others must act now to ensure that the benefits of investing are increasingly accessible around the world.

“Global financial markets are undergoing a fundamental transformation, with more individual and retail investors seeking access to them than ever before in history,” said Akash Shah, chief growth officer at BNY Mellon. “This research highlights opportunities for the entire financial industry to build the trust and transparency needed to empower and democratize market participation in underserved communities around the world.”

Retail Investor Trends

The survey results provided critical insights into the factors and mindsets that influence individuals’ decisions to enter global financial markets.

Notably, the survey found that individuals are turning primarily to capital markets to build long-term wealth, especially in emerging markets. Half of those surveyed were investing to save for retirement or to build up a generational estate.

Retail investors are younger, with Gen Z and younger millennials investing at higher rates. Young investors are much more likely than their peers to have received a financial education earlier in life.

Meanwhile, non-investors are less confident that they will achieve their long-term financial goals, and compared to investors, a higher proportion did not learn to invest until several years after entering the workforce. Their main reasons for avoiding financial markets were fear of losing money and a lack of investment knowledge.

Generational wealth also plays a vital role in the decision to invest early. Respondents whose parents invested in the market said they started investing earlier in life than those whose parents did not.

The survey also revealed significant gaps in product knowledge. For example, investors surveyed indicated that they had a better understanding of new products like cryptocurrencies and non-fungible tokens (NFTs) compared to more traditional instruments like stocks and bonds.

Expanding the Benefits of Retail Investing

There are many ways that financial markets and global society can work together to build wealth for more people in a responsible way.

1. Financial literacy and improved investor education

Personal finance education – from budgeting to learning how to plan for retirement – ​​is an integral part of building wealth responsibly. Industry players should focus on improving basic financial literacy, promoting responsible investment strategies, and improving proactive retirement planning outside of pension plans.

Providing information is not enough – content should be fit for purpose, striving to make it as understandable as possible. Policymakers and private sector actors need to improve their tactics to meet the desires of today’s investors.

2. Personalized and results-oriented advice for everyone

The solutions currently offered by financial institutions are often compartmentalized and do not always resonate with investors. Those at lower wealth thresholds often have few options for seeking financial advice: 80% of current investors say being able to speak to an advisor is essential to making an investment decision, but only 48% can turn to a financial advisor or a wealth management advisor. manager for advice.

All investors should have access to the tools and guidance they need to successfully participate in financial markets. This should include investors of all income and wealth levels. The industry needs to expand access to personalized advice and services at scale to thrive to meet growing demand from retail investors – this needs to happen across all wealth brackets.

3. Collaboration and public-private partnerships

Increased industry collaboration, including public-private partnerships, will be needed.

Brokerages, wealth managers and exchanges are integral to this effort because of their proximity to retail investors and the speed with which they can effect change. From educational efforts to initiatives to reduce barriers to entry for retail investors, public-private partnerships will be key.

“Increasing market participation and empowering retail investors must include the collaboration of all stakeholders,” said Kathleen O’Reilly, global head, Accenture Strategy. “Financial institutions in particular, from the C-suite to individual wealth managers, must play a vital role in offering relevant education efforts in addition to investment products that will help investors become smarter and more confident.”

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