American investors are a confused bunch when it comes to their Financial literacy.

That’s one of the conclusions of a new Survey conducted by the Travis Credit Union, Pleasant Hill, California, of 2,052 Americans. The survey’s goal was to find out more about the retail trading boom, their favorite financial apps, how they are funding their trading accounts.  The survey also tried to determine their overall knowledge about investment strategies.

The survey adds more evidence that the Financial Literacy level of the Americans in this survey group, at least, is a little confused, subject to advertising and media hype, and has a short-term trading focus as opposed to a long-term one aimed at funding retirement.

The survey results also have bad news for professional investment advisors: This survey group largely ignores this group of non-media, more professional financial advisors.  Instead, they rely on media personalities, such as Dave Ramsey, Suze Orman, and Jim Cramer, named by 37% of respondents. Traditional investment advisors should also note that this survey group received their investment advice equally from social media, traditional media, and friends and family.

The survey also found that 25% of day traders had little or no education about investment strategies.

Among the other survey results are:

• 57% of respondents said they feel the retail trading boom is great, only 10% find it problematic, and 33% have no strong opinion either way.
• 80% of users say they feel empowered by no-fee trading apps.
• 57% of people using trading apps say they’ve started within the past year.
• Favorite trading apps (in this order) were: Robinhood, E*TRADE, WeBull, Fidelity, TD Ameritrade, Charles Schwab, and SoFi.
• Many respondents are not making significant investments via these apps. One in four have invested less than $500, and another 44% have invested less than $5,000.

Since the recent fintech trading boom coincided with the historic COVID pandemic, it is not surprising that most people surveyed funded their accounts with “extra spending money,” and over 50% invested “some or all of their savings in the market” using fintech apps.

As an indication of the survey group’s demographics and financial situation, most investments made via apps were small:  25% invested less than $500, and another 44% invested less than $5,000. 

Some of this activity was funded by federal COVID-related stimulus checks. When asked how these checks were used, 34% said they paid bills, 31% put the money in savings, 19% invested the money in the stock market, and about 1% gave money to charity.

Financial security and insecurity are also key issues among those surveyed, especially noting the impact of social media. When asked about their financial health and wellness, the survey found that “people are sensitive to perceptions of others’ wealth and how they measure up.”

The survey then asked people how social media impacts their self-perceptions about their wealth. The American tradition of “keeping up with the Jones” is still alive.  Social media made respondents ‘feel insecure about how much money they have,” so 54% of millennials and 64% of Gen Z said they felt insecure about money because of social media, the survey found.

Americans Have Poor Financial Literacy for a Reason

Americans of all ages have a very low level of financial literacy. This means they were susceptible to hype about SPACs, IPOs, and individual stock performance and unaware of the impact of leverage in options and buying on margin.

While the U.S. is the world’s largest economy, the Standard & Poor’s Global Financial Literacy Survey ranked the U.S. 14th (tied with Switzerland) when measuring the proportion of adults who are financially literate. “To put that into perspective: the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller,” according to an article in Investment News.

A 2016 Financial Industry Regulatory Authority Investor Education Foundation study found that one of the lowest areas of financial knowledge had to do with risk management. An invezz.com survey also found that Americans who want to invest in stocks are being held back by their own financial illiteracy. The study found that about 72% of Americans who want to invest say they lack the financial knowledge to make an intelligent investment.

Worse, some unethical financial websites continue to promote SPACs and IPOs that have poor long-term returns for most average investors.

All this was happening against a backdrop that showed these new investors, many of them Millennials, were not conducting any risk analysis. Worse, when they saw profits, they were confusing temporarily good returns for long-term wealth creation.  The two are not the same.

…the U.S. adult financial literacy level, at 57%, is only slightly higher than that of Botswana, whose economy is 1,127% smaller.

Under the existing financial literacy teaching curriculum, when it is available, average investors are taught that their wealth creation abilities depend on their ability to understand the stock and bond markets and manage portfolios and expenses. But as any investment professional knows, this is only a tiny part of any wealth creation process.

The key to wealth creation is wage growth (based on gains in productivity and human capital) accompanied by expense management and homeownership. Conversely, the most significant detriment to wealth creation has been neoliberal policies, including wage stagnation, accompanied to a lesser degree by globalization, technology, and a global rise of a more competitive and cheaper workforce.

Is Financial Illiteracy Intentional?

Since political economy deals with wealth, power, labor, and capital, it is a highly charged topic. Wealth, power, labor, and capital are not terms you’ll hear on CNBC, MSNBC, and FOX. Today, the political economy centers on the highly unequal distribution of wealth and power, topics that are not conducive to discussions in the corporate cafeteria or cubicle land.

This intentional avoidance happens because the vortex of the anti-retiree and anti-individual investor political philosophy is directly tied to neoliberalism.

The reason why investors don’t have enough money in their retirement accounts after decades of work is primarily not due to poor budgeting or frivolous spending (although that is encouraged in a consumer society.) It’s because people don’t have enough money coming in after working years on the job.

As cited in the paper, “The Neoliberal Political Economy and Erosion of Retirement Security,” by Larry Polivka and Luo Baozhen (The Gerontologist. April 1, 2015; 55(2):190)

“Neoliberalism is fundamentally designed to reduce costs to the corporate sector, including a reduction in labor costs (wages, pensions, and health care benefits) and to enhance profits. Neoliberal priorities also include low tax rates on income and wealth, which limits fiscal options for ensuring the solvency of the Social Security and Medicare programs, even as their importance grows. In short, understanding the challenges confronting our retirement security programs requires an analysis of the shift in the U.S. political economy towards neoliberalism and its differential impact on workers, retirees, investors, and corporate management.”

If this sounds familiar, it should. While primary financial education is essential, it is deficient if it is not paired with explaining today’s political realities. Without this political education, those who teach financial literacy only address why their students or clients will not have upward economic mobility.

Today, those teaching financial literacy only address a small and politically safe part of the problem, but not its cause. Just as no conscientious doctor would only treat a patient’s symptoms, those who teach financial literacy must treat the cause (neoliberalism), not the symptoms.

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