A lack of financial literacy is enough to keep many folks out of the stock market altogether. But that’s not the only kind of knowledge that plays a key role in investing. Media literacyor the ability to access, analyze, create, and act using different online platformsalso impacts investor behavior.
What is financial media literacy, and how can investors use it to become informed, active investors?
TL;DR
- Media literacy is about thinking critically about what you hear, read, and view. It helps contextualize the world, including business and investing.
- The United States has freedom of the press. This is hugely important, but it also means there’s a lot of misinformation and disinformation out there. It’s up to media consumers to get to the bottom of it.
- Media literacy in investing is especially important. Your wealth is on the line, and making investment decisions on media messages comes with big responsibility.
- Once you train yourself to become media literate, it’ll feel like second nature. Considering sources, practicing click restraint, and recognizing biases are a few ways you can build better media literacy.
- Ultimately, media literacy helps you be an informed, active, and successful investor. It also opens the door to ethical investing.
Media literacy, explained
At its core, media literacy is much more than a definition. It gives people the ability to access, analyze, create, and act through different media platforms.
Media literacy doesn’t just teach people where to find information. It helps them think critically about what they’re hearing, reading, and viewing. It also helps citizens of the world contextualize cultures, communities, and stories.
In addition to helping people break down existing media messages, media literacy also teaches people how to create their own messages (and do so responsibly).
A study from the Pew Research Center found that 60% of Americans could not pass a basic digital literacy test. The need for media literacy starts young. That’s why 97% of educational professionals feel it’s crucial to increase digital and video literacy among students and teachers.
Even adults need to freshen up their media literacy. New media and communication platforms are constantly emerging. It can be difficult to make sense of all the buzz in the information age. According to Public research, most retail investors taught themselves how to invest, making it even more important to fine-tune financial media literacy skills.
Why media literacy impacts everyone
Student, worker, voter, investorwhatever your stripe, you consume media all around you. The media messages you take in ultimately shape the way you think and act. That’s why thinking critically about the media you consume and create is key to being “informed, reflective, and engaged,” according to the National Association of Media Literacy Education (NAMLE).
Disinformation and misinformation is a major issue in the modern age. Still, the U.S. is a place where the freedom of the press is paramount. That means it’s largely up to the people to decipher what’s true, trustworthy, unbiased, and reliable.
According to Statista, only 26% of Americans are very confident in their ability to recognize fake news. Meanwhile, 67% of Americans believe fake news causes confusion. Financial media literacy can change this trajectory.
How media literacy ties in with investing
For investors, media literacy helps you cut through the noise and keep your finger to the pulse of the market.
Much like politics, the world of investing is full of media messages with different slants. Investors must be aware of content published by stakeholding institutions. For example, short-seller Hindenburg Research publishes scathing exposs on publicly traded companies. Hindenburg’s investigations are often accurate, but it also profits off of stocks decreasing in value, so it’s important to analyze the messages for bias.
The stock market moves quickly. This is why investing news comes just moments after corporate events, earnings reports, and other happenings. Media literacy means being able to cut through the clutter, even when it piles up quickly.
Financial media literacy is also important in the context of cryptocurrency investing. Crypto is a volatile asset, which makes it even more important to criticize the information you’re consuming. Newly-elected New York City mayor Eric Adams has made comments that cryptocurrency should be taught in schools.
Using financial media literacy on social media
Investors can access more information than ever on social media. From Reddit to Twitter, investing opinions are everywhere. Much like traditional media, use financial media literacy tools to help figure out what’s worth listening to. In the era of social-driven meme stocks, this is key.
Crypto investing is a major social media topic. Crypto evangelists often hold digital assets and have a stake in increasing crypto values. You can combat this by learning about a crypto asset’s founding story, thesis, and other relevant information.
How to sharpen your financial media literacy
Media literacy advocates use certain tools and tactics to help educate people. For our purposes, we’re looking at these strategies from an investing perspective.
- Consider the source: Cross-check the publication with other sources on the same topic. What have other authorities said about it? What has the author/website written about previously? Does the publisher hold a stake in the company being discussed or take money from others? Can you find proof of the claims elsewhere? What do they have to gain from the story’s slant, if anything? Does the SEC document search tool have filings you can reference for accuracy?
- Practice click restraint: Don’t rely on clickbait. Scan other results and use multiple well-cited sources.
- Use IMVAIN: An acronym from the Center for News Literacy that means Independent sources; Multiple sources; Verified evidence; and Authoritative, Informed, and Named sources.
- Use an interdisciplinary approach: Successful investors digest news intelligently and actively. Increasing media literacy helps investors recognize their own biases, think critically, embrace the unknown, and put ethics into the equation. Just look at impact investing using ESG (environmental, social, and governance) criteria.
- Diversify your inputs. Consult multiple trusted sources to gather as much information as possible. If you read something that seems overwhelmingly positive, dig into what more critical voices are saying to arrive at your own conclusions.
Bottom line
Media literacy is the new literacy. For cryptocurrency and stock market investors, that means diving below the headlines and looking past the fluff. It also means expanding the news you consume. Promoting responsible media creation is a long and arduous journey but in the meantime, investors can work to improve their own financial media literacy and spread the word about why it’s important.