Are investors more financially literate today?

Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.

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If you compared the level of financial literacy today relative to decades ago, you would definitely agree that it has improved, both in Singapore and globally.

Investors today are more savvy and well-informed, largely due to technology and better access to information today.

But what are the implications of this?

Firstly, the average investor will perform better than they did in the past.

Meaning, more money is being placed in the right assets, fueling growth (and hence prices) in these assets, which is great for the economy.

The more financially literate and savvy investors are, the more efficient the financial markets are, as capital is being supplied to entities which are able to make the best use of them. 

Right assets are assets which have the greatest growth prospects and opportunities. In other words, they have the greatest potential to provide value to humanity.

Assets can come in all forms — property, bonds, stocks, cash, etc. What matters is that money is being parked in the right assets. And this is what exactly happens when markets get more efficient, partly due to technology and partly due to investors getting more financially literate (which is also largely due to technology).

In short, technology has driven both investors and markets to become more savvy and efficient, allowing for the right assets to thrive and grow faster than they did before.

But it has some negative implications.

If the average investor is more financially literate than before, it means both incomes and wealth are likely to increase faster than before due to more right financial decisions being made.

The downside of this is that investors who don't are going to lose out much more than they did previously.

While the basic financial literacy level today is likewise higher than previously, it is likely the increase in the average financial literacy level might have risen more than the increase in the basic level.

Many parts of the world which didn't have access to financial education then likely don't have access to it now. So, there's a large group of people, especially from developing nations, who haven't had the chance to improve financially, which inevitably widens both wealth and income inequality.

That's at a global level. But what about for the average individual investor?

If incomes and wealth are rising faster, it means the price of goods and services will too, all else being equal.

If prices rise at a faster rate than income and wealth, then real incomes would have fallen. This isn't an issue as economic data shows real incomes have been rising steadily over the years. 

The issue is that you as an investor may not be able to keep pace with it. Take wealth for example. Assuming the average investor's wealth is pegged to the market index (since most investors invest in market ETFs today), if you don't keep up with this average return, you're likely to face a decline in your real income.

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Disclaimer:

The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.

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