Right around this time last year, the stock market was crashing as the COVID-19 pandemic started to unfold and economies around the world locked down. After a decade of prosperity and growth, horrified investors saw their portfolios plummet. An August 2020 study found that one-third of pre-retirement adults were rethinking their retirement timing.
On the flip side, the market crash presented an opportunity for younger adults to take advantage of the dip and buy into a growth market at last. After years of financial struggle and debt, and being priced out of the hot real estate market, could this generation finally start bridging a vast wealth gap?
If only it were that easy. For many, the gap has widened even more. According to Stats Canada, income inequality is rising in Canada, as in most other parts of the world, with the national income share of the top 1% increasing from 8.9% to 13.6% between 1980 and 2010. We now face a “K-shaped” recovery, in which higher-income people are prospering, while lower-income people deal with job losses and debt.
At Argyle, one of our specialties is financial communications. We believe that empowering people financially, and improving their socioeconomic status, is a compelling opportunity — and responsibility — for financial communicators and their clients.
Inequality and investor protection: Two issues worth watching
2021 has already highlighted two risks, both involving technology, communication and reputation: first, the need to protect retail investors; and second, the risks of wealth inequality.
First, we’re watching the rise in low-cost, accessible investing options targeted at millennials and Gen Z. These zero-fee apps and robo-advisors have democratized investing and trading for a younger generation, but self-serve apps also create easy access to risky investments. Financial education helps protect young people from decisions that aren’t right for them.
Second, one of the biggest recent investment stories— January’s GameStop saga — was fueled by wealth inequality. A large group of retail investors came together on Reddit to share investing strategies and ended up orchestrating a historic ‘short squeeze’ of GameStop shares. This caused major losses for certain hedge funds and short-sellers. Things came to a boiling point when brokerages such as Robinhood halted trading of GameStop and other securities. What started as a financial opportunity of a lifetime for these Reddit investors quickly turned into a social movement that exposed the inequalities of the investment world.
As a result of these trends, retail investor protection is a hot issue. The U.S. Financial Industry Regulatory Authority Inc. (FINRA) has made it a top priority, and the U.S. Congress is holding hearings this month to investigate the GameStop controversy, looking at potential reforms for retirement savings and stricter oversight of securities dealers in the US. However, closing the wealth gap is a much larger, long-term challenge that will require cooperation from all sides – governments, corporations and people.
Bridging the gap through education
Financial communicators can help in both protecting investors and combatting wealth inequality. While we can’t fix these problems, we can help younger generations understand financial systems and how to plan for a sound financial future. Here are three things financial communicators can do:
- Meet them where they are: Many millennials and Gen Z rely on TikTok for personal finance tips and hit up Clubhouse for entrepreneurship advice. Understanding your audience, where to reach them and how to engage them may seem obvious but can often be overlooked or based on assumptions due to time and resource constraints. Taking a research-based approach, delving into psychographics and segmenting your audience are worthwhile investments to develop impactful communications.
- Earn trust, provide value: Younger investors are more likely to turn to the Internet for advice (e.g., Reddit) at a time when trusted advice is needed more than ever. Two of the six pillars of Argyle’s public relationships model are “caring for customers” and “concern for people.” Communications that address unique challenges, provide advice rather than just pitching a product, and show commitment to people and communities are most effective in building strong relationships with customers.
- Think long-term: Financial institutions that engage youth early in their investment lives have the opportunity to make a real impact on the financial security of future generations. Educating this audience about the importance of saving and investing to build wealth over time can help them unlock opportunities, avoid the pitfalls of debt and ensure they have capital to accomplish their dreams. For the financial institution, the payoff can be a customer for life — and a sustainable reputation for generations to come.