By Natalie Olofsson

The past two years have consisted of an influx of new investing techniques, but also a shift in investor demographics: younger and less experienced investors looking for a way into the system. 

Naturally, this intake of less experienced citizens and a boom in investing apps has created a new investing culture: one steeped in misinformation, contradictions, and difficulties for young people interested in the topic. While it is not all negative – there is a wealth of reliable information to be found as well – it brings up the question of just how safe investing is for young citizens. With the rise of gambling and bet-style investing apps, coupled with an increase in social media style news sources, just how risk prone has investing become? 

The utilization of investing apps has been beneficial in making investing more accessible. In just the first three months of 2020 there were 3 million new accounts created with the investing app Robinhood, which allows users to invest large and small sums into diversified portfolios. The demographics of investing have also shifted; traditionally those who invested were older and wealthier. But 50% of Robinhood’s accounts in this period were from first time investors. This is primarily due to lower barriers of entry: while traditional investing involves fees, setting up a specific account, and often large sums of money, an investment portfolio can now be created in a similar process as downloading a game on a cell phone. 

As a generation, Gen Z (people born from approximately 1996 to 2005) is considered a group of digital natives. They are more comfortable and open to online based applications and technologies. So it is natural that they flock to investing apps, many of whom cite the Covid-19 market crash as inspiration, in record numbers. Additionally, their choices are different from that of older investors: they are more likely to invest in risk prone and technology stocks, rather than long term investments. 

Cryptocurrency is an example of a young adult dominated category of investing. Similar to investing apps, it is technology oriented and thus more openly accepted by younger generations. Contract for difference (CFD) trading is also more popular, where investors bet on short-term share moves. Though there is a chance of high earnings, between sixty to eighty percent of accounts lose money, and unlike in standard betting there is the possibility of losing much more than just your investment. This makes CFD trading an undoubtedly poor decision for ameateur investors from a monetary perspective of building wealth, yet it is ironically popular.

The psychology of investing is increasingly relevant with the concept of investing apps, which draw parallels to online betting and entertainment. With the utilization of more complex technology, apps such as Robinhood operate a game style format that is easy and addictive. With young adults and teenagers being the most prone to addiction, some researchers see it to be a dangerous game allowing them to ‘play’ with their own money. Two thirds of millennials say they cannot afford to lose any money at all – yet continue to choose high risk high reward investment. This suggests that the risks young adults take when investing could be a more complex issue than just that of obtaining wealth.

It is impossible to discuss young people and online investing without the influx of ‘investing social media’. The most infamous is that of the Reddit group “r/WallStreetBets” and the Gamestop debacle, in which a community of millions staged a short circuiting of the stock, changing the run course of millions of dollars. The Reddit group has over 11 million members, and includes a disproportionate amount of information on tech stocks such as Tesla and cryptocurrency. The group is claimed to be the primary cause of Gamestop’s increase from $40 to $492 within the span of a week. This quick change in fortunes is undoubtedly related to the idea of gambling and misinformation – as more and more amateurs get interested in an anonymous platform for investing, the higher the risk of getting sidetracked by the sheer amount of falsifications. There’s a much larger variety of investing social media compared to traditional investing information. In the past this information was delivered through reputable magazines and official websites, now misinformation is rampant amongst the newly emerging investing social media. 

On the popular app TikTok, whose primary demographic is 16-21 years old, the hashtag #investing has over 3.6 billion views⁹. According to the Guardian, TikTok’s ‘FinTok’ has seen a rapid increase in online ‘experts’ in investing and finance. The content varies from cryptocurrency, risk laden advice, to accessible knowledge on savings. A pitfall of the app’s short video format is a difficulty to understand a creator’s proper credentials. Having a limit of sixty seconds also allows for plenty of misinformation: it is easy to misinterpret vague and short statements. These can have large consequences when applied to a young adult’s savings and investments. It is easy to assume people are unlikely to take financial advice from social media, yet the sheer popularity of finance media speaks for itself. Viewers are interested, and the engaging format makes the content influential and potentially risky. The central benefit of this new platform of investing is accessibility – more people can now learn about finance – but due to its lack of regulation there is also huge potential for misinterpretation.

With the influx of technology and new investors, it is natural for adjustments to be needed. The addictive format of investing apps may be improved with more information on the downsides. But as it is newer and younger investors are more prone to fall for misinformation and high-risk investments, rather than more reliable strategies and portfolio growth rates. 

The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.

Image: Tech Daily (Unsplash)