IT'S OFFICIAL: US Retail Investors Lack Basic Financial Literacy


Photo: didbygraham via Flickr

The SEC just published a Dodd-Frank-mandated study of financial literacy among investors and it’s embarrassing.Their main conclusion: “U.S. retail investors lack basic financial literacy.”

To comply with the DF directive, the Commission asked the Library of Congress to review quantitative studies on the financial literacy of U.S. retail investors published since 2006.

Here are the (ugly!) details of what the LOC found:

“For example, studies have found that investors do not understand the most elementary financial concepts, such as compound interest and inflation. Studies have also found that 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. Moreover, based on studies cited in the Library of Congress Report, investors lack critical knowledge about investment fraud.

Seems like an uphill battle, but here are the agency’s preliminary strategies to address the issue:

  • Targeting specific groups including young investors, lump sum payout recipients, investment trustees, the military, underserved populations, and the elderly;
  • Promoting the importance of checking the background of investment professionals;
  • Promoting as the primary federal government resource for investing information
  • Promoting awareness of the fees and costs of investing


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