Context
Long-term investing in financial markets, under sound investor protection frameworks, can provide individuals with opportunities to strengthen their financial well-being. However, low financial literacy levels, the negative effects of the financial crisis on trust as well as behavioural biases can reduce or prevent individual participation in financial markets. This can pose challenges for policy makers wishing to support the long-term financial well-being of their citizens. Recognising this, the OECD set up an Expert Working Group on Long-term Savings and Investments in 2012 to work on financial education for retirement, financial education for long-term savings and financial education for long-term investments. This study results from a work stream on long-term investing, conducted in close co-operation with the International Organisation of Securities Commissions (IOSCO).
The study
This paper provides an analysis of the role of financial education policies in supporting and encouraging long-term savings and investment, particularly regarding investor education. It also offers a high-level international policy framework to support governments in their investor education initiatives, aimed at both existing and potential investors, in advanced as well as emerging economies.
As a complement to financial consumer protection and investor protection regulation, investor education initiatives can support informed and beneficial participation of consumers in retail capital markets. Such participation can contribute to supporting individual financial well-being, while also achieving broader public policy objectives.
This study develops a framework that aims to remove the potential barriers that can prevent potential investors from participating in financial markets and potentially achieving financial well-being while also seeking behavioural change, by addressing inappropriate risk-taking or excessive risk aversion.
Key findings
- The study develops a framework for investment which aims to allow for innovation in the ways individuals can invest, but also receive advice, information and instruction. It seeks to take into account the risk and complexity of investment and its long-term nature, and the diversity of national circumstances, as well as diversity among potential and existing investors.
- The study recommends that investor education be seen as a crucial component of financial education for those who invest or who could have the financial capacity to invest in capital markets.
- This process should concentrate on removing potential barriers that can prevent potential investors from participating in financial markets and achieving financial well-being through long-term planning and investment. It should also seek behavioural change, whether for example to counter excessive risk aversion or inappropriate risk-taking.
- It recommends that such education, in order to be effective and achieve behavioural change in the population, should be implemented within an enabling framework, such as a national strategy for financial education that defines the role of public authorities and of the private and not- for-profit sector.
- Public authorities should consider co-operation with the industry and its self-regulatory bodies - such as financial providers and investment advice professionals - in the design and support of such investor education policies.
- The delivery of investor education should address both prospective and existing investors, and focus in particular on the groups that are most in need of it. The content of such initiatives should cover the whole process of investing for the long-term, from goal setting to product choice, and benefit from the development of core competencies frameworks at the international level.
- The provision of investor education should take into account that there are specific target groups that might be facing higher risks when participating in capital markets. Investor education policies and programmes should be addressed at those already investing for the long-term, and at those that are not yet investing, and in particular the recently ‘financially included’.
- Governments and market authorities should make available to existing and potential investors clear, objective and up-to-date information on long-term investing and investment products. This information should be prepared keeping in mind the characteristics of consumers within their jurisdictions and be consistent with the disclosure materials of the most common long-term investment products available to consumers, whether in the domestic or international markets.
- Monitoring and evaluating the implementation of investor education policies is required from an accountability perspective, to ensure that funds are spent efficiently, and to allow policy makers to better understand the appropriate policy mix needed to support consumers.
Points to consider:
Methodological strengths and limitations:
- The study is written by authors from the OECD. While a respected source, it should be viewed in conjunction with other studies and the views of other organisations and stakeholders in this sector.
- The study offers a broad view of what core components should be prioritised in the development of investor education.
Relevance:
- The study is relevant to those interested in investor education targeting both existing and potential investors.
Generalisability/ transferability:
- The study is transferable since it looks at the broad international context of investor education. It does however lack specificity to particular contexts.
