We're All Capitalists Now: The Importance, Provision and Regulation of Investor Education

Abstract

The paper studies investor education so as to evaluate and guide increasing educational efforts. It first discusses the conditions that have made investor education important and inevitable in the U.S. The paper then presents a theoretical framework that identifies three kinds of investor education -- education about saving, investing and financial fraud. In considering the parties best competent to provide them, it observes that families might accomplish each kind, with high schools also offering, as many now do, general financial education. Consumer financial services firms, moreover, should conduct, and do, in fact, provide, saving and investing education as initial or continuing investor training. Federal and state regulators of financial services should, therefore, limit their tasks to educating consumers about financial fraud and abuse and to persuading them to save, invest and use the educational products and services of private firms. As an application of the theoretical perspective, the paper analyzes the major investor educational initiatives of the Securities and Exchange Commission (SEC). The SEC should improve its educational efforts by redirecting its own activities in accordance with the paper's guidance to concentrate on anti-fraud education and to promote and facilitate private investor education.