OpEd: Why fund boards should discuss, promote financial literacy

March 26, 2024

By Linda Davis Taylor, Morningstar Funds Trust

April is Financial Literacy Month. At first blush, the connection between financial literacy and the work of independent mutual fund directors may not be evident. But the common element between the two is the investing public—specifically, those individuals whose financial welfare is impacted by their experiences as owners of mutual funds. When financial literacy is high and fund governance is effective, the two serve as dual and complementary protectors of shareholder interests. If one suffers, the effectiveness of the other is hampered. We as fund directors—and arguably among the most financially literate citizens—should be concerned with both.


The oversight duties that independent directors fulfill are carried out within the context of a highly structured regulatory environment designed to safeguard shareholder interests. Since the Investment Company Act of 1940 was passed, the extensive rules that have been issued by the Securities and Exchange Commission to regulate mutual funds have created a rigorous compliance culture to safeguard investor assets. The mutual fund industry has grown and evolved to provide considerable resources that aid directors in implementing sound governance practices. In short, formalized checks and balances exist designed to ensure that fund directors do their part to protect shareholder interests.


However, no matter how sound the oversight process is, shareholders’ interests are only really protected if they themselves are prepared to interpret and evaluate the information that we provide to them. This side of the coin—financial literacy—is much less prescriptive and difficult to measure. As Financial Literacy Month approaches, it seems appropriate for those involved with fund boards to understand the state of financial literacy in this country and consider what we can do to improve it.


[A]ccording to a 2020 Personal Finance Index survey ... only about 20% of U.S. adults demonstrated a relatively high level of financial literacy, and most participants only answered approximately half of the test questions.


Financial literacy is critically important in the United States because individuals are largely responsible for ensuring their own financial security. Recent surveys point to the disturbing conclusion that despite continued efforts by the U.S. government, non-profit organizations, and for-profit entities, financial literacy levels among the American population remain low. For example, according to a 2020 Personal Finance Index survey developed by the TIAA Institute and the Global Financial Literacy Excellence Center, only about 20% of U.S. adults demonstrated a relatively high level of financial literacy, and most participants only answered approximately half of the test questions.[1]


Reforms focused on financial literacy were enacted over a decade ago as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which tasked the Consumer Financial Protection Board (CFPB) with financial education as part of its mission. Recent studies point to the need for more progress. In its 2022 annual report, the CFBP cites the Milken Institute’s research findings that despite an increased appetite for financial education among consumers and more widespread efforts by CFPB to provide resources, many people remain ill-prepared to engage in sound financial decision-making, and that financial literacy levels vary significantly across demographic groups.[2] If recent trends continue as our population becomes more diverse, wealth gaps will only widen. Failing any agreement or national standard for how to teach these critical skills, people must educate themselves.


How Can I Help?

It seems fair to say that financial education in the United States is largely still left to chance. Among high school students, only 18% are required to take at least a one-semester course in personal finance.[3] As financial markets and investment products become more complex, the ability to accurately interpret information becomes more vital than ever. Indications are that younger generations do not feel confident about their financial futures. According to a recent survey by the TIAA Institute, fewer than half of Americans ages 22 to 34 believe that they will be able to rely on Social Security to fund their retirement. Rather, they plan to rely more on their 401(k)s and other retirement accounts.[4] This trend brings us right back to the importance of successful investing and the role of the mutual fund industry.


Given how financial literacy impacts current and future investors, it is time for the mutual fund industry to identify more ways to promote financial literacy. Narrowing the wealth gap in this country is a shared responsibility that requires not only good investment products and services but also improved access to financial education that prepares citizens to make sound financial decisions.


Here are a few thoughts on where to start:


  • I applaud the SEC’s recent efforts to make it easier for shareholders to assess and monitor their investments by making shareholder reports more concise, visually engaging, and accessible electronically. However, the new reports actually diminish one avenue for shareholder education by reducing the access to information about mutual fund boards, the specific entity that exists to protect their interests. Shareholders should be made more aware, not less, about the governance processes in place to oversee their investments.
  • Financial firms, educational institutions, and other organizations should share examples of the programs they have already established and choose the most effective for further investment and expansion. For example, the Investment Company Institute’s Education Foundation, a non-profit formed in 1989 to advance the financial well-being of individuals, provides numerous resources and partnerships. The Global Financial Literacy Excellence Center was launched in 2011 to advance financial literacy research and solutions. How are those working, and how can fund boards help?
  • When educational information about financial products and services is available to investors, redouble efforts to increase awareness of those programs and ensure that feedback is sought regarding the effectiveness of various tools, from shareholder reports to websites to digital tools. Should fund boards urge advisers and vendors to do more?
  • On local levels, there should be more outreach from financial institutions to schools, colleges, and community organizations to identify ways to collaborate on financial education programs. 
  • On a national level, policymakers should pass legislation requiring all high school students to complete at least a one-semester course in financial education. The mutual fund industry should advocate for such reforms.


The Morningstar Funds Trust board adopted Education as one of its core principles, which states: “As part of our belief in the importance of financial literacy, we believe that it is our responsibility to help ensure that shareholders are provided with appropriate information to evaluate their investments.” While we remain committed to this principle, we struggle to determine how to bring it to life in our ongoing work. We invite our fellow board members and industry colleagues to recognize Financial Literacy Month by discussing the topic at upcoming board meetings and share ideas. Our shareholders deserve our best thinking on this important endeavor.

Linda Davis Taylor is chair of the Governance Committee of the Morningstar Funds Trust board and is the creator and host of Money Stories with LDT, a podcast focusing on the intersection of money, well-being, and community impact. She previously served as chair and CEO of Clifford Swan Investment Counselors and is the author of The Business of Family: How to Stay Rich for Generations. Taylor has decades of experience in senior leadership positions in college admissions and philanthropy at Emory University, Claremont McKenna College, Amherst College, and Scripps College; is a member of San Pasqual Fiduciary Trust Co. board of directors; and is a member of the board of governors of the Huntington Library, Art Museum, and Botanical Gardens.

[1] TIAA Institute-GFLEC, 2020-P-Fin-Index, April 2020

[2] Financial Literacy in the United States, Oscar Contreras and Joseph Bendix, 2021, Milken Institute

[3] 2019-2020 Financial Education Report (Next Gen Personal Finance, 2020)

[4] Many Younger Americans Don’t See A Path to Retirement, Suzanne Woolley, 2024, Financial Advisor



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