Financial Literacy in the Age of Trading Apps

By Julia Schroeder

If you are a millennial and anything like me, you didn’t have a financial literacy class at your high school. If you majored in a humanities subject in college, you likely didn’t take a finance class either. Finance is a particularly sensitive topic for many individuals to openly discuss, but the failure to talk about it has led to people incurring too much debt, or worse, losing their hard-earned savings to fraudsters, or through themselves engaging in a complicated trading strategy that they don’t understand.

The truth is, we are not provided with adequate financial education growing up, and it doesn’t get much better as we grow older. Interning with UM’s Investor Rights Clinic has shown me how many of our elderly clients could have avoided their losses if they only knew more about the types of investments they were agreeing to and how to monitor them when they signed on the dotted line. Instead, many overly relied on brokers or other financial professionals, often without learning anything about their backgrounds. Most of the public has no idea that they can check the backgrounds of their financial professionals by entering their name in “BrokerCheck” on the website.

As a result of schools failing to meet the need for financial literacy courses with enough speed, younger generations are feeling the consequences.  In 2018, just 17 states required high school students to take a course on personal finance. While the number of states that include education about personal finance has risen to 45, only 21 states require such a course in order to graduate from high school. In the meantime, the lack of financial literacy can lead to serious consequences. The fact that so many young people have overextended themselves with student loan debt is, at least in part, attributable to a lack of financial literacy. Moreover, there are now faster ways in which individuals can quickly get into deep financial trouble, and it involves the smartphone likely lying next to you right now.

Social media has promoted the ease by which people with all levels of investment experience can invest in the stock market. In its 2021 Examination Report, FINRA addressed the “surge” of retail investors trading through apps and announced steps to crack down on digital platforms to ensure that they are in compliance with FINRA communication and supervisory rules, and acting in a customer’s “best interest.” This came after findings that in the first half of 2020 alone, individual investors accounted for 19.5% of shares traded in the U.S. stock market, which was an increase from 14.9% in 2019 and almost double what it was in 2010.   Trading Apps such as Robinhood have enticed younger people to engage in high risk, often complex trading activity by advertising self-directed trading accounts that offer zero commissions per trade. Yet, critics have expressed concern that the app engages in “gamification” by releasing green confetti after users make a trade. After accusations that confetti distracts its users, and makes a game out of the trading of real money, Robinhood announced the discontinuation of this feature earlier this year.

The nightmare story of college student Alex Kearns’ suicide following a Robinhood app misunderstanding highlights the dangers of self-directed trading with less sophisticated investment experience. While there may have been other unfortunate factors at play, 20-year-old Kearns took his own life after believing he had racked up a negative $730,165 cash balance in his accounts. In a note he left to his family, he thought that his investment plan was well thought out, but in actuality, he had ““no clue” what he was doing.”

Securities clinics across the country, including UM’s, are seeing a major spike in calls for assistance, and more of them are involving self-directed accounts. This is a glaring sign that we must take the time to educate ourselves. Rather than wait for the state and federal governments to introduce more financial literacy programs, there are resources we can take advantage of right now. In addition to sites like MyMoney.Gov and providing educational resources for individuals interested in investing, FINRA regularly hosts informational webinars. This upcoming April 13th, FINRA, in collaboration with St. John’s University, will be hosting “Smart Investing in Today’s Environment” to discuss investor education issues and intelligent ways to approach these self-directed trading platforms that can get investors into trouble. Sign up by visiting