Want to learn how to protect your hard-earned money? Best not to get your education from the finance industry.
Consider investment adviser Dawn Bennett, who earlier this year posted a blog item entitled "Our Key to Financial Stability? Education." Bennett's earnest post called for financial education beginning in elementary school and continuing through college. Literacy efforts could have "a bigger impact on the nation's economic stability than any short-term solution or quick investment tip," she said.
On Monday, the Securities and Exchange Commissionbarred the financial literacy advocate from the securities industry for overstating her firm's assets and investment results, and fined her millions of dollars. Bennett's lawyer toldReuters that she would be "appealing the constitutionality" of the agency's appointment process for its administrative law judges.
If your broker is waving the financial literacy flag, it doesn't necessarily mean she has your interests at heart.
Too bad no one taught Bennett's clients the critical financial literacy lesson on how to check her regulatory records, where they would have found 10 customer complaints, one of which was denied, two of which were settled and two where arbitrators told her to pay awards after hearings took place. Another five are pending.
They don't teach you that stuff in the literacy programs decorated with brokerage firm logos.
The mission to help Americans become more financially literate has never been much to write home about, and data from a comprehensive study released by the FinraInvestor Education Foundation Tuesday confirmed little progress has been made.
Amid 36 pages on everything from how 27,564 Americans felt about their personal financial condition, to whether they could come up with $2,000 in the next month for an unexpected bill, was the usual grim finding about literacy.
Only 37% could answer four out of five literacy questions correctly, the foundation said in its report, "Financial Capability in the United States 2016." That's down from 39% in 2012 and 42% in 2009, the two previous years that the study was conducted.
The sad news is that gobs of money and effort have been thrown at making Americans smarter about their finances since even before the study was launched seven years ago.
Many financial literacy efforts are funded by the financial services industry, which is loath to offer a comprehensive program that teaches vital skills that can prevent real financial catastrophe, like how to vet a stockbroker. Indeed, when Finra suggested the industry offer direct links to their brokers' BrokerCheck records, all hell broke loose, with securities firms blasting the proposal in mountains of fiery comment letters.
So last year, Finra backed off. Instead of a link that would have taken an investor right to John Smith's records, it wound up requiring only that a link be provided to the main page of BrokerCheck. Try figuring out which John Smith is your guy under a system like that.
This is not what happens in an industry that sincerely wishes to make its customers smarter about taking care of their money.
Sifma, the lobbying group for Wall Street firms, is a big promoter of a genre of financial literacy that poses no threat to its member firms. Its popular Stock Market Game, in which students compete to pick the best stocks in a virtual portfolio, gets deserved accolades for leading to higher math scores for kids who participate.
But one thing you won't see in the Stock Market Game, or in other industry efforts at literacy that I've come across, is a hard look at the ways investors can get duped. The researchers at Finra don't even include those issues in their questions to gauge literacy, opting instead for quizzes on things like the relationship between interest rates and bond prices. Investors can ace all those financial literacy questions but still get taken by a rogue broker. To really be financially literate, you need to master the skills of vetting the people you're considering to manage your money.
In fairness, I should note that Finra launched a helpful campaign of TV ads last year that alerted the public that they should use BrokerCheck.
But when it comes to Finra's brokerage firm members, don't hold your breath for tutorials on how to look up the records of regulatory sanctions and customer complaints. Or how to detect hidden fees in mutual funds. Or why you're probably better off buying an index fund from a low-cost fund company instead of putting money into a broker's house fund.
The bottom line is that financial companies don't belong in the financial education business. Better for the public are outfits like foolproofme.com, a free online curriculum that teaches high school and middle school students "to use skepticism and research before making any decision" that impacts their money or welfare, said Remar Sutton, pro bono chairman of the Foolproof Foundation.
Sutton said that about 9,000 schools use the program and that high school and middle school kids racked up 30 million page views of their site last year. With any luck, we'll see meaningful measurements of literacy go up as Foolproof's students move into the workforce.
The Finra Foundation results did show that people who had some financial education did slightly better in the literacy test that included six questions this year, getting 3.6 questions right on average. But those who never took a course got 3.1 questions right. Even if you think that's significant, the study's authors pointed out that there isn't necessarily a causal relationship because the difference could be explained by people's education, employment and other demographic factors.
It doesn't help that, even as some people in the survey flunked the literacy test, they patted themselves on the back for their savvy. Among those who gave themselves high scores on financial knowledge, three out of 10 were doing dumb things with their credit cards like paying late fees and using cards for cash advances.
Nor does it help that Republicans have relentlessly attacked one of the public's biggest financial advocates, the Consumer Financial Protection Bureau, seeking to take control of the agency's budget and replace its director with a commission akin to what the Securities and Exchange Commission has.
The CBPB drives banks and other consumer lenders nuts by posting the public's unadjudicated complaints on its website, giving the average guy a fighting chance at figuring out who's trustworthy and who isn't. Little wonder that friends of Wall Street in Congress do all they can to emasculate the CFPB.
While this is all totally depressing, there is some good news: Respondents in the Finra study, who were contacted between June and October of last year, were more sanguine about their personal finances than they'd been in previous studies.
Nearly a third said they were satisfied with their personal financial condition last year, up from 16% in 2009 and 24% in 2012. Another encouraging sign: When asked if they could cover an unexpected expense of $2,000 in the next month, 39% said they were sure they could, up from 35% in 2012.
But they're just not making progress on the literacy thing. Given who the teachers are, none of us should be surprised.