The Wolf of Wall Street and What It Means for Today’s Investors, Part II

Today’s guest post is by WalekPeppercommers Chris Gillick and Dmitriy Ioselevich and their conversation about The Wolf of Wall Street. Below is Part II. (Part I ran yesterday.)

the_wolf_of_wall_street1Dmitriy: I agree with you that Stratton Oakmont’s investors deserve some of the blame for “gambling” their money away, but I think it’s naive to assume that they should have known better. Why would they? Investing wasn’t being properly taught to the general public. That hasn’t changed.

Take for example the Millennial generation. The majority of Millennials, myself excluded fortunately, don’t know the first thing about finance or how to invest (besides how to swipe a credit card). Some of them don’t even have a 401K plan. By the time they pay off all of their student debt many Millennials will be in their 30s or 40s and just starting to set up an investment portfolio. Would they start sooner if they understood how compound investing works?

We put so much emphasis on achieving literacy at virtually every grade level; I think financial literacy is even more important. The concepts may seem too difficult for most students, but it wasn’t too long ago that learning calculus at the high school level seemed unthinkable.  I’d even be in favor of having an entire finance section on the SAT. But will it ever happen? I don’t know. It seems like even though access to information has never been easier, it’s never been more difficult to decipher between what’s legitimate and what’s a scheme to defraud investors. There’s almost too much information out there.

Chris: Perhaps my perspective is skewed because I grew up in a town whose residents derived their income from Wall Street sources and my uncle used to tout telecom stocks at the dinner table in the 90s. But here’s the answer to your question: there is no mechanism for determining what is the right type of information out there because individuals don’t trust the financial establishment anymore, and rightfully so.

I don’t know what the solution for mandating financial education would be, but I do think it’s necessary or else our societal fabric will fray. The government is not going to be able to take care of us like they did in previous generations. That’s what happens when the Baby Boomers borrow from the current generation’s future to pay their bills now. So people essentially have no choice but to start saving and taking risk.

But given all the competing priorities that schools around the country have to grapple with, maybe Congress should mandate that high school students watch Khan Academy videos about interest rates, savings and debt. If taxpayers won’t pay for it, let the Gates Foundation, one of Khan’s backers, do it.

Dmitriy: The very real possibility that my generation won’t ever be able to collect Social Security may be the single greatest motivating factor driving the need for early investor education. Sadly, I don’t think we can rely on the federal government to come up with anything resembling a solution.

My other concern is that I feel like lower and middle class investors have an overwhelming desire to emulate their upper class brethren, and now for the first time all investors are going to have access to sexy investment products such as liquid alternative funds, ETF’s and even private equity/venture capital via the JOBS Act. It’s a brave new world out there and I’m worried that new investors to the game—my generation in particular—are going to put their money and faith in products that  specifically catere to the ultra-elite and ignore far safer and smarter options such as mutual funds.

The Khan Academy would be a good start, but strategic communications must also play a big role in educating investors. The Great Recession completely tarnished the financial industry’s reputation—perhaps irrevocably—but the fact that there are a few disingenuous players doesn’t mean that the whole game is rigged. There are plenty of financial institutions out there that are more than happy to help investors like you and me build and preserve our capital. The greatest challenge for these firms going forward is to share their story and build customer trust. It’s a tall order, but not an impossible one. I suppose we better get to work.

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