How cryptocurrency could inspire a new kind of financial literacy
In the midst of a global pandemic, and the strange detachment from financial markets economy, another quirk occurred: a sudden explosion of cryptocurrency investments. In 2020 and 2021, transaction volumes hit daily record highs and Bitcoin quadrupled as new investors poured into the market. According to a recent study by Cornerstone Advisors, 15% of Americans now own cryptocurrency, half of which invested for the first time last year.
Are digital coins the new gold bar? Or the next bubble? And is it wise to invest in cryptocurrency if you are unfamiliar with both finance and digital? Which raises a bigger question: are we on the way to an even greater divide, in which the rich and tech-savvy get richer and the poor and less educated are left behind? We probably are, but not for the reasons you might think.
A decade later, Bitcoin is reaching maturity, aided by wider acceptance from leading fintech companies, such as Square $ 50 million investment and PayPal allowing users to buy and sell Bitcoin On the platform. Alternative cryptocurrencies are proliferating – there are now over 4,000 (or 7,000, depending on who you ask) digital currencies in the market. And a number of nations drive their own national cryptocurrencies, including Ecuador, China, Senegal, Singapore and Tunisia, among others.
And yet, financial literacy remains rudimentary. In the United States, only 17% of 18- to 34-year-olds can answer four of five basic financial literacy questions correctly, and 53% feel anxious when they think about their personal finances, according to FINRA. U.S. Financial Capability Study. And yet Americans tend to think they are much more financial savvy than they are, with 71% giving themselves a high score on their financial literacy assessment. During this time, less than half of the states require secondary schools to offer financial literacy courses.
Add advanced technology and security considerations – knowing how to manage the risk of fraud and how to protect your digital currency from hackers, which trading platforms are legitimate and even whether to store digital coins in a ‘hot’ wallet or “Cold” – and it looks like we are heading down a collision course for the financially vulnerable and technologically naïve.
Most cryptocurrency buyers share a predictable profile: high income, well educated, male, millennial or generation X and very financially educated. This group consists of what one might consider the “crypto elite” interested in the underlying technology, the merits of a decentralized currency, and the future of digital monetary policy. But there is a secondary segment who is less wealthy, less educated, both younger and older and much less financially educated. This group approaches the cryptocurrency market with a gamer mindset, drawn to the high risks and rewards of soaring prices.
The volatility that a speculative mindset introduces into a financial market creates levels of risk that the most financially literate investors generally avoid. And unlike an individual stock – the value of which is based on real-world economic factors – the value of the cryptocurrency is not pegged to anything beyond the price at which the market is willing to buy and sell it. to sell. As the wave of buzz around cryptocurrency increases, attracting new investors both savvy and not, should we be concerned that a growing number of Americans are being exposed to levels of risk they don’t understand? not ? Plus, are these financially unsophisticated traders turning what might be the future of money into a free-wheeling game?
The problems of a decentralized and unregulated market are numerous (as are the advantages). It is the responsibility of policymakers, economists and system designers to jointly create solutions that ensure fairness, access, stability and simply usability across all these systems. We have done an undeniably poor job in designing financial literacy. Can we use this moment of flow as an opportunity? As systems, products and services become more and more complex, it becomes more and more important that the people who use the money understand what it is and what they own.
Some ways to approach this:
What if we build on the gamer mindset that is attracting this next wave of cryptocurrency enthusiasts to gamify financial literacy? A cryptocurrency exchange sandbox could be designed as a learning environment for users to move through a series of levels to learn the fundamentals of financial risk and return to a ‘safe’ environment.
As more uninformed users enter financial markets alongside sophisticated traders, designing new interfaces and infographics that visualize relative risk could make it easier for novice users to avoid trades that exceed their expectations. individual risk tolerance.
Even the most financially savvy are sometimes prone to impulses and emotions. Designing interfaces for the outcome, rather than the transaction, could help mitigate judgment errors. For example, adding interactive paths and prompts, such as pulling a user’s financial data with recommendations for achieving a stated outcome, and adding tips (for example, “You have 2.5 months of savings over the recommended six months for this level of risk ”).
It is always easier to design something new than to modernize an existing system. As we enter a new era of money, we are living in a unique moment. Cryptocurrency trading has caught the interest of a whole new segment of the population. If we use this moment well, we have the opportunity to design new financial literacy.
Hunter Sunrise is Head of Strategy at Modernist studio.
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