For many years, banking was seen as a relatively conservative and secure sector, not only in the sense of the employees working within it and their practices and ethics, but also from the perspective of borrowers and savers. The bank was seen as a foundational pillar of society. Though the prospect of bank-runs (people rushing to withdraw their money if their confidence in a bank plunges) have always been around, overall faith in institutions prevailed, else people would have stopped using them all together.
These days, though, the same faith is weakening. This is a problem because faith is the foundation upon which financial exchange sits. Look at a note, a 10 pound sterling for example, inscribed upon the paper is ‘I promise to pay the bearer on demand…’ followed by the sum.
These are literally promissory notes, an agreement that is based on trust. Nowadays that trust is extending less and less to banks, especially for the millennial generation (or people between 18-35).
A report from January this year which used Facebook data from Facebook IQ, the company’s consumer and advertising insights team, found that Millennial Generation (in this case age of millennials, 21-34) feel ‘disconnected from the financial services industry’, a sector which they say requires a ‘transformative overhaul’. This is a similar sentiment to that which we hold here at invstr. Our aim is to do away with endless jargon and complexities associated with the industry and to democratise finance, especially for younger people. As our CEO Kerim Derhalli said this year of his experience in working in the industry, “I could see that the financial services industry had really lost its way and it was no longer serving the purpose it was meant to serve. It had become way too self-serving.”
Most interestingly from an invstr perspective was this quote: “half (53%) of the Millennial Generation say they have no one to turn to for financial guidance… just 8% trust financial institutions.” If these figures are anything to go by, then banking is in a sorry state of affairs.
However, distrust is not surprising, particularly given how people have seen those ‘too big to fail’ institutions being rescued repeatedly by governments despite allegations of defrauding investors during the crisis. Some institutions have tried to alter the public’s perception. JP Morgan for example has allegedly hired an additional 13,000 people in the area of compliance since 2012, while financial regulation measures in major economies like the US and UK have enforced greater need for transparency in banks and institutions activities. Fines on individuals and banks have shown some accountability being enforced for their behavior, but whether these are enough to really change people’s perception is yet to be seen, as the legacy of the 2008’s events still hang over us.
In terms of investing, distrust is not the main factor which has led to a lack of Millennials choosing to invest. Actually, according to the data, though a lack of cash to begin the process was also big factor (54%), up to 24% said they don’t know enough about investing. That’s where a platform like invstr steps in. We provide regular updates on the financial markets, insights from our team on important economic and political events and more, as well as explaining key financial terms. You can see this information in the app. We also provide a way of experiencing the markets in a risk free way with investment games.
Personal finance is a crucial part of life. Whether it comes to being able to afford to live comfortably and relatively worry free, or dealing with debt, we believe that financial education in this age of increasing hardship for younger generations is massively important. Due to the fact that the millennial generation are the largest living generation in the US, their disillusionment with business and major financial institutions is nothing to be sniffed at. It will have large repercussions on the financial sector.
Indeed, a flagship study by the creative consultancy ‘Scratch’, found that banking is the industry which is at the highest risk of disruption by Millennials. One key piece of data mined from thousands of responses, was that 73% out of 10,000 Millennials would be more excited about a new financial offer from a tech company than from their bank.
On top of this, 68% said that they think the way we access money will be totally different in 5 years. This should come as no surprise considering this generation is the one which grew up with the internet and has been exposed to endless technological innovations. This underlines the importance of adapting to change. This is so crucially important to us here at invstr, as we aim to improve people’s access to financial information, through the use of familiar technology.
As for the financial industry? The Facebook IQ report concluded that “financial services will have to take a fundamentally new approach” We at invstr couldn’t agree more.