Regulation or education?

Posted by on April 11, 2008 in Misc.

In light of subprime and ABCP fall-out, there’s a lot of talk about adding or clarifying regulation for the financial industry from the biggest banks to the littlest investment advisor. More power, new rules, added compliance. But more investor education? Sorry, this is not the government’s mandate; the government would rather add to the bureaucracy than empower the average Joe and Mary investor from the next financial scandal.

For example, the Securities and Exchange Commission (SEC) regulates all things related to securities in the U.S.- from anything from trading stock, to who can sell it to, to what public companies have to report- and, arguably, the most powerful securities regulator in the world. How much of its budget is spent on investor education?


This statistic was from 1995- I can’t even find a more recent stat, such is the low profile of investor education. I do not believe things have changed. I did a quick calculation on SEC’s 2008 budget and between staff salaries, compliance and corporate finance (they oversee the financial aspects of public companies), over 90% of the budget was spent.

These are all important items to spend money on, and, without question, important priorities, but in an age of increasing government deregulation and outsourcing, it seems counter-intuitive not to equip the investor with the proper tools to assess all the sophisticated products offered and the slick pitches crafted. The protective umbrella of government is shrinking (for better or worse)- why not give its citizens the knowledge to build its own shelter from stormy weather?

The issue with adding more “securities cops” is it doesn’t address the fundamental issue: the average person is woefully uneducated on all things money. We seem to be treating the symptoms and not the root cause of the problem. More education rather than heavy-handed regulation would do us all well.

That’s my Friday rant. Comments always appreciated. Have a great weekend.

3 Comments on Regulation or education?

By Nancy (aka money coach) on April 15, 2008 at 1:22 am

education about money? that would put me out of business! unless I landed the contract, of course! :)
Seriously – I don’t get why there isn’t some funding available for basic financial literacy. Shall we start a lobby group?

By admin on April 15, 2008 at 8:29 pm

Haha Nancy. The Ontario Securities Commission does fund an investor education site but I suspect its budget is tiny compared to the overall budget.

By Thicken My Wallet » Blog Archive » Top personal finance stories for 2008 (so far) on July 3, 2008 at 5:01 am

[...] earlier this year that the Securities and Exchange Commission (the U.S. securities regulators) spent less than 0.5% of its budget on investor education. The rest was spent on important matters-regulation, policy-making, enforcement- but not budgetary [...]

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