Americans Are Financially Illiterate According to SEC Study

By: Brittany DeDiego, Fall 2014 Student Intern

signOn July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law. Under this act, the SEC was required to conduct a study to identify the existing level of financial literacy among retail investors as well as methods and efforts to increase the financial literacy of investors.

According to the Library of Congress Report included in this study, American investors lack basic financial literacy and investors have a weak grasp of elementary financial concepts and the knowledge necessary to avoid investment fraud. For example, studies show that investors do not understand the most basic financial concepts like compound interest and inflation.

Based on the study, the SEC found that the most effective way to educate investors are researched-based programs that are goal oriented and emphasize important investor education concepts, that are easily accessible, delivered efficiently, and relevant to the target audience. As a result of this finding, the SEC will promote investor.gov as the primary federal government resource for investing information. This website contains important information on what investors should do before investing, risks involved, assessing your risk tolerance, understanding fees, information about investment products, and how to avoid fraud.