In much legal and financial writing, financial literacy is like a wonder drug that will cure financial fraud.
But is it the cure? Kendall Grant penned a paper in a recent issue of the Banking and Finance Law Review titled “From Investor Education to Investor Protection: The Limits of Disclosure and the Way Forward”.
The author surveys much of the theories, realities and writings on the benefits and costs of financial literacy. Though this Canadian law journal article reads like a bloated editorial, the piece is an excellent compilation of the pros and cons of trying to educate people to be personally responsible and marginally numerate.
From the paper:
Beyond investors’ psychological predispositions, disclosure is also not well-suited to increasingly complex financial environments that change almost daily. While the [Canadian] initiatives are well-intentioned and potentially fruitful, they must, at a minimum, be combined with two other strategies, namely greater regulatory enforcement and responsiveness and a renewed policy commitment to addressing the root causes of investor vulnerability. Full investor protection may persist as an unattainable goal, but a more comprehensive strategy as outlined in this article will bring us closer to the bulls-eye.
