Animal Spirits Podcast Summary: "Is Financial Education Working?" (EP.413)

Release Date: May 21, 2025
Hosts: Michael Batnick and Ben Carlson
Description: Animal Spirits is a show about markets, life, and investing. Join Michael Batnick and Ben Carlson as they talk about what they're reading, writing, listening to, and watching. New episodes every Wednesday morning.

Introduction

In Episode 413 of the Animal Spirits Podcast, titled "Is Financial Education Working?", hosts Michael Batnick and Ben Carlson delve into the efficacy of financial education in today’s investment landscape. They explore whether enhanced financial literacy among retail investors is translating into more disciplined and successful investment behaviors.

Financial Education: Signs of Improvement

Ben Carlson initiates the discussion by referencing feedback from listeners, including a message from Michael Antonella who stated:

"I think that education of retail investors is better than it's ever been. Psychology of money, Animal spirits, Bull and bear blog. The proper education about how crazy markets are and not to overreact and think long term is working." [03:36]

Michael confirms the trend, noting that the hierarchical view of investors has flattened. Historically, institutional investors like endowments and foundations were seen as superior, while retail investors were often underestimated. However, this hierarchy is no longer as pronounced.

Data Supporting Improved Retail Investor Behavior

Ben cites a survey by YCharts, a platform frequently used by advisors for data analysis, highlighting that advisors utilizing YCharts added $33 billion in new Assets Under Management (AUM) last year and saved over 20 hours per month on research and proposal generation. He emphasizes the role of AI tools in enhancing efficiency:

"I'm using a lot of AI chat. Get this data for me, put it into an Excel file." [01:22]

Michael and Ben discuss anecdotal evidence of improved investor behavior, sharing fabricated but illustrative emails from listeners who have maintained disciplined investment strategies despite market volatility:

"I feel like I'm taking crazy pills in this market, but I'm being disciplined as ever, thanks to you guys." [05:55]

Market Flows and Investment Patterns

Ben addresses the influx of retail money into the stock market, citing a report from Eric Belchuna:

"Voo, the S&P 500 ETF for Vanguard, has taken in $46 billion more than any other ETF this year to date. It's on its way to a trillion dollars in assets." [06:32]

They explore the sources of this capital, pondering whether it stems from increased wages or reallocated funds from money markets and bonds. Ben presents an analysis suggesting that significant outflows from money markets—$125 billion in April—have likely flowed into stocks and bonds, serving as "dry powder" fueling the stock market surge.

Bond Yields, Inflation, and Deficit Concerns

The conversation shifts to bond yields and their implications. Michael raises concerns about the recent Moody's downgrade of U.S. credit:

"If we're not AAA, then no one is. We're the global reserve currency." [11:23]

Ben counters by downplaying the downgrade's immediate impact, arguing that despite rising bond yields, the overall economic indicators remain stable:

"Inflation right now is 2.3%. If inflation were screaming higher because of deficits and government spending, I'd be more worried, but it's not." [12:36]

Corporate Responses to Tariffs

The hosts discuss the impact of tariffs on retail giants like Walmart, highlighting the company's efforts to manage cost pressures without significantly raising prices:

"WE WON'T let tariff-related cost pressure on some general merchandise items put pressure on food prices." [25:04]

Ben analyzes Walmart’s efficient supply chain, suggesting that large corporations are better equipped to absorb tariff costs compared to smaller businesses.

The Importance of Equity Ownership for Wealth Building

Drawing from historical insights, Ben emphasizes the role of equity ownership in wealth accumulation. Referencing "The Millionaire Next Door", he notes:

"Less than 20% of workers in America are self-employed or own their own business, but they make up two-thirds of the millionaires in this country." [33:15]

Michael underscores that owning equity in businesses is pivotal for significant wealth generation, advocating for investment strategies that prioritize equity over traditional 9-to-5 employment.

Housing Market Outlook and Demographics

The discussion transitions to the housing market, where Michael and Ben analyze demographic shifts impacting homeownership. They reference a report by Torsten Slack highlighting that the median age of homebuyers has risen to 56 years old from 31 in 1981:

"40% of the homes don't have a mortgage, which skews the demographics significantly." [42:00]

Ben points out that the aging baby boomer population holds substantial home equity, complicating the housing affordability crisis faced by younger generations.

Consumer Sentiment and Inflation Expectations

Ben critiques the reliability of consumer sentiment surveys, arguing that they often reflect temporary sentiments influenced by recent events like tariffs:

"Inflation expectations surged from 6.5% last month to 7.3% this month. Both Democrats and Republicans see the rise." [43:30]

Michael concurs, suggesting that behavioral responses may not align with surveyed sentiments, thereby questioning the utility of such surveys in predicting economic behaviors.

Social Security Insights

The hosts explore changes in Social Security claiming behaviors, noting a 13% increase in retirees taking benefits early:

"An additional 276,000 retirees claim benefits on their earnings, a 13% jump from a year ago." [50:38]

Ben argues that despite financial incentives to delay claims for higher future benefits, many retirees prioritize immediate access to funds, reflecting a disconnect between financial rationality and personal preferences.

Personal Stories and Recommendations

Michael and Ben interweave personal anecdotes and listener interactions throughout the episode, providing a relatable context to the financial discussions. They share experiences related to travel, technology use, and lifestyle choices, illustrating how everyday decisions intersect with broader financial principles.

Final Thoughts

In concluding the episode, Michael and Ben reaffirm the importance of separating political opinions from investment strategies:

"It's okay to have political opinions, but do not let it invade your portfolio." [27:54]

They emphasize that informed, disciplined investment practices, bolstered by effective financial education, are crucial for navigating market uncertainties and building lasting wealth.

Notable Quotes:

• "Education of retail investors is better than it's ever been... The proper education about how crazy markets are and not to overreact and think long term is working." — Michael Antonella [03:36]

• "Advisors using YCharts added $33 billion in new AUM last year and saved over 20 hours a month on research and proposal generation." — Ben Carlson [01:22]

• "Voo, the S&P 500 ETF for Vanguard, has taken in $46 billion more than any other ETF this year to date." — Ben Carlson [06:32]

• "Less than 20% of workers in America are self-employed or own their own business, but they make up two-thirds of the millionaires in this country." — Ben Carlson [33:15]

• "It's okay to have political opinions, but do not let it invade your portfolio." — Michael Batnick [27:54]

This episode provides a comprehensive examination of the current state of financial education among retail investors, supported by data and real-world anecdotes. Michael Batnick and Ben Carlson effectively argue that improved financial literacy is fostering more disciplined investment behaviors, contributing to stronger market participation and better individual financial outcomes.