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Increasing Stock Market Participation by 2.28%
The Challenge
it’s a reality that you can’t save your way to wealth. The average current account offers unto 1% interest on your money (below inflation) and a high yield savings account offers around 3% (just about keeping up with inflation). Investing is extremely important for achieving financial goals with the passive market providing around 7% (after inflation). Despite this, many people are still scared to invest in the stock market with the UK around 40% investing and the US around 60%. This is not high enough. And the least likely to invest are those with the least confidence in investing. With this dissertation I carried out an experiment to investigate how a simple design change can increase the willingness to invest in the stock market
Since a simple intervention was desired to allow companies to seemingly integrate the solution suggested, I carried out research on biases that influence perception of investing. I came across research highlighting the role of terminology. As such, I used changes in wording on FinTech apps to increase stock market participation. In particular, changing the word ‘Buy’ (high loss aversion) to ‘Invest’ (suggesting an increase in value over time).
Research
Implement
I designed an online experiment making simple A/B changes to the design of the Trading212 platform to test my theory. But I took it a step further by testing the impact of the intervention base don financial literacy. Those confident with investing are already more likely to invest. I wanted to see how those least confident will respond.
As expected, those with high levels of financial literacy did not have a significant change in their willingness to invest in the stock market. However, those with low financial literacy increased stock market participation by 2.28% (a significant result).
Evaluate
Summarise
The experiment was successful and illustrates the power of understanding the influence on investing behaviour in increasing stock market participation. The next step from the experiment was to carry out this experiment in the real-world with investment apps
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