Last month, the Securities and Exchange Commission released the “Study Regarding Financial Literacy Among Investors.” The study, which was conducted in conjunction with the Library of Congress, found “[…] that investors have a weak grasp of elementary financial concepts and lack critical knowledge of ways to avoid investment fraud.”
What I found particularly interesting in the study was the comment that “surveys demonstrate that certain subgroups, including women, African-Americans, Hispanics, the oldest segment of the elderly population, and those who are poorly educated, have an even greater lack of investment knowledge than the average general population.” Since our population is over fifty percent women (and in my opinion we have the potential to rule the world, I mean accomplish anything) this statistic is not looking too favorable. The study notes that investors lack an understanding of areas including inflation, diversification, investment types, associated fees and the potential risks when it comes to investing their money. I agree that money may not buy happiness, but understanding how to manage it does provide a certain level of independence that I think all women deserve.
I have always whole-heartedly believed the saying that “no one will every care about your money as much as you do” and I have always known that I need to personally understand the risks and logistics behind any investments I make. Right now I am focusing on paying off my student debt, however at some point I want to begin to invest and create a return on my money beyond a 401k. There are a few areas I want to verify and have a confident understanding of when the time comes to take the plunge.
- Understand My Time Frame-when will I need the money in the future. 10 years? 35 years?
- Develop My Appetite For Risk-how comfortable am I taking risks? This will dictate the types of investments I choose and how I should diversify and put my eggs in different baskets.
- Investigate My Investment Options- research the different stocks, mutual funds, and bonds including the financial statements and their registration. See the tips on investor.gov.
- Research Additional Advice- If I feel the need for a second opinion I will seek out a registered financial advisor ensuring that they are experienced and registered with the SEC. See the SEC recommendations on selecting an advisor here.
That’s a really disheartening report when you think of how many opportunities there are in life to teach someone about money! In middle school we did a year-long simulation that was like an extended game of life. Our class performance earned us Room-bucks, but each week we had to draw a card from the “Life-deck” and see what scenario we encountered. An unexpected tax bill? Minor winnings in the lottery? We could also start independent businesses within the classroom and sell stuff to each other for “Room-bucks”. It wasn’t perfect, but for the amount of time we spent on it each week – maybe 10 minutes? – the lessons were amazing.
We did the same type of activity in middle school! We created a whole mini society in the classroom. I think that type of simulation would be really beneficial at the high school or college level as well with more complex concepts and issues. Thanks for sharing!