A dangerous new culture of financial risk

Here is a mix of good news and bad news. Good news: Half of younger Americans invested their stimulus payments, according to a CNBC survey—a sign of growing interest in personal finances and the advent of new digital tools that make it easier than ever to save and invest. Bad news: Volatile new “investments,” a proliferation of personal finance influencers, and the gamification of trading platforms, have fueled a dangerous new culture of financial risk. Instead of talking about stewardship and generosity, many young Americans are increasingly focused on taking risks to get rich quick and flashing their wealth as a sign of their investing knowledge.

This trend became most obvious at the beginning of this year when GameStop’s stock price soared by more than 1,700 percent (5,000 percent compared to the year before) before crashing back down—though still remaining far above where it was last year. Other companies have since followed a similar trajectory, including Bed Bath & Beyond and AMC Theatres. Partially driven by users of an online forum on Reddit called WallStreetBets, this “meme stock craze” is a symbol of a broader societal shift toward an investing philosophy that advocates taking dangerous risks to have a shot at extraordinary wealth. This often comes with disastrous consequences—many young people lost their savings trying to bet on these stocks.

This philosophy has continued to spread to all aspects of personal finance. Some millennials lost hundreds of thousands of dollars of their life savings making bets on a recent special-purpose acquisition company that didn’t work out. Others are betting their savings on risky options trades (with often disastrous results), after being convinced by YouTube videos that it’s an easy way to make a lot of money. Robinhood, a popular trading platform, recently came under heavy scrutiny for “gamifying” financial decisions in a way that encourages risky behavior.

The market for non-fungible tokens (NFTs) also represents a new era in speculative “investing,” where buyers spent tens of millions of dollars to be able to “own” a small fraction of a digital picture of a dog or hundreds of thousands of dollars for a video of a painting being burned. People have piled billions of dollars into buying NFTs, betting only that prices will keep going up. “I suppose that the stock market has always provided opportunities for compulsive gamblers, but it does feel like those opportunities are heightened these days,” argues Matt Levine, a finance journalist.

This is not going to end well. These questionable investment opportunities show an increasing comfort with risk-taking, an opportunity that fraudsters are happy to exploit. The amount of money lost to scams originating on social media more than doubled from 2019 to 2020, according to the Wall Street Journal.

Young people are also increasingly turning to social media influencers for financial advice or ignoring traditional financial advice and making their own questionable investing decisions (like investing in a “hedge fund run by his business partner’s neighbor” or a project “building futuristic huts in a dry lake bed in Utah.”) That’s not to say traditional financial advisors aren’t without flaws. Many charge exorbitant fees for investment returns that are often worse than a low-cost index fund or sell high-priced, unnecessary insurance products.

Still, the advent of this self-focused, over-confident investing philosophy seems to revolve around one goal—make as much money as you can, as quickly as possible. Many assume that they’ll be generous once they become sufficiently wealthy, but “the hardest financial skill is getting the goalpost to stop moving,” writes Morgan Housel in his book The Psychology of Money. In fact, various studies on generosity show that “the lower-income population surprises by giving more than the middle—and in some measures even more than the top.”

In their book God and Money, John Cortines and Gregory Baumer outline principles for biblical wealth and giving that are important for Christians to follow in a world currently obsessed with accumulation. “Wealth is like dynamite, with great potential for both good and harm,” they argue. “Giving generously breaks the power of money over us.” They share some depressing data—less than three percent of American adults give away ten percent or more of their income. Though attending church regularly does correlate with somewhat higher giving rates, there is still a long way to go for Christians to be known for their generosity.

“We believe that God has ordained the modern era of history for wealth creation, and that the heavy responsibility for managing the windfall is distributed across millions of well-off Christians in the Western world,” argue Cortines and Baumer. It’s time we stop glorifying ways to get rich quick and instead focus on being more generous with what we’ve been given.