One of the trends that emerged during the COVID-19 pandemic is the growth in the number of new and young investors, driven by easy-to-use investment apps and developments such as equity tranches – the possibility of ‘buy a piece of a high-priced stock as opposed to a whole stock.

They’ve entered the investment market, but are they really ready?

The competition

While apps can attract young people to the market, investing is not a game. But it is a kind of competition, in which you use your knowledge and insight to hopefully grow your money. In order to achieve the highest success rate, you need to understand the financial markets and invest as best you can.

Not being prepared or lacking in key skills can lead to financial fiasco, which is a difficult way to learn important lessons, especially at a young age. With that in mind, think about where a young investor could learn not only to invest, but also to avoid being duped.

What better source than entertaining games and quizzes created by regulators, such as FINRA, the Financial Sector Regulatory Authority. FINRA regulates the brokerage industry.

Each of the resources I am going to tell you about here can spark the interest of young people. There is no manual to read. There is no homework to do. No notes. Instead, there are easy interactive resources that engage rather than bore … just fun with investment facts.

Investor knowledge quiz

I recommend starting with an interactive app that helps the young investor to self-assess quickly. Called the Investor Knowledge Quiz, you can learn about what you know about investing and, more importantly, what you may not know. FINRA “believes that all investors should have access to basic educational information on investing.” The quiz includes explanations for the correct answers.

Here is a sample question:

You invest $ 500 to buy $ 1,000 of shares on margin. The share price drops by 50%. You sell it. About how much of your initial $ 500 investment do you have left at the end of the day?

$ 1,500

2.250 $

3. 0 $

4. I don’t know / I don’t know

Answer: When you buy stocks on margin, you risk losing your entire investment, or even more. In this example, an investor used $ 500 to buy for $ 1,000 of stock, borrowing the additional $ 500 from a brokerage firm to make the purchase. When the stock was sold after losing 50% of its value, its remaining value was only $ 500 – the same amount the investor still owed the brokerage firm for the margin loan. To learn more about the risks of margin trading, read our Investor Alert Investing with borrowed funds: no “margin” for error.

Learn to invest

After completing the questionnaire, do me a favor: just take a minute to go to the Learn to Invest section on Finra.org, which includes a Young Adults and Investing section. Look around you. Among the resources there are a number of very short, focused, and interactive courses that you can try out in no time using the Quick Courses link. Even people with a short attention span will benefit greatly. For example, “Is it worth the hang of? Helps you quickly understand and assess an investment’s rate of return by guiding you in how it is calculated, which will help you compare the return from one investment to another.

Risk counter

Then go to the FINRA risk indicator. There, in 12 questions, you will see if you “share characteristics and behavioral traits that make some investors vulnerable to investment fraud”. Everyone should take three to five minutes to test themselves. After taking the quick quiz, you will get a report that will score you based on your personality and habits that make you vulnerable to fraud. The report generated by the Risk Meter will inform you about yourself in a way that will be revealing and useful.

Scam counter

If you are considering making an investment, before you do, take this four question quiz (yes, only four) called the FINRA Scam Meter. To use the scam counter, you must have a particular investment in mind. Suggest it to the young people in your family and test yourself too. You can print the results, which will explain each of your answers.

Con ’em if you can

A fun strategy game called ‘Con’ Em If You Can ‘has been developed by FINRA Investor Education Foundation and the Commonwealth, a national non-profit organization that seeks to enhance opportunities and security for financially vulnerable people. The game is designed to help players learn how to spot and avoid investment fraud. You can find it here.

The knowledge gap

When it comes to investing, young, inexperienced investors lack knowledge. There is a good reason. Learning to invest, or even to know what you don’t know, takes years of experience.

To assess investor knowledge, a recent study by the FINRA Education Foundation looked at the world of investors and found that there was a lot to learn for newcomers to the field – enough to help fuel a new one. FINRA Foundation’s effort to fill the knowledge gap. that seems to exist and help aspiring investors avoid glaring mistakes.

A study of new investors

The FINRA Foundation conducted a study earlier this year with the University of Chicago research organization NORC titled “Investing 2020: New Accounts and the People Who Opened Them.” The study classified new investors as those who “opened one or more non-retirement investment accounts in 2020 and did not have a taxable investment account at any time before 2020”.

Among the findings were:

  • Over 60% of new investors were under 45, with 22% of new investors in the 18-29 age bracket.
  • When asked to self-assess their investment knowledge, 50% of new investors rated themselves as average, while 38% said their knowledge was low or very low.
  • New investors responded correctly on average only 1.4 out of 5 questions test investor knowledge.

New FINRA initiative

These survey results, along with a 2019 FINRA Foundation survey that showed investor awareness in the United States to be low among all investors, give statistical support to the new, multi-year, multi-faceted 30 million initiative. of FINRA dollars. Robert Cook, Chairman and CEO of FINRA as well as Chairman of the FINRA Foundation, said in a statement: “It is essential that new investors understand both the benefits and the risks of participating in capital markets. “

Two phases

The first phase of the project, which continues until August 30, 2021, involves the public. FINRA is seeking comments on 10 issues that involve educational efforts. If you’d like to comment, check out the questions here, where you’ll also find instructions on how to submit your comments. You can also read the comments that have already been submitted.

In the second phase, there will be a comprehensive program “aimed at educating this rapidly growing segment of novice retail investors who are taking advantage of technological advances to enter the US stock markets”.

Congratulations to FINRA for taking charge of this important project. All investors will benefit.

Questions?

Email me with questions related to investments at forbes@juliejason.com. Include your city and state, and mention that you are a forbes.com reader. Although not all questions can be answered, every email is read and reviewed. To keep up with the topics I cover, be sure to to pursue me on the forbes.com site.

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