“American Investors Lack Basic Financial Literacy”

I recently wrote about the comics and games put out by the Federal Reserve. I concluded that unfortunately, many Americans need these types of materials because they know nothing about managing their money.

One provision of the Dodd-Frank Act was to look at American financial literacy. The report came out today…and we got a big fat F. Here’s a depressing quote:

According to the Library of Congress report, studies consistently show that American investors lack basic financial literacy. For example, studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation. Moreover, many investors do not understand other key financial concepts, such as diversification or the differences between stocks and bonds, and are not fully aware of investment costs and their impact on investment returns. According to the Library of Congress report, studies show that investors lack critical knowledge that would help them protect themselves from investment fraud. In particular, surveys demonstrate that certain subgroups, including women, African-Americans, Hispanics, the oldest segment of the elderly population, and those who are poorly educated, have an even greater lock of investment knowledge than the average general population. The Library of Congress Report concludes that “low levels of investor literacy have serious implications for the ability of broad segments of the population to retire comfortably, particularly in an age dominated by defined-contribution retirement plans.” Furthermore, it states that “intensifying efforts to educate investors is essential,” and that investor education programs should be tailored to specific subgroups “to maximize their effectiveness.”

What’s left unsaid is that it’s in Wall Street’s best interest to keep folks in the dark.

Posted by on August 30th, 2012 at 7:23 pm

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