The wolf at our door 🐺

The exploitative tech normal needs a rethink

The antidote to the menace economy is education.

Let’s back up.

The Menace Economy is loosely defined as comprising organisations that pursue wealth by causing harm — especially to the mental and/or financial wellbeing of users and consumers. These organisations, inevitably technology behemoths, have become so reviled in some circles that last year Slate released a list of the 30 “most evil” tech companies doing humanity the most harm.

In 2021 expect to see some online trading platforms added to the list.

There is of course a role for online trading platforms in the financial system.

They have indeed “democratised” investing and made this key driver to future wealth accessible to all. They have enabled amateurs to invest in global companies they love (eg. Apple), get in at IPO (eg. Deliveroo) and buy small chunks of very expensive shares (eg. fractional investing in Amazon) — activities historically closed to the majority of retail investors. And often these trades are cheap (or free).

But just yesterday the FCA sounded the klaxon warning that young investors were taking on too much risk through engaging with online trading platforms to pour funds into cryptocurrencies, meme stocks and speculative “assets” all of which represent significant risk.

Risk seldom understood by amateur traders with unrealistic expectations of huge (and easy) rewards.

This is not to say there isn’t a place for more risky investment behaviour — I myself commit about 10% of my total investing funds each month for short term speculative trades — I call it my play money. It’s budgeted for, I can afford to lose it and when I have lost (or taken a big hit) it was frustrating as all hell but it didn’t impact on my long (or short) term finances in any meaningful way.

Risk is one component but the darker side of this booming sector is the frictionless gamification of trading, the peer pressure of the “community” and the (far too easy!) ability to leverage.

These apps are creating an addiction akin to Candy Crush with ever greater potential loses. With Candy Crush you lost time, a trading addiction costs money, more than you might have (or realise is at risk) and maybe worse.

Regulators will regulate, as they should, and elected officials will bang on the nearest table when it is politically expedient to do so but the market will do what the market has always done. It will drive money towards things that are fun, things that are entertaining, things that are addictive — it is the way of the “hooked” world.

Regulators can’t compete with that.

Education can — indeed it is the only thing which ever has.

Education adds knowledge to choice, education gives pause to instinct.

The choice for education however, is a choice that must be made by individuals.

Before I started Blackbullion I read a 2013 CFPB report that for every $1 spent on financial education, $25 is spent promoting financial products.

And that was back in 2013, long before fintech became ubiquitous — I’d wager it’s at least double that today.

That means that a majority of information consumers receive about finance come from the very companies trying to sell them financial products — products that may or may not be remotely appropriate.

There is nothing inherently wrong with the promotion of financial products or the marketing of them, in fact, quite the opposite. Many financial products, whether life insurance, mortgages, investments, pensions or ISAs are critical for building personal wealth.

Learning to invest and understanding the markets are good things and critical to future wealth but as they say — you don’t put Dracula in charge of the blood bank

It is not the volume of marketing I fight against, it is the lack of personal financial savvy — developed outside the product — which allows consumers to determine which marketing points towards benefit and which towards detriment.

I predict a trend for financial services providing more independent financial education. We are already seeing this at Blackbullion — not only because it’s the right thing to do but because better educated consumers are better consumers of financial products meaning they are better for a financial organisation’s bottom line.

When it comes to financial illiteracy the risks are very very real, even if they aren’t immediately apparent.