Financial Inclusion Gone Wrong: Securities Trading For Children

For the majority of Americans, money is the primary source of anxiety. It is especially tolling for parents and younger adults, with more than three quarters of parents, millennials and Gen Xers frequently experiencing emotional stress about money, and almost 90 percent of Americans believing that nothing could make them happier than knowing that their finances are in order. Looking for ways to help Americans deal with this source of anxiety, some believe that teaching children about financial investments at young ages can help increase financial literacy. There are many different ways to increase financial literacy, but despite the available government and private sector offered resources and the clear need for caregivers to do so, studies show that most do not. In recent years, identifying the educational market opportunity and the potential of this business niche, some FinTech companies and even traditional financial institutions started offering financial services for children, reassured by research that shows that by 6 years old, children already are veteran consumers of smart device content. The potential of this new market clientele is valuable for two reasons. First, more customers is always a good thing. Second, these new customers will eventually mature into more traditional adult customers. And presumably, they will continue using the services with which they are familiar. Additionally, while there are some legal challenges with letting children enter into investment contracts, offering them financial services directly is something that could be socially accepted for Gen Z and Alpha members, given society’s newly adopted paradigm for describing, understanding, and shaping children's rights, relationships and custodial status. But although digital financial apps can help to educate children about the value of money, the importance of investing, and even the risks of trading, this trend of offering financial services directly to children is concerning. Unsurprisingly, FINRA also announced that it wants to get public feedback on the gamification used by trading platforms, as it identified “risks associated with app-based platforms and ‘game-like’ features that are meant to influence customers.” This request for public input is not surprising given the January 2021 GameStop stock controversy, which also raised the concerns of the U.S. Securities and Exchange Commission, its new Chair, Gary Gensler, and other public figures, and is important in light of the growing interest of financial service providers in younger users. Using ethical reasoning and behavioral economics tools, there are several important considerations this Article suggest exploring as it suggests to regulate how FinTech companies and financial institutions should offer digital services to children. First, digital gaming is well-known to be addictive for children. Second, gamifying investing makes it feel less serious, not more serious, contravening the very notion that early education will help young adults understand the seriousness of money. Third, children’s investment choices are more susceptible to the influence of outside, interested (and uninterested) parties. Lastly, parents already are struggling to keep up with supervising their children’s online activities; enabling children to use digital financial apps will require much more effort as there are many things that parents need to be on the lookout for.