Financial Divide in Comprehension of Personal Finance Knowledge Among Different Ethnicities
In an effort to empower investors and aid informed financial decisions, the US Securities and Exchange Commission (SEC) proposed guidelines in 2020. These guidelines focus on improving financial literacy by enhancing disclosure practices and compliance programs of investment advisers, particularly regarding wrap fee programs. The aim is to ensure advisers meet fiduciary duties and fully inform clients about costs and risks, thereby protecting investor interests.
Financial literacy is a crucial skill that is acquired over time from various sources, including family, high school, and employer. However, studies show that minorities and women are more likely than others to lack the background needed to navigate an increasingly complex financial world. This financial literacy gap has a significant impact, influencing the racial wealth gap in the U.S.
Despite equal access to financial literacy education, the lack of financial literacy persists, and its impacts depreciate faster for minority groups than for the White population. To address this issue, the U.S. Financial Literacy and Education Commission has proposed changes, including establishing clear guidelines for financial educators, opening access to one-on-one financial counseling, and consistently measuring the results.
Resources for improving financial literacy are abundant. The Financial Industry Regulatory Authority (FINRA) offers online financial literacy tests, and the U.S. Treasury Department has developed a website, MyMoney.gov, to help children, teenagers, and young adults learn about money. The Native American Financial Services Association (NAFSA) also sponsors a digital literacy program.
Financial literacy is foundational for full participation in the market and vital to the foundations of economic opportunity at the individual level. People with high financial literacy scores are better equipped to navigate increasingly complex financial services, reducing the risk of falling behind. This is particularly important in retirement planning, a key component of household wealth.
The federal government funds many resources to improve financial literacy, including digital literacy programs targeted to communities most in need. As we strive to bridge the financial literacy gap, it is essential to ensure that all individuals have the tools and knowledge they need to make informed financial decisions and build a secure future.
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