A FINRA Foundation study finds the resistance stems from a lack of investor education among younger, less experienced investors.
New investors are entering traditional financial markets at a significantly slower pace than just four years ago, according to new research from the FINRA Investor Education Foundation, and detailed in a report, “Investors in the United States: Results from the FINRA Foundation’s National Financial Capability Study [NFCS].”
Grygo is the chief content officer for FTF & FTF News.
But young investors are not necessarily running to cryptocurrency and digital asset markets instead of their parents’ venues.
“While the percentage investing in cryptocurrency in 2024 did not change from 2021 (27 percent), fewer investors reported considering cryptocurrency investments (either purchasing more or for the first time), dropping to 26 percent in 2024 from 33 percent in 2021,” according to the study.
The NFCS reports focus on “the attitudes, behaviors, knowledge, and experiences of retail investors in the U.S.,” according to the FINRA Foundation, which is part of FINRA.
“In the 2024 NFCS, 8 percent of investors reported beginning to invest within the last two years — a sharp drop from the 21 percent who began investing in the two years preceding the 2021 NFCS,” according to the report.
The resistance to market participation most likely stems from the lack of investor education among younger, less experienced investors, says Gerri Walsh, president of the FINRA Foundation, in a prepared statement. “They still struggle with gaps in investing knowledge and risk assessment, which can leave them vulnerable to costly missteps,” Walsh says. “Investor education efforts remain critically important.”
Some of the other key findings are:
- Investor characteristics: “While the overall proportion of U.S. adults with investments held outside of retirement accounts did not materially change from 2021, fewer young adults (21 percent vs. 26 percent in 2021), men (40 percent vs. 43 percent in 2021), and persons of color (29 percent vs. 36 percent in 2021) reported owning non-retirement investments in 2024, largely erasing the gains made in the prior wave;”
- Risk attitudes: “The proportion of those willing to take substantial risks in their investment portfolios declined to just 8 percent in 2024 from 12 percent in 2021. Among investors under 35, those willing to take substantial risk dropped to 15 percent from 24 percent. Despite this, over one-third of investors (34 percent) feel they need to take big risks to reach their financial goals, including 62 percent of investors under 35;”
- Risk-taking: “Compared to older investors, those under 35 are more likely to engage in investment behaviors that can carry greater risk, including trading options (43 percent vs. 10 percent of those 55 and older) and making purchases on margin (22 percent vs. 4 percent of those 55 and older);”
- Social media: “Twenty-nine percent of investors report relying on social media as an information source. When asked separately about the social channels they use for investing information, YouTube emerged as the most popular, used by 30 percent of respondents overall and 61 percent of those under 35;”
- Finfluencers. “Over a quarter of investors (26 percent) use recommendations from social media influencers when making investment decisions, including 61 percent of those under 35 and 57 percent of those with less than two years of investing experience;”
- Meme stock popularity: “Thirteen percent of investors report buying meme stocks or other viral investments, including nearly one-third (29 percent) of investors under 35;”
- Investment information sources: “The most commonly used sources of investment information are research and tools provided by brokerage firms (75 percent), recommendations from financial professionals (69 percent), business and finance articles (67 percent), and word of mouth from friends/family/colleagues (65 percent);”
- Investment fraud: “Concern over investment fraud has increased somewhat. Thirty-seven percent of investors are worried about losing money due to investment fraud, up from 31 percent in 2021. Still, the vast majority (89 percent) do not believe they have been targeted in an investment scam;”
- Low investing knowledge: “On average, respondents answered slightly less than half of the investing quiz questions correctly (5.3 out of 11 questions). Questions about margin and short selling had the most incorrect answers, with over half of respondents answering each incorrectly (55 percent and 54 percent, respectively). Notably, 75 percent of those who actually make purchases on margin incorrectly answered the margin question.”
Gerri Walsh
The investor survey component of the NFCS effort encompasses “2,861 respondents in the U.S. with non-retirement investment accounts. The report builds on previous NFCS Investor Survey reports (conducted in 2021, 2018, and 2015), and includes new or expanded topics, such as attitudes towards risk, reliance on finfluencers, and awareness of investment fraud,” officials say.
The full report can be found here: https://shorturl.at/mTj33
FINRA is a not-for-profit self-regulatory organization (SRO) that regulates “member brokerage firms doing business in the United States,” and is overseen by the U.S. Securities and Exchange Commission (SEC), officials note.
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