The University of Arizona’s Michael Staten, Director of the Take Charge America Institute for Financial Education and Research commissioned a national poll sampling 878 students from 18 high schools across 11 states that was conducted by The Financial Literacy Group. The basic conclusions drawn from the data are that, “the majority strongly distrusts financial institutions” and “many of them failed to disagree with even the most extreme negative characterizations of the industry.” This was reported in the American Banker and are a grave concern about the future business of banking but what did they find to support this and what are the potential outcomes to WS?
So what did the data have to say?
1. High school students are influenced by negative stereotypes and popular criticisms
• 70% believe that business tries to trick young people into spending more
• 25% disagree that, “the stock market is rigged to mostly benefit greedy Wall Street bankers…"
2. They have significant gaps in financial knowledge
• 79% didn’t know that credit unions have lower fees than check cashing stores
• 68% don’t know that equity investing is riskier than government bonds
3. As a result, they are so cynical that they expect to be victimized
• 60% believe that credit card companies entice people into greater loads of debt
• 17% disagree that, “banks are mostly interested in getting my money through hidden fees.”
Big deal! What does this mean for WS?
Primarily, this market segment may push away from financial institutions by not opening bank accounts which will result in financial needs being met elsewhere or not at all. Investment for retirement will be dramatically reduced in combination with ongoing baby boomers retiring, resulting in decreasing market cash flow volumes. Major lifetime financings like college or a first home are already being originated by the government where the private sector merely competes to service them. Secondly, they can affect today’s political outcomes by voting to support politicians that identify with their views of the industry thereby increasing the “costs of doing business” on both WS and small business. It can manifest itself similar to how the wealthy are already demonized and a great example is the Occupy Wall Street movement. Lastly, WS will need employment in the future and in three to five years time one of these current students may end up being one of your but will they change when they “meet the street” or is it possible they could change WS from the inside?
Do you have the foresight to acknowledge this issue?
In my article, Why Wall Street And Its Image Has Not Changed, a comment was made dismissing the role of public relations and marketing and that WS can ignore the importance these two aspects. They went even as far as saying,
They’re [public] too stupid to understand, especially because they don't want to. I think it's to our advantage to be frowned upon actually.”
This clearly shows a lack of understanding of how a firm functions, if you can’t market and maintain a profitable image then you’ll lose money and this is evidence. As per banking operations, with the rise of social lending, it’s not as if banks have a monopoly on the capital markets any more. Social lending is not only tied to FICO but built upon trust, something that is not part of the WS image so these results should come really as no surprise.
What would you do?
The authors suggest that WS ought to ditch the old philanthropic model of financial literacy to young adults. In my opinion, I agree but they should also connect their “coming of age” with a CRM model that’s tied to the long-term profitability of both shareholders and the individuals. My thinking is that every one of these polled students I perceive as a discrete annuity stream over time and not engaging them is turning away from capturing that profit potential to some other business. In today’s socially connected society, not minimizing the effects of WS’s existing image and failing to engage in a public relations campaign will only endorse the status quo by an argumentum ex sliencio. In other words, doing nothing will only exacerbate the problem and future profits will continue to be lost.