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Many Investors Lack Literacy in Finance, Says SEC Survey

A wide range of retail investors are not literate in terms of finance, accordi

A wide range of retail investors are not literate in terms of finance, according to a recent survey conducted by the U.S. Securities and Exchange Commission (SEC).

Key results

The report, which was titled "Study Regarding Financial Literacy Among Investors," revealed how little retail investors know about the stocks, bonds and other financial instruments that are typically contained in the portfolio of the average investor, according to NBC News.

According to the results of the study, retail investors lack a strong understanding of "elementary financial concepts" and are ignorant when it comes to different methods of avoiding being a victim of investment fraud.

The survey revealed that certain demographics such as people who have little education, women, African-Americans, older retirees and Hispanics are afflicted by a lack of knowledge about investment greater than that of the general populace.

Conducting the study

The SEC conducted the study by utilizing various resources, including public comments provided to the government agency, research pulled from online surveys, focus group research and a summary of financial literacy surveys undertaken by the Library of Congress.

The study was created after the financial crisis because it was proposed that a major contributor to this phase of turmoil was financial illiteracy, according to the media outlet. The market experts asserting a link between this lack of financial knowledge and the ensuing crisis believed that everyday investors did not know all the risks inherent to the securities they were buying.

Mutual fund risks

As an example, the survey states that many investors felt like they were aware of all relevant risks posed by mutual funds, but unfortunately these market participants were not.

The SEC concluded that one research panel composed of online survey respondents "had difficulty calculating hourly fees and fees based on the value of their assets under management. They also had difficulty answering comprehension questions about xxiii investment adviser compensation involving the purchase of a mutual fund and identifying and computing different layers of fees based on the amount of assets under management."

FINRA Foundation

Regulators asked investor education non-profit FINRA Foundation for input on the study it was conducting, the media outlet reports. Foundation President Gerri Walsh stated that her non-profit had observed a "a significant disconnect between self-perception and reality."
Walsh stated that her past research had uncovered that many Americans think they are far more adept at handling finances than they are in reality. 

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