Investor education is a term used to describe programs and information to help individuals make informed investment decisions. Much of this information is designed to help investors better understand:
Investor education is available from a number of organizations and associations, such as government (through its agencies such as securities regulators), self-regulatory organizations, non-profit groups, companies and individuals.
With increasingly complicated financial products available to investors and electronic financial transactions becoming the norm, people need to learn how to make wise financial decisions. Educating investors about financial products, capital markets and common types of investment fraud can contribute to the economy and benefit society as a whole.
Well-educated investors can drive innovation and competition in the capital markets, demanding new products and services that suit their needs or expectations. Educated investors are also better equipped to recognize investment fraud and protect themselves against it. Finally, investors who are able to invest wisely and protect their savings will create less stress on a country’s social safety net in their non-working, retirement years.
In 2006,Canadian securities regulators commissioned two national investor surveys to gauge people’s knowledge and experience with investments and fraud. The results from both studies demonstrated there is a need better to educate and inform investors about capital markets and investment fraud. Education in this area is particularly important as investors take on more risk and responsibility of managing their retirement savings, and a large baby boomer population enters the retirement years across North America.
In 2005, The British Columbia Securities Commission (BCSC) funded the Eron Mortgage Study . It was the first systematic study of a single investment fraud, focusing on more than 2,200 Eron Mortgage investors. Among other things, the report identified that investors approaching retirement without adequate resources and affluent middle-aged men were vulnerable to investment fraud. The report suggests investor education will become even more important as the baby boomer generation enters retirement.
Other regulators and self-regulatory organizations in the U.S., U.K. and Australia have also funded investor education studies. The Organization for Economic Co-operation and Development (OECD) says there is much to do and learn about financial education programs. In a 2005 report, it called for increased awareness to emphasize the need for financial literacy among all age groups and income levels.
Investor education programs often categorized such information into the “3 Knows” an investor should understand in order to make an informed investment decision. They are: