Engaging the Next Generation of Investors: A Conversation with Scalable Capital
Versicherungsbote: Could you briefly explain to our readers what Scalable Capital is and what your company does?
Julius Weller: We are a leading digital investment platform in Europe. Our goal is to enable everyone to become an investor. Co-CEOs Erik Podzuweit and Florian Prucker founded the fintech in 2014—initially as a robo-advisor. An online broker was added in 2020. Today, we are active in six European countries. Currently, we have over €15 billion from more than 600,000 customers on our platform.
Scalable Capital is particularly popular among young investors who tend to shy away from "classic" investment paths (e.g., via traditional banks). What do you do differently to reach this target group?
We are completely digital and, compared to others, cheaper, faster, and simpler. Especially for younger investors, the very low fees are attractive because they often cannot yet invest large amounts. This makes an even bigger difference whether you pay 99 cents or up to €30 for buying a stock or an ETF. With high costs, it's hardly worth investing because potential returns are quickly eroded.
Incidentally, this also applies to experienced investors with larger assets. They also don't want costs to diminish returns—and prefer a trading flat rate for less than five euros per month. With a broad investment universe from ETFs and stocks to bonds and derivatives, and currently the highest interest rate offering of a German broker, we provide a comprehensive offering. Additionally, it's no longer just young people who expect an intuitive and modern user interface and the option to invest via smartphone as well as PC.
Among young people, stock market investing is experiencing a small boom: according to the German Stock Institute, around 600,000 people under 30 ventured onto the stock exchange floor in 2022. Nevertheless, four out of five people in the 20-29 age group still avoid the stock market. What, in your view, are the reasons for this hesitation?
First, it's very positive that the numbers of young investors are steadily increasing. This is due firstly to the growing ETF offering, which offers many advantages for small investors. Secondly, more knowledge about the financial market is being conveyed by media and finfluencers. And thirdly, neobrokers have simplified access to the stock market.
Nevertheless, it's true that the majority of people are not yet investing. This needs to change. Many don't even consider investing and believe they need to have a lot of money left over. But that's no longer true: thanks to savings plans starting from one euro, you can also invest with a small budget.
Another reason for the hesitation is that future topics like starting a family, potentially building a house, or even retirement seem very distant in young years. But actually, this long-term nature is the biggest advantage of investing at a young age. The compound interest effect truly comes into play over longer periods. Therefore, even small savings rates can make a huge difference—if you start early.
...and what, in your view, must a financial services provider offer to win over young people for stocks and funds? (If not already answered with the previous question – Editor's note)
To attract young investors, we try, on the one hand, to integrate the topic prominently into everyday life—for example, with poster campaigns, explanatory videos on TikTok, Instagram, etc., or info evenings. On the other hand, we also want to draw the attention of media and politics to the topic so that more education takes place at different levels—for example, in schools—and hurdles to investing fall.
...do young people, based on your experience, invest their money differently? Do they set different priorities and prefer different financial products than older people? Or is that a cliché?
Keyword "priorities"—older investors set those more. They are much more active in individual stocks, while especially younger customers invest predominantly broadly via ETFs. Although 60% of those over 65 also invest in ETFs, in the 18-26 age group it's even 75%.
Otherwise, the biggest difference lies in the amounts our customers invest. People who have been working for several decades have had more time and more frequent opportunities to set aside larger amounts. With their disciplined investing via savings plans, younger investors can quickly close this gap.
In Germany, the lack of financial literacy among the population is often lamented. Recently, an Allianz study again found that more than one in four has only "low financial competence" and cannot contextualize topics like inflation and compound interest. How much competence do you think is needed to use Scalable Capital?
"We have focused on knowledge transfer from the beginning"—and tailor the content to our customers. On TikTok, for example, short posts explain what an ETF is or illustrate the history of a company listed on the stock market. Our blog articles or YouTube videos, on the other hand, delve deeper—explaining investment strategies or reporting on recent market developments.
Serious finfluencers like finanzfluss or Fortunalista also make a significant contribution to conveying financial knowledge. To answer your question: the most important message is that it's not as complex as many believe. That's exactly the knowledge we want to spread—and make customers realize that in most cases they already have the necessary competencies for an intuitive app with simple usability. And this also applies to beginners who are just starting to invest.
What can be done to impart more financial competence here?
Overall, nothing can replace one's own practical experience in the financial market. While it would certainly be useful to learn in a school subject "Money" the difference between a distributing and an accumulating ETF, the taxation of dividends, and above all, the fundamental relationships between risk and return. But what happens with your own money is best experienced when you start with small investment amounts and see it in your own portfolio. We accompany the individual steps of investing with instructions, explanations, and background knowledge.
There are a few simple basic rules: Pay attention to costs, diversify risk, and keep in mind that risk and return potential always stand in a proportional relationship to each other. So, don't fall for offers that promise you secure wealth in a few days. Everyone should build their own wealth over the course of their life—and the earlier you start, the better. If schools taught such basics, much would be gained. Media, influencers, and we ourselves already contribute an important part to this.
Background: This text first appeared in the new free Versicherungsbote Fachmagazin 02-2023.
Key Takeaways for Aspiring Investors
- Start Small, Start Early: The power of compound interest makes even modest, regular investments significant over decades.
- Costs Matter: Low fees, especially for smaller portfolios, are critical to preserving long-term returns.
- Diversification is Default: Young investors naturally gravitate towards broad, low-cost ETFs, a prudent strategy for long-term wealth building.
- Experience is the Best Teacher: Theoretical knowledge is important, but practical, hands-on involvement with the market is irreplaceable for developing financial confidence.
- Digital Platforms Lower Barriers: Neobrokers have democratized access, making investing intuitive, affordable, and integrated into digital lifestyles.
The conversation underscores a fundamental shift: investing is no longer the exclusive domain of the wealthy or financially expert. Through technology, education, and a focus on user experience, platforms like Scalable Capital are helping to build a more financially empowered generation.