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Study Regarding Financial Literacy Among Investors

Study Regarding Financial Literacy Among Investors. Lori J. Schock Director, Office of Investor Education and Advocacy U.S. Securities and Exchange Commission October 2012. Disclaimers.

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Study Regarding Financial Literacy Among Investors

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  1. Study Regarding Financial Literacy Among Investors Lori J. Schock Director, Office of Investor Education and Advocacy U.S. Securities and Exchange Commission October 2012

  2. Disclaimers Presentation: The U.S. Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed in this presentation do not necessarily reflect the views of the SEC, its Commissioners, or other members of the SEC’s staff. Study: The information discussed in this presentation is based on a study by the SEC’s Office of Investor Education and Advocacy. The SEC has expressed no view regarding the study’s analysis, findings, or conclusions.

  3. Overview of Today’s Presentation • Statutory Requirements of the Study • Sources of Information • Selected Findings

  4. Dodd-Frank Act • Requires the SEC to conduct more than 100 rulemakings and studies • Section 917 specifically requires the SEC to conduct a wide-ranging financial literacy study

  5. Sources of Information Online Survey Research • Four panels of approximately 1,200 survey respondents (approximately 4,800 respondents in total) • Focused on the usefulness and effectiveness of : • the Form ADV Brochure • account statements and confirmations • mutual fund summary prospectus • point-of-sale disclosure document (hypothetical)

  6. Sources of Information Focus Group Research • 12 focus groups • Selecting a financial intermediary (6 groups) • Purchasing investment products/services (6 groups) • Locations: • Baltimore • Atlanta • San Diego

  7. Sources of Information Public Comment Requests • Improving Investment Disclosures • Received 45 comments • Private and Public Efforts to Educate Investors • Received 84 comments

  8. Sources of Information Federal Research Division, Library of Congress • Conducted a review of existing studies of financial literacy among retail investors Participants of the Financial Literacy and Education Commission Cross-Divisional SEC Task Force

  9. Selected Findings: Investing Disclosures • THE “WHEN” • Retail investors: Before • Commenters: Before or • at the time • of

  10. Selected Findings: Investing Disclosures • THE “WHAT” • For financial intermediaries, • Fees, disciplinary history, investment strategy, and conflicts of interest = ESSENTIAL INFORMATION • For investment products, • Summary documents with key information

  11. Selected Findings: Investing Disclosures • THE “HOW” • Format: • Clear, concise, understandable language • “Layered” disclosure anduse of a summary document • Method of delivery: • Mixed views: hard-copy vs. online documents

  12. Effective Private and Public Efforts to Educate Investors • Key Characteristics • Based on research and evaluation • Focused on clear goals • Timely and relevant • Include important investor education concepts

  13. Effective Private and Public Efforts to Educate Investors • Key Characteristics (cont.) • Promoted with strategic partnerships • Be easily accessible • Delivered efficiently • Scalable

  14. Financial Literacy Among Retail Investors Key Findings from the Library of Congress Report Studies show that American investors lack basic financial literacy: • Many don’t understand basic concepts (e.g., compound interest) or other key financial concepts (e.g., diversification) • Many aren’t aware of investments costs and their impact on investment returns • Many lack critical knowledge about investment fraud • Surveys demonstrate that certain subgroups (e.g, women, African-Americans, Hispanics, the oldest segment of the elderly population, and those who are poorly educated) generally perform worse than average on surveys relating to investment knowledge

  15. Strategy to Increase the Financial Literacy of Investors OIEA and other FLEC participants will work jointly to develop programs: • Targeting specific groups (young investors, lump sum payout recipients, investment trustees, the military, underserved populations, and older Americans) • Promoting the importance of checking the background of investment professionals • Promoting awareness of the fees and costs of investing • Promoting Investor.gov as the primary federal government resource for investing information

  16. SEC Contact Information Website: www.SEC.gov www.Investor.gov Twitter: @SEC_Investor_Ed Phone: (800) 732-0330 Email: SchockL@sec.gov

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