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New study finds financial education gaps are primary barriers to retail investing in capital markets

05 August 2022 World Economic Forum

  • Survey findings reveal 40% of people who choose not to invest make this decision because they do not know how to invest. While roughly 70% of all respondents would be more likely to invest, or invest more, with expanded financial education.
  • The study finds addressing gaps in financial literacy, as well as improving tailored advice and product awareness, can improve market participation and investment behaviour.
  • Among those surveyed globally, those investing are skewing younger, with as many as 70% under 45. Most are also primarily looking to build long-term financial security through their investments.
  • Read the full report

 New research from the World Economic Forum finds that 40% of non-investors have not done so because they do not know how to invest or find it too confusing. Furthermore, roughly 70% of people would be more likely to invest, or invest more, with expanded financial education.

Done in collaboration with BNY Mellon and Accenture, The Future of Capital Markets: Democratization of Retail Investing [link] also finds that increased participation of retail investors in capital markets is a largely positive trend. Though some concerns about riskier investments remain, retail investors are showing themselves to be prudent investors using markets to build long-term wealth.

“Even amid market volatility, participation in capital markets can empower people to take ownership of their financial future,” said Meagan Andrews, Investing Lead at the World Economic Forum. “We’re just now starting to understand the new wave of retail investors and the power they are wielding in the market. It's important industry leaders take steps to empower individuals so they can optimize financial decisions for their betterment, whether they currently invest or not.”  

Based on a global survey of over 9,000 respondents from 9 countries and expert interviews, the report highlights the importance of enhancing personalized advice for retail investors and improving the reliability of information and investor protections. It also underscores opportunities to improve education, trust and access to increase inclusion in global capital markets.

With the current market volatility, industry players, policy-makers and others need to act now to ensure the benefits of investing are increasingly accessible worldwide.

Trends of retail investors

The survey results provided critical insights into the factors and mindsets impacting individuals’ decisions to enter capital markets globally.  

Notably, the survey found that individuals primarily look 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 generational wealth.

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

Meanwhile, non-investors are less confident they will achieve their long-term financial objectives and, when compared to investors, a higher proportion only learned about investing many years after entering the workforce. Their main reasons for avoiding financial markets were fear of losing money and because of an investing knowledge gap.

Generational wealth also plays a vital role in deciding to invest early. Respondents whose parents invested in the market reported that they began investing earlier in life compared to those with parents who did not invest.

The survey also revealed significant gaps in product awareness. For instance, surveyed investors noted they had a greater understanding of newer 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 capital markets and global society can work together to grow wealth for more individuals in a responsible manner.

  1. Financial literacy and improving investor education 

Personal finance education – from setting a budget to learning how to secure one’s retirement – is integral to building wealth responsibly. Industry players should focus on increasing basic financial literacy, promoting responsible investment strategies and improving proactive retirement planning outside of pensions. 

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

  1. Personalized, outcome-oriented advice for all 

Solutions that financial institutions currently offer are often siloed and don’t always resonate with investors. Those at lower wealth thresholds are often left with few options to get financial advice: 80% of current investors state being able to speak with an adviser is essential to making an investment decision but only 48% are able to turn to a financial adviser or wealth manager for advice.

All investors should have access to the tools and guidance they need to be successful participants in capital markets. This should be inclusive of investors of all income and wealth levels. The industry must expand access to personalized advice and scale services to thrive to meet increasing retail investor demand – this must happen across all wealth brackets. 

  1. Collaboration and public-private partnerships 

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

Brokerages, wealth managers and exchanges are integral to this effort due to their proximity to retail investors and the speed at which they can enact change. From educational efforts to initiatives to lower the barriers to entry for retail investors, public-private partnerships will be essential. 

Survey methodology 

BNY Mellon and the World Economic Forum led a global survey of individuals across nine countries to inform this report. The survey was fielded by Qualtrics in May 2022 and sought to identify the driving factors on which investors and non-investors base crucial decisions. The Future of Capital Markets: Democratization of Retail Investing report uses the insights derived from the survey to shape its key considerations and outcomes. 

All respondents had at least $1,000 (or local equivalent) in investable assets and were over 18 years of age.

Quick Polls

QUESTION

Each year ordinary consumers and their financial and wealth advisers flock to dozens of asset manager ‘outlook’ presentations to find out about economic and investment trends, and the next ‘hot’ company. What do you want asset managers to share during these events?

ANSWER

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