The Educated Retail Investor: A Response to 'Regulating Democratized Investing'
83 Ohio State Law Journal Online 205 (2022)
13 Pages Posted: 19 Aug 2022 Last revised: 8 Mar 2023
Date Written: August 13, 2022
The diffusion of mobile-first investing apps, like Robinhood, has increased retail investor participation in financial markets, particularly from the Millennial and GenZ generations, and has increased the diversity of retail investors. However, mobile-first investing apps are not free from controversy. In Regulating Democratized Investing, Abraham Cable tackles the debate on regulating mobile-first investing apps and largely opposes paternalistic regulation, which would raise unsurmountable barriers at the entrance of the stock market for retail investors. But it concedes to a form of regulation that in Cable’s own words “serves ultra-retail investors a modest portion of what they really want.” We strongly appreciate the subtle analysis that Cable carries out in his article as well as his well-thought-out proposal. However, we are not entirely persuaded that a solution that “serves ultra-retail investors a modest portion of what they really want” would be fully satisfactory. In addition, we fear that Cable’s proposals would further discourage investors with limited financial means from participating in the stock market and, through that, in the corporate sector.
We believe that the stock market can be a strong saving technology for retirement and a good source of income. Furthermore, a more accessible stock market facilitates a more demographically heterogeneous share ownership. This, in turn, has positive impacts on diversity in corporate governance. Moreover, citizen involvement in the stock market and in corporate governance increases citizens’ agency and can promote social cohesion. Accordingly, we propose an alternative approach which relies heavily on investing education and engagement. In our response, we briefly survey the personal finance education in the United States and then we propose that investing education should be mandatory at least at the high school level for all. This is not an overnight remedy and will take time to implement. However, investing education should be nurtured to ultimately achieve a more inclusive corporate sector which would help to restrain the growing income, wealth, and influence inequality.
Investing education should encompass classes on personal finance, financial markets, and corporate governance. Including corporate governance in investing education curricula not only completes the set of knowledge necessary for investing in companies’ shares, but also enhances the agency of investors as citizens. Investing education bridges the gap between citizens and Wall Street. It also provides citizens with the tools to engage with the companies in which they invest.
Keywords: personal finance, retail investing, Robinhood, trading apps, education, investing education, corporate governance, financial literacy, just-in-time education, The Stock Market Game, Millennials, GenZ, society
JEL Classification: K2, K20, K22
Suggested Citation: Suggested Citation