For the majority of Americans, money is the primary source of anxiety. It is especially tolling for parents and younger adults according to a study conducted by the American Psychological Association (APA), which found that more than 75 percent of parents, millennials and Gen Xers frequently experience emotional stress about money. Likewise, a 2018 study conducted by Northwestern Mutual
found that 87 percent of Americans believe that nothing could make them happier or more self-assured than knowing that their finances are in order.
So is there a way to help more Americans get their finances in order? Maybe the answer is simply teaching the younger generations about money sooner? Teaching children about financial investments certainly can help increase financial literacy. And according to a recent Financial Industry Regulatory Authority (FINRA) study, a lack of financial literacy is linked to high levels of anxiety, and unsurprisingly, to low financial security.
But there are many different ways to increase financial literacy. Shark Tank billionaire, Mark Cuban, recently said that he is thinking about buying Dogecoin (the cryptocurrency Elon Musk has been publicly backing) for his son as an “educational” activity. Although that may sound controversial, teaching children to save is an age-old concept. Even in Marry Poppins, the grumpy ultraconservative Mr. Banks teaches his children about investing wisely by describing compound interest. Following that more traditional approach to financial education, the Consumer Financial Protection Bureau (CFPB) created online content that is meant to help caregivers teach children about money. The FDIC similarly created a Money Smart curriculum that includes references, books and links for such informational purpose for children as young as grades PreK-2.
But despite the available resources and the clear need for caregivers to teach children about money, many do not do so. A 2014 APA study, “Stress in America,” found that only 37 percent of Americans actually talk to their family members about money.
Several years ago, FinTech companies began to identify the educational market opportunity and to explore the potential of that business niche. Among the first to offer financial services for children was Greenlight, which was founded in 2014, and is currently valued at $2.3 billion. Greenlight started with launching a debit card for children in 2017 and now offers various digital financial services to children as young as 6 years old. And while 6 years old may sound too young for children to be using financial apps on a smart device, by 6 years old, children already are veteran consumers of smart device content. In fact, studies have shown that 30 percent of American children already start spending time playing with digital devices while they are still in diapers.
As the average age of children owning and using digital devices continues to drastically drop, and their daily screen time continues to grow, the notion of offering digital financial services to children on their digital devices becomes more and more acceptable. (According to a February 2020 study, even prior to the Covid-19 pandemic, on average, American children ages 8-12 spend 4-6 hours a day using screens, while teens spend up to 9 hours.)
The potential of this new market clientele is valuable for two reasons. First, more customers is always a good thing. Second, these new customers will eventually mature into more traditional adult customers. And presumably, they will continue using the services with which they are familiar. Not wanting to lag behind their FinTech competitors, some traditional financial institutions recently decided to offer financial services to minors. Among those, was Fidelity Investments, which a few weeks ago shared its plan to give 13- to 17-year-olds debit cards, savings accounts, and even access to an investment service that would allow young teens to trade U.S.-listed stocks, mutual funds and ETFs (with parents’ supervision.)
Although digital financial apps can help to educate children about the value of money, the importance of investing, and even the risks of trading, this trend of offering financial services directly to children is concerning. Unsurprisingly, a couple of weeks ago, FINRA announced that it wants to get public feedback on the gamification used by trading platforms, as it identified “risks associated with app-based platforms and ‘game-like’ features that are meant to influence customers.” This request for public input is not surprising given the January 2021 GameStop stock controversy, which also raised the concerns of the U.S. Securities and Exchange Commission (SEC), its new Chair, Gary Gensler, and other public figures, and is important in light of the growing interest of financial service providers in younger users. There are several important considerations for us to think about as we allow FinTech companies and financial institutions to offer their digital services to our children.
First, digital gaming is well-known to be addictive for children. And stock trading, much like gambling, can be addictive by itself even without gamification. So combining the two together and offering it to our children should raise red flags. Encouraging children to learn about money by using digital platforms with interactive and “game-like” features, such as point scoring, competitions among peers, and rules of play, may contribute to digital gaming and screen time addiction in children.
Put in more concrete terms, digital platforms can function like hard drugs for children. Being online —predominantly surfing or playing in interactive platforms —acts like a stimulant, (think caffeine or cocaine). The dopamine released by the stimulation of electronics hits children and teens particularly virulently because their cerebral cortexes are not developed enough to enable them to feel satisfied with small doses or to self-regulate. So whether it is earning points in a non-sophisticated online game, spending real money to acquire abilities in Roblox, or trading real stocks in gamification software, it is very hard for children to just stop and turn off a digital device.
Increased screen time also is associated with negative effects such as a higher risk of cognitive, language and emotional delays, complications with children’s social-emotional advancement, decreased ability to self-regulate, problems with the development of skills needed for the learning and application of math and science, and even increased anxiety and tendency for dishonesty in children. Certainly it is not worth introducing all of these problems for the perceived benefit of improving children’s financial literacy.
