An astonishing review of years of investor surveys was released on August 30 and showed that the vast majority of investors are unfamiliar with basic financial concepts like the time value of money, compound interest, and inflation.
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Many were also uneducated about how interest rates determine the price of securities, the meaning of stocks and bonds, and the value of portfolio diversification.
The Library of Congress conducted the review on behalf of the SEC. A study of financial literacy among American individual investors was a mandate of the Dodd-Frank Act.
The SEC wanted to know what investors wanted to know about investments as well as advisors. They also wanted to find out how investors would like that information to be offered.
Since more and more people are having to make their own investment decisions in their 401(K) plans, the level of financial knowledge is troublesome.
The Library of Congress stated that employees will not be able to make informed decisions that will affect the quality of their retirements if they are not sufficiently knowledgeable in these areas.
One answer might be to make such education a requirement for obtaining a high school diploma. That leaves out investors contributing to their 401(K)s now.
Some advisors align themselves with employers offering such defined-contribution plans and becoming a valuable resource
by educating employees on just such matters. It might also be a great way to grow your business.