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FCA warns Gen Z on crypto and stonks risks

The UK’s financial regulator has released new research finding the latest generation of investors are more motivated by social factors like the status that comes from a sense of ownership in companies but that risks of capital loss are not well understood.

a man in a suit and tie

FCA/Sheldon Mills

The pandemic has prompted a wave of new people towards fintech investment apps. But this younger generation of investors are taking on bigger financial risks than they should, the Financial Conduct Authority (FCA), the UK financial regulator, has warned.

Research from the FCA says a younger cohort of people, more skewed more towards being female, under 40 and from a BAME background, are looking more to financial investment products. 

It flags cryptocurrencies and foreign exchange as particular areas of concern as well as saying that 38 per cent of those surveyed did not list a single "functional reason" for investing in their top three reasons. In addition, more than 4 in 10 did not view ‘losing some money’ as one of the risks of investing.

“This newer group of self-investors are more reliant on contemporary media (e.g. YouTube, social media) for tips and news. This trend appears to be prompted by the accessibility offered by new investment apps. These younger investors may have the lowest levels of financial resilience making them more vulnerable to investment loss,” The FCA said.

The new research, conducted during the pandemic, found nearly two thirds (59 per cent) claimed that a significant investment loss would have a fundamental impact on their current or future lifestyle.

Sheldon Mills (pictured), executive director, consumer and competition at the FCA said: 'Much of the consumer investments market meets consumers’ needs. But we are worried that some investors are being tempted - often through online adverts or high-pressure sales tactics - into buying higher-risk products that are very unlikely to be suitable for them.”

'We want to make sure that we encourage the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs. Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high-risk products.

The research was conducted with BritainThinks, an international insight and strategy consultancy. It surveyed 517 self-directed investors and took place 18 August 2020 – 20 January 2021.

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