Over the past nine months, Lian Lingling, 20, has acquired a new daily routine – checking her Yu’ebao account. The online financial product not only helps her and other students to save money, it also cultivates in them a sense of financing and investment. But scholars warn that online financing has its risks and students need to have a more comprehensive understanding of financial products.
Lian Lingling, a computer information management major at Shanghai Normal University, was among the first users of Yu’ebao. The financial product provided by Alibaba Group allows users to directly invest in the private Tianhong funding company using spare cash from Alipay accounts. As Lian uses Alipay frequently, it’s convenient for her to invest. “With the cell phone app, I can make real-time transfers between the two accounts,” she said.
Yu’ebao offers a seven-day annualized yield of 5 to 7 percent. “Though it’s decreasing, it’s still higher than the interest rate provided by banks,” Lian said. “Besides, I can see money coming in every day.”
Similar to Lian, many other college students are also interested in or enjoy such easy ways of financing. According to a recent Renren.com survey, 70 percent of respondents showed interest in online financing products, with most having a preference for Yu’ebao.
“This trend fits their behavior,” says Suo Lingyan, an associate professor at Peking University’s School of Economics. She says college students rely heavily on the Internet, “therefore they can easily accept online financing products”. Moreover, Yu’ebao caters to students’ needs. “Their investment is small and they require a high degree of liquidity,” she said.
Now, Lian is quite addicted to Yu’ebao, and it is having a good affect on her. Since she started putting money in her Alipay account, she has cut down on shopping expenses and is investing more money in Yu’ebao.
But Suo warns that students should be cautious about online financial products. “In essence, investing in Yu’ebao equals investing in a monetary fund. Though Yu’ebao lowers investment barriers and costs, the risk levels are the same,” she says.
Li Daokui, a professor of economics at Tsinghua University, pointed out that the biggest risk of Yu’ebao may be the lack of information transparency. “High-risk credit products are the supporting asset of Yu’ebao. These risks are not revealed to individual investors,” he said during an interview on CCTV. “This may result in a squeeze of investment if some investors lose confidence in Yu’ebao,” he added.
The solution for student investors, Suo believes, is to gain more financial knowledge and understand how financial services operate. “Grasping some basic financing principles can help students in avoiding or mitigating some risks and make wise investment choices,” she said.