Financial Education Can Make a Difference in the Capital Market
"Financial education can make a difference in the capital market. Thus, those who understand the risks well and invest according to recommendations have every chance of achieving very good results," explained Prof. Marian Siminică, Executive Director of the Institute of Financial Studies (ISF), at the Financial Year 2022 conference organized by FinMedia and Piața Financiară. He highlighted ISF's efforts to promote financial education among Romanians and presented some successes of their programs.
“At ISF, we run a comprehensive financial education program, primarily targeting younger generations. We have partnerships with 20 universities in Romania where we organize events where specialists from entities active in non-banking financial markets discuss topics such as career management, investment opportunities, and various financial products and services. This successful project is now in its second year of implementation. Additionally, we offer professional training courses for teachers who teach financial education in the pre-university system, which is a challenging area, and we hope to see positive results in the near future. Therefore, we are actively involved in supporting financial education, especially among the younger generation,” said Prof. Siminică.
The Executive Director of ISF believes that financial education is the best solution to increase the number of people investing in the stock market. "Everyone should understand both the risks and the advantages of such a savings investment solution."
“If we look at the financial results of the previous year, the BET index rose by over 30%. When we include dividends, we reach about 40%, which are fabulous and tempting values for any investor. However, it must be noted that such investments come with a series of risks. The risks are much higher compared to bank deposits. Therefore, it is crucial to be aware of these risks; there can be periods when stock prices rise, as in 2021, but there can also be times when they fall. Most of the population keeps their savings in bank deposits, and while the number of stock market investors is growing, we see from statistics provided by the Investor Compensation Fund that there are around 74,000-75,000 investors. However, compared to over 15 million depositors, the number of stock market investors remains low, and the challenge is to attract more people to invest part of their savings in the capital market. For this, financial education is necessary. We firmly believe that financial education makes a difference, and through extensive programs aimed at the population, we can contribute to attracting additional resources to the capital market,” stated Prof. Siminică.
Although all stock indices ended positively in 2021, not all listed companies experienced growth. “I analyzed the price evolution of companies listed on the regulated market. According to data from BVB, as of December 31, 2021, there were 83 listed companies. I excluded four companies—one for which there were no transactions in 2021 and three that were listed during the year—resulting in an analysis of 79 companies. Of these, only 54 saw price increases, while 25 companies experienced price declines. Thus, one in three stocks showed decreases. A new investor who enters the stock market without proper guidance or analysis may invest in stocks that have been declining, resulting in low or even negative returns, leading to disappointment. If they suffer such a disappointment in their first year, they are likely to withdraw and may not return for a long time, if ever. That’s why financial education is crucial, to understand that they are assuming risks, that gains are not guaranteed, and to have the foundational knowledge to select stocks with growth potential,” explained the Executive Director of ISF.
Prof. Siminică also offered several recommendations for those looking to invest in the stock market, debunking several myths.
“Many people are hesitant to invest in the capital market because they think large sums are necessary. This is not true! You don’t need large sums to invest in the stock market; in fact, it is recommended to start with small amounts that can be gradually increased as the investor gains confidence. Therefore, invest regularly and consistently. In terms of investment duration, we should invest for the long term. If available funds are meant for 1-2 years, bank deposits are advisable. But if the funds are available for 3-5 years or more, then stock investments are recommended. Finally, perhaps the most important point: invest diversely. Do not concentrate your portfolio on 1-2 stocks, but aim for a structure that resembles a stock market index or other criteria,” concluded Prof. Siminică.
