New Investors Are “Overconfident” About Their Financial Knowledge

In France, investment neophytes overestimate their level of financial education, which tends to bias their perception of risk, concludes an OECD study on behalf of the AMF published Thursday. “The study shows an excess of confidence among new investors with regard to their level of financial knowledge,” writes the Financial Markets Authority (AMF) in a press release.

Among the new individual investors surveyed, 73% of 18-24 year olds believe they have a “high” level of financial knowledge, the proportion rises to 75% among 25-34 year olds. However, when asked “on simple notions such as the effects of inflation, diversification or the risk/return ratio”, “more than half of the youngest only answered correctly two questions out of six”, reports the 'AMF.

Carried out on a sample of 8,000 people including 2,000 individual investors, this study makes it possible to draw up a composite portrait of new French individual investors. It appears that half of the neophytes surveyed began investing at the start of the Covid-19 pandemic in 2020. Within this audience, which is predominantly male (64%) and rather young (56% are under 35 years old) , half have invested in cryptocurrencies.

Also read “I started from nothing”: how François, 77, became a millionaire thanks to his real estate purchases

Yet “the majority of those investing in very risky products, such as derivatives, options or crypto-assets, were unable to correctly answer questions relating to the use of these products,” the study indicates. For 73% of respondents, “earning a lot of money quickly” is a priority, but paradoxically, they say they prefer products with moderate risk and return (61%). “Their perception of risk seems limited,” notes the AMF.

Furthermore, new investors tend to “access financial information primarily through online sources, including social media.” They are also more likely to turn to certain companies, “such as American technology companies or Tesla”, cites the study, as well as certain types of investment, “such as index funds (Exchange Traded Funds or ETFs)” .

An ETF is a basket of stocks or bonds whose objective is to replicate the performance of a stock index. ETFs make an entire index accessible through a single security, such as the CAC 40 for example. The financial markets watchdog explains that the increase in stock market activity in France “coincides with the growing popularity of ETFs since 2020”. The Organization for Economic Co-operation and Development (OECD) will use this survey to develop a financial education strategy specifically aimed at new investors, to submit a proposal to the AMF in the first half of 2024.