Why High Schoolers And High Finance Are Worlds Apart
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 interns 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,
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 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.”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.
I would like to speculate. Perhaps it is normal for young people to have these type of feelings towards institutions that they know nothing about. Most kids are sitting around all day while their parents pay for literally everything without ever sharing any knowledge as to how they maintain their finances. As these children grow up and become fiscally independent or at least fiscally responsible in some way, they will learn how the system works and begin to understand concepts that they weren't familiar with before. A possible reason that so many kids these days are liberal hippies is because they have no clue how the real world works WHATSOEVER until they get a taste of it. That comes back to them having no faith in institutions that they have no direct involvement with.
Like I said, speculation, I have no evidence, but that's my theory.
For question #2, just ask them if stocks are riskier than bonds. I bet more than half would get it right. You must keep in mind that 99% (being generous) of the world population are idiots.
Why are stocks more riskier?
This clearly shows a lack of understanding of how Wall Street functions. Sure, you need to market and maintain a profitable image with your customers, but the public are not our customers. Never have been, never will be. Hedge funds, venture capital, private equity, investment banking, etc. never catered to the public. Sure, indirectly they do, but that's irrelevant. Our customers are people who understand why they need our services - pension fund managers, F500 executives, and endowment analysts - not Joe the Plumber who thinks "Wall Street" is the bank teller who cashes his pay stub.
SB, very true.
Yes, the clients you mentioned are not the public but to think WS is only IB, HF, VC, or PE is a narrow sell-side perspective and you’re not seeing how a bank holding company fully operates.
Due to the Gramm-Leech-Bliley Act of 1999, this allowed banking, insurance, and other financial services to combine with investment banking, private equity, and proprietary trading, etc. At the core of these holding firms are banking operations involving demand deposits (checking & savings), financial advisory services (investments into funds), and debt financings (college, home, or personal) all directly stemming from the public. Simply go to any website such as a JPM, BAC, or WF and look at the many divisions and/or departments all under the auspice of their respective firms and most of theses divisions or departments that you didn’t mention deal directly with the public.
Yes, WS is connected to the public and the person/s in-charge of these divisions or departments ought to at least be acknowledging this issue. Further, it’s my opinion that the current attitude shown in this poll will have a likely tangible effect on overall profitability. Ignoring this only shows an err of arrogance which is bad for any other business except WS. How do they expect to grow its demand for banking and buy-side operations by dis-engaging this market segment?
Instead, think of it this way. If WS actually engaged the public and improved its perceived image, then how much more overall growth would it gain from its non-sell side business? I’m arguing that if they acknowledged this problem [image] and acted in a positive manner then I think there is potential up-side for increased profits and/or market-share especially if it uses a CRM model to capture these outcomes over the lifetimes of the public in general and that it would be well worth their efforts.
You're missing a few key points here. The first is the most obvious: HF, PE, VC, AM are all not "sell-side" as you're describing them. And by and large these types of companies are standalone entities (though very often banks will have a group that is an HF/PE/VC/AM desk, which is beside the point) that have nothing to do with "Main Street," and only interact with sophisticated investors, industry experts, and large institutions... none of which give a rat's ass about how the public perceives them, since they know these services are valuable and nowhere near as crooked as Occupiers who don't understand the business like to portray them.
And on your argument that commercial/retail banking would suffer due to society's poor perception of them... that's really not going to be the case nor has it ever. And to be clear - retail banking or whatever you prefer to call it is NOT what any informed person should consider to be Wall Street. That's like walking into your local Bank of America branch, depositing $200, and saying you just made a transaction with a Wall Street banker... yeah that didn't happen. Plus, the purpose of these entities is to give out loans to the public, and no matter how horribly unethical and evil you think these organizations are, you'll still happily take out a mortgage from one of these "too big to fail" banks. Public perception will have nothing to do with it, nor has it ever.
Bottom line - we don't deal with Main Street directly, basically never. In my 5 years in the industry, the biggest loss I ever took as a result of Occupiers hating my profession is when the barista at Starbucks fucked up my drink order and had to start over.
Also, I'd like to add that your conclusions under
are inaccurate. Going back to what I said before, once these kids actually have their own money to manage and they look at what it actually means to have bank accounts and create credit for themselves, they'll understand that these are essential tools in our modern society. They're views will likely change as a result, and if they don't, then one less retard to deal with /shrug.It's because they are kids lucky enough to be born in America. They have a childhood and are allowed to be naive...it reminds me, for some reason, of the scene in Zombieland when the 12 yr. old girl didn't know who Gandhi was. I mean shit, no 16 yr. old knows that equities are riskier than U.S. debt because they are worried about the girl down the hall, or the guy in homeroom. Just like everyone else at the same age. PERIOD.
I guess I'm in the majority who believes that its Wall Street who is the one benefiting off the stock market. But that belief was shaped pretty strongly by my internship experiences, primarily my pwm internship. I mean when you see day after day these old people come in and trust essentially their entire net worth with some 30 year old FA who is willing to throw their money around however they wish, it leaves an impression. He rakes in his fees for putting you into the mutual fund of the month or the next hot stock (something like FB or ZNGA lol)
I'm not blaming Wall Street, just saying that they profit off ignorance (you're talking about high schoolers and I'm saying everyone). People would come in for a meeting with a couple million in the market and ask if they owned the NASDAQ (as if it was a stock or something) and having no idea what they're invested in. Meanwhile the FA shows these charts of fund performance or whatever and they shake their heads as if, "ok, i understand". Used to make me shudder, but it was an odd realization when you see these FA's raking in some impressive money and they barely know more than the poor saps they're stealing fees from.
All I know is that a year ago I realized I needed to be on the inside of this game and not the outside.
You questioned whether the majority was right, then proceeded to argue that the majority was right.
That said, I agree that you have to be on the inside of the game to have the best chances. I don't like the use of the word 'rigged' because it implies that someone is controlling everything behind the scenes and that Wall Street always wins. It's not rigged, but the difference in the levels of information you're working with as an institution vs. a retail investor is overwhelming. Retail just has no chance. So not rigged, just heavily advantaged to the point that it really isn't fair. If that is someone's definition of rigged though, then sure, it's rigged.
Good for people busting their balls to get on wall street..
.... less competition for me.
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