Financial liberation requires financial education

The emergence of retail investment apps and social investing communities should have democratized access to wealth accumulation. But without financial education, they may simply have maintained the gap between the privileged and the excluded. Using Metia Money Mindstates data, our insight team took a closer look at this question.

Where do you get your financial advice? Is it from JPMorgan or Reddit?

Retail investors are pouring a record $1.5 billion per day into the stock market (Vanda Research, February 2023), and now account for over 25% of all trades. The rise of retail investment apps has changed consumer behaviors and influenced conversations about investing, financial autonomy, and financial independence. But are cheap, easy to use investing apps and meme stock communities really democratizing wealth accumulation? To better understand, Metia Insight took a closer look at the data.

Retail investment is here to stay

There has been an uptick in recent years in the use of investing apps that enable consumers to invest in stocks and cryptocurrency. Notable examples include Robinhood, Acorns, Freetrade, eToro, Nutmeg and more. Some are very deliberately pure trading apps providing access to sophisticated instruments, spread betting and crypto, while others are tuned for longer term investment strategies and wealth accumulation, often simplified via a robo advisory approach.

These retail investing apps claim much the same mission: they aim to democratize investment and wealth accumulation for consumers. This includes both lowering the barrier to entry to certain investments, as well as educating consumers on how and why to invest.

To better understand the growth of retail investing apps, the Metia Insights team explored the following questions:

• What conversations are consumers having around retail investing apps?
• How have these conversations shifted over time? And what has caused these shifts?
• What implications do these trends have for marketers and brands in the fintech space?

Social Listening: Consumer Conversations about Achieving Financial Freedom

To answer these questions, the Metia Insight team embarked on a social listening exercise, gathering over 400,000 digital conversations from consumers across the globe about financial freedom* dating back to the start of 2019. Then, using advanced text analytics, we were able to model the topics that clearly mattered most for consumers.

Over 60 distinct topics were identified and defined. Through data science we uncovered the top topics where consumers were most likely to be found discussing retail investing apps:

• Investing Life Savings into Crypto; 4.4% of total consumer finance conversations
• Prioritizing Investing over Saving to Grow Returns; 2.7% of total consumer finance conversations
• Seeking Advice from Peers for Investing in Stocks and Crypto; 0.5% of total consumer finance conversations

However, despite retail investing apps’ claims that they help consumers gain a better understanding of investing, and share educational content, mentions of these brands were notably under-represented in the following topics:

• Sharing Personal Finance Resources and Services; 1.7% of total consumer finance conversations
• Risk Management for Stock and Bond Investments while on Fixed Income; 1.5% of total consumer finance conversations
• Buying Options and Making Lower Risk Investments; 0.6% of total consumer finance conversations

If consumers were not using the resources provided by retail investing apps to guide their investment strategies and decision-making, where did they turn?

‘Meme Stock’ Communities

In conjunction with the rise of retail investing apps came the rise of digital communities like r/WallStreetBets Reddit, where community participants looked to harness the newfound strength in numbers of financially liberated users to inflate the value of certain ‘meme stocks’ like AMC, Palantir, and GameStop, for financial gains.

The term ‘meme stock’ refers to the shares of a company that has gained viral popularity due to heightened social sentiment. This social sentiment is usually due to activity online, particularly on social media platforms. Though investors often saw growth in the short-term as the crowd clustered around a hot ‘meme stock’, there was no informed financial education guiding these decisions.

Then, in 2021 when Robinhood and other retail investing apps intervened to limit trading of ‘meme stocks,’ this sparked the greatest rise in negative sentiment identified in our social dataset. Many consumers responded with outrage, many felt their financial autonomy was being curtailed.

Memes Are Fleeting, Financial Education is Forever

In the wake of this dampening down of ‘meme stock’ euphoria, many retail investors took a step back to reevaluate. Realizing that financial autonomy was not synonymous with the financial understanding to make good investments for the long-term, some began seeking more measured guidance on investment strategies. Examining post 2021 data, we saw a marked increase in consumer mentions of established investment brands like Fidelity, Morgan Stanley, and Vanguard being included in topics on personal finance and mitigating investment risk, indicating a return of authority to the established players in the investment market.

Coming up-to-date, in the recent period there is a continued appetite among consumers for financial liberation and gain, but financial liberation is expected to come hand in hand with financial education.

What does this mean for the future of retail investing?

If the goal of retail investing is democratizing access to wealth accumulation, it is crucial to deliver greater accessibility through simplification and UX innovation, but also alongside credible resources that expand consumers’ notion of what is possible, what is realistic and what is ethical.  

Importantly, investment tools and platforms should facilitate an ongoing learning journey that allows each investor to benefit based on their individual goals and risk profiles.

Without education, retail investment apps are not democratizing wealth management, they are continuing to reinforce a two-tier investment system – those with knowledge and expertise benefit, while the rest remain disadvantaged.

Financial liberation for all requires financial education for all.

Would you like to find out more about financial attitudes, behaviors and trends?

Metia’s Money Mindstates data store contains real time, living data sets that our insight team interrogate daily using cutting edge linguistic modelling techniques. If you would like to learn more about how we use digital data and data science to create scientifically resonant, compelling marketing, content, and brand stories for banks, credit unions and fintech, contact liz.high@metia.com