Second, gamifying investing makes it feel less serious, not more serious, contravening the very notion that early education will help young adults understand the seriousness of money. Indeed, gamification oversimplifies investing to the point where playing results in novice investors getting in way over their heads. Gamification for financial services is becoming the new frontier for Gen Zers (now 11- to 26-year-olds) and even some Gen Alpha members (10 year-olds and younger) who have enjoyed platforms such as Fortnite, and Brawl Stars from infancy. Regulation almost always lag innovation, but regulators are now realizing that FinTech apps and their playful interfaces have lured a new class of inexperienced novice investors into the financial markets.
And while Robinhood took most of the fire for doing so – with regulators filing complaints against it, and Congress criticizing its business model and investor protection procedures – Robinhood is not the only player in this space. Other FinTech platforms such as WeBull, EToro also have captured the attention of many inexperienced young traders. Gen Z and Alpha members are born investment “researchers” when researching means browsing TikTok videos under trading-related hashtags, or scrolling through the 100 most-held stocks among their fellow app users. But cool and fun FinTech platforms do not make younger generations appropriately cautious about losing significant amounts of money, even though that is usually the case. For example, a 2016 study showed that 80 percent of private day traders lost money over the course of a year, with a median annual return of 36 percent loss for all traders. And while financial losses are objectively upsetting, they are especially devastating to young, new traders, as was the case with 20-year-old Alex Kearns, who committed suicide, believing he owed $750,000 for stock market losses on Robinhood.
Third, children’s investment choices are more susceptible to the influence of outside, interested (and uninterested) parties. Simply put, children are vulnerable, easy to exploit consumers. They can be more easily manipulated by hidden marketing, ads and specific-agenda content. Because of that, child-targeted advertising is a multibillion-dollar endeavor in the U.S., with $4.2 billion spent marketing to children in 2018 alone. Even educational apps for preschoolers are flooded with manipulative content, and structured in a way that shames children into spending money within the application, believe that is the “correct” solution. Children are also more influenced by crowd mentality, including when it comes to their financials. Because they want to be cool in the eyes of their peers, teens cite ‘friends’ as the strongest influence over their financial decisions. In fact, 80 percent of Gen Zers’ purchases were influenced by social media. Likewise, some children can even purchase “follows” and “likes,” for money, in order to appear more liked or cool. And digital platforms exploit their fear of missing out, and desire for social acceptance, which have an indirect effect on their anxiety. Digital platforms ranging from Venmo to Instagram enable users to see immediately what others are spending their money and time on, or when they have been left out of an activity by peers. This contributes to the rise of depression among children, which could be linked to the rise in youth suicide rate that has nearly tripled in the last decade for 10-14 year olds. This means that any digital platform that makes products or services available for children must be scrutinized carefully, especially if it includes financial services or products.
Lastly, parents already are struggling to keep up with supervising their children’s online activities. Enabling children to use digital financial apps will require much more effort because there are so many different things that parents need to be on the lookout for. For example, children can be overly generous with gifting their friends; they can borrow excessive amounts of money from friends; they can be taken advantage of; and they can attempt to appear richer than they are, trying to “keep up with the Joneses.” Staying on top of their children’s financial decision-making is difficult even for tech savvy parents because of the rapid technological innovations. For example, although tech savvy parents may know how to use voice-activated assistants, few understand their true power, which children are quick to unlock. Even so, 36 percent of parents to children 11 or younger let their children use a voice-activated assistants, like Apple’s Siri or Amazon Alexa. But how many know what Alexa “skills” their children inadvertently enabled? When children interact with sophisticated AI technology they test boundaries by purposefully saying the “wrong” thing. In many instances their seemingly funny comments can enable age-inappropriate features or “skills,” that were developed by third parties. Not only can children receive age-inappropriate results, they can inadvertently consent to loose privacy policies, allowing third parties to enter their homes and use their data without their parents’ knowledge as a study of Amazon Alexa skills recently revealed .
So is letting children toy with financial platforms to learn about investing good, or is it bad? Will it lead to a generation of financially literate young adults, or will it lead to gambling addicts in debt with little appreciation for smart investing? Not focusing on children as investors, FINRA recently advised brokerages to review the features in their apps for compliance with Regulation Best Interest and appropriate risk disclosures, but there are many reasons to remain wary of children’s usage of such digital platforms, as I discuss elsewhere. The key to getting the most out of the newly accessible technologies, like with many other things related to children, is close monitoring by parents. Before thinking that you found an easy way to provide your children with an early digital investing and securities trading experience, think carefully about whether you have the time and energy to ensure that the new technologies do not have the opposite effect of increasing gaming addiction and irresponsible monetary actions. And remember, these new technologies do not yet have regulatory guardrails to keep them safe for children. That burden rests solely on their parents.