Can We Educate Investors? (Not really) - The Big Picture
Can We Educate Investors? (Not really)
Financial Knowledge and
Decision-Making
Amid all the hoopla and theater of the
national political convention you might have missed a noteworthy report about
the financial literacy of the average American adult. It’s worth taking a look
during the weekend if you want a break from the presidential race, which seems
like it begins again as soon as the election results are in.
There’s not much in the National
Financial Capability Study to
suggest that people are getting smarter about their finances. “Only 37 percent
of respondents are considered to have high financial literacy, meaning they
could answer four or more questions on a five-question financial literacy
quiz—down from 39 percent in 2012 and 42 percent in 2009,” according to the
study.
This is a troubling development. You would
think that after the financial crisis, when so many individual investors got
badly burned, that they would make a greater effort to understand investing. But
the academic evidence suggests that investor education is at best an uphill
battle, and at worst a big waste of time.
As the
Brookings
Institution observed, “None of the
four traditional approaches to financial literacy – employer-based,
school-based, credit counseling, or community-based – has generated strong
evidence that financial literacy efforts have had positive and substantial
impacts. “
Indeed. When a broad analysis was done looking at all of the research, the
results were deeply disappointing; even when consumers do manage to learn a
little, those gains “decayed over time . . . with negligible effects on behavior
20 months or more” after.
Continues at Investor Education Slips Into Reverse
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