Financial Literacy Impacts Financial Decision Making Essay

Financial Literacy Impacts Financial Decision Making Essay

Length: 1397 words (4 double-spaced pages)

Rating: Powerful Essays

Open Document

Essay Preview

Ethical standards in the financial services industry were severely tested in light of news of outright fraud, Ponzi schemes, lack of regulatory oversight, and the likes in recent times. These gross violations, although shocking, are not a novelty especially when it comes to the money management business. But the sheer size, frequency and egregiousness of these recent scams and scandals highlight the lack of basic ethical standards in the industry with total disregard of their customer’s interests. A study by the National Bureau of Economic Research found that many investment managers facilitate and support harmful behavior because it’s in their best interest to do so. With commissions being their sole motivation, the “advisors” or brokers to be more precise, encourage bad investing behavior like frequent trading and choosing more expensive funds that provide kickbacks to the investment manager. And then you have this entire army of insurance agents masquerading as investment advisors, routinely promoting and selling financial products to unsuspecting consumers that harm not only the people they are selling the products to but the integrity of the entire financial services sector, with severe long-term implications of capital accessibility for the entire economy. A Registered Investment Advisor (RIA), on the other hand, is required to act as a fiduciary under the Securities Act of the 1940. The fiduciary standard requires an RIA to put the interest of the clients he or she serves above their own and to declare any conflicts of interests that may arise. Brokers and other money managers can hide behind a very loosy-goosy suitability standard and are required to only recommend investments that are “suitable” to their clie...

... middle of paper ...

...equally strong enforcement of them are required. People managing money should be required to be a fiduciary, regardless of whether they are mutual fund managers or insurance agents or brokers, just like what RIAs are required to do. This simple move where investment managers are personally held liable for any obvious violations will minimize the frequency of ethical lapses.
And finally, education and training is the key, both for the consumers of financial products and the people serving them. Financial literacy impacts financial decision-making. Consumers, at the minimum, should educate themselves about basic financial concepts to enable them to differentiate between what is right and wrong. Asking the right questions about fiduciary responsibilities, fees charged and products recommended would go a long way in minimizing the potential of being taken advantage of.

Need Writing Help?

Get feedback on grammar, clarity, concision and logic instantly.

Check your paper »

Essay about The Importance of Financial Literacy

- THE IMPORTANCE OF FINANCIAL LITERACY   Making improvements on our financial literacy results in a wave of impacts on our economy and the financial health in our society because of responisble behiavior with our finances. These modifications to our behavior are neccesary because it let's us address primary cultural problems, for example over-credits on your purchases, mortgages possibly resulting in debt, dealing with expectations on inflation and also planning on your retirement.   Statistics suggest about 32% of consumers are going to over estimate the rating on their credit, while only around 4% are going to under estimate the rating on their credit....   [tags: financial crisis, society, behavior]

Free Essays
631 words (1.8 pages)

Essay on Financial Statements And Financial Statement

- Every Number Tells a Story Financial statements can provide a wealth of information about a given organization. These statements provide information about the company’s financial position, cash flows, operations, performance and changes in the financial position. This information may be used as part of the decision making process for employees, shareholders, investors and competitors. Based upon these financial statements, key ratios are used to provide additional insight as to the financial health of a given company....   [tags: Income statement, Financial statements, Cash flow]

Powerful Essays
880 words (2.5 pages)

Literacy, Remediation, And Assessment Within The Us Higher Educational System

- In the chapter Developmental Education, the authors Cohen, Brawer, and Kisker (2014) explore literacy, remediation, and assessment within in the US higher educational system. I found the statistics shocking that showed those students from low income household scored an average of about 100 points lower then their peers with incomes greater then 100,000 (2014, p. 239). I was aware that there was a difference but I don’t think I realized just how much so. In addition, the discussion about the decline in literacy stood out to me....   [tags: Education, Higher education, College]

Powerful Essays
821 words (2.3 pages)

Overview of Financial Affairs of Local Government of Multan Essay

- Abstract Public finance deals with the financial management of public entities. This paper provides an overview of the financial affairs of local government of district Multan and identifies issues faced by the systems to deliver efficiently and effectively. It also highlights areas or improvement and opportunities to fund these activities. The district government heavily relies on the provincial grants and has very limited self generated revenue. Although it is responsible to manage various institutions of social services and carry out developmental activities in the district, its reliance on provincial grants make its effort less effective....   [tags: International Finance ]

Powerful Essays
772 words (2.2 pages)

Evaluating The Decision Making Process Essay

- Hitting roadblocks and problems while attempting to accomplish a task or while conducting business is a fact of life. Managers and leaders have numerous responsibilities and decisions that they face each day during the normal course of business. Some of these decisions are small, such as delegating a task to an appropriate subordinate. Other decisions are large, such as formulating a strategy that can affect the lives of thousands of employees within the organization and companies up and down the supply chain....   [tags: Decision making, Decision theory]

Powerful Essