Thrill-seeking younger people are turning to online apps to invest in high-risk crypto-assets and foreign exchange even though most are unable to absorb big losses, according to Britain’s Financial Conduct Authority (FCA).
The FCA said findings from its research showed that a new, younger and more diverse group of consumers are getting involved in higher risk investments.
They tend to be female, under 40 and from a BAME background, using social media for tips and news, the FCA said.
Regulators in Europe and the UK have already issued several warnings to consumers about the risks of losing all their money from highly volatile investments like bitcoin, which has surged to record highs.
Online trading has also increased during the pandemic that has forced people to stay at home during several lockdowns.
“The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest,” the FCA said in a statement.
Challenge, competition and novelty are more important than conventional, more functional reasons for investing like wanting to make their money work harder or save for their retirement, the FCA said.
“We are worried that some investors are being tempted – often through online adverts or high-pressure sales tactics – into buying higher-risk products that are very unlikely to be suitable for them,” said Sheldon Mills, the FCA’s executive director for consumer and competition.
The FCA said it was also launching a campaign to “disrupt” investors’ journeys by driving them to the high-return investments webpage, which covers key questions consumers should ask before investing.
Commenting on the findings, Keith Richards, chief membership officer of the Chartered Insurance Institute, said:
“Lured by the easy-to-use apps, the social media furore, and the prospect of making a big ‘win’, it is no wonder that inexperienced young investors are feeling bold and empowered to invest money online. Just recently we saw young investors plunge their money into GameStop following the frenzy surrounding it.”
“For some, this might have been their first time ever investing in stock on their own and whilst there were undoubtedly winners’ others will have suffered big losses. Some apps do allow users to learn by playing a fantasy game before committing to investing, but they are not offering the vital life lessons needed for this section of society to prevent them from potentially suffering catastrophic losses now and going forward.
“It is important that young people understand more about money (including financial risk and investing) from a young age so they move on from school with the knowledge to start adult life. One of the My Personal Finance Skills modules that is delivered in school tackles just this, understanding that all types of decisions and risk can have consequences. Some can have a positive impact, but more worryingly they can also have negative financial impact. It is time that young people receive the financial education that they need and deserve from society to enable them to take informed decisions with their money in the future.”
“As part of our Chartered commitment at the CII, we are working to engage people with their finances throughout their lives, building on the purpose of My Personal Finance Skill, offering guidance on other ways people can plan for their future, which remains a key part of anyone’s investing, protection and saving journey.”