Group investing – 4 ways it helps encourage and facilitate financial literacy
According to the S&P Global FinLit Survey, the US ranks 14th in the world for financial literacy. Less than two-thirds of American adults passed the basic financial decision making questions surveyed. People want to make good financial decisions to be successful, but most never had the opportunity to learn how to do it. With only five states including a personal finance requirement in high school, the responsibility falls on individuals to educate themselves.
One way to boost financial literacy is through group investing, and a recent article in the Wall Street Journal suggests that “people who aren’t financially savvy tend to learn more about money from peers rather than those with more knowledge”.
What is group investing?
Group investing, often known as an investment club, is a group of people who pool their money to make investments. The members study different investments, and then the group decides to buy or sell based on a majority vote of the members. People love investment clubs because they are social, educational, and fun! Group investing also offers opportunities for the club members to improve their financial literacy
Here are four ways group investing encourages and facilitates financial literacy:
The Wisdom of Crowds
Investment Clubs offer individuals opportunity to articulate their individual investment ideas, uncover assumptions and misconceptions, discuss alternatives, and negotiate with the group to make decisions. Not only does this participative process help the individuals improve their financial literacy, it also results in better decisions.
In his book, The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, James Surowiecki demonstrates that the aggregation of information that happens in groups results in decisions that are better than could have been made by any single member of the group.
In Voleo’s soft launch, we found that 80% of our investment clubs outperform the average of their members. And not by a small amount. The average outperformance was more than 60%.
Pooling Financial Resources
Those that are financially illiterate often pay dearly for their financial choices. Relying on high-cost financial services and borrowing, including payday loans, creates a challenging cycle. With the focus on meeting day to day financial obligations, putting aside savings is difficult. For those fortunate enough to have limited savings, the barrier to entry can still make investing seem out of reach.
Group investing enables individuals to pool their resources, reducing the barrier to entry, spreading the risk, and providing an opportunity to split costs.
Financial literacy efforts have often been centered on digital learning modules, workshops, and classroom lessons to teach people about managing money.
Both general knowledge (education) and more specialized knowledge (financial literacy) contribute to more informed financial decision-making. However, recent research suggests that pairing financial literacy with tangible experience has a greater impact on positive money management and changes in their financial behaviour.
A dollar today is worth more than a dollar tomorrow, so there is no time like the present to start investing. Investment clubs are widely accessible making them a fantastic option for all who have decided on improving their financial knowledge.
With Voleo, this process has become even easier with 4 steps:
1. Invite Your Friends
2. Pool Your Money Together
3. Make it Official
4. Start Trading Together
For those not ready to invest real money, there are options to start practising trading paper money, leveraging the benefits of an investment club format. Voleo’s SimuTrader app can be used internationally.
Improving financial literacy has also shown to have positive impacts on employee retention. It makes group investing a relevant topic not just to individuals, but firms as well. Research from the Society for Human Resource Management (SHRM) found that 37% of HR professionals believe employees at their organization have missed work for a financial emergency in the last year. 60% of employers Aon Hewitt in 2017 said that the financial well-being of their employees has increased in importance in the last two years.
Is your organization promoting group investing? We’d like to know! Share your thoughts with us at firstname.lastname@example.org.