A recent article by Rich Duprey published by Motley Fool examined the credit scores of Robinhood users and opined that those with low credit scores should not be investing in capital markets. Hold on, here…
As a financial professional with many years of experience, I can think of many examples of “rich” people with horrible credit scores. And consider the demographics of Robin Hood users – the average age is 28-41. According to the article, 43% of Robinhood users have a FICO score under 650, while the average American has a score of 711, and the highest score available is 850. This demographic may not have had the time to build the experience and time horizon for top-tier credit scores, but may have good reason to gain experience in wealth creation.
The real issue is lack of financial literacy and the complexity of financial markets and products, NOT creditworthiness. A good credit history comes from an understanding of the pros and cons of using a credit product and understanding the terms and conditions around the product itself. Responsible, successful investing comes from understanding how markets work, understanding ways to invest and what to invest in, and understanding risk vs. reward. In addition to being able to objectively determine your tolerance for risk.
Telling folks they should just “read the fine print” before they sign a loan or account opening agreement, or hit “I agree” to the terms and conditions listed on a screen, does nothing to promote understanding of complex financial products. Internet search engines produce volumes of research material, much of it at best not applicable to one’s personal situation, and at worst just plain wrong or a scam. And how does one know which is which?? How do you know what you don’t know?
While it’s tempting to ask public and private education institutions to provide financial literacy in curricula, the problem is that new and ever-more complex financial products and services are being introduced almost every day. Teaching and encouraging critical thinking skills and general financial principles is a great start. Finding a trusted financial professional for your family to partner with is another great step. That can increase the ability to create sustainable wealth and avoid unnecessary wealth erosion. YOU DON’T NEED TO HAVE MONEY TO GET GOOD ADVICE. Contact me for a free consultation to see if I might be a good fit to help you and your family on your journey to wealth creation. If I’m not, I am committed to getting you the appropriate help for your needs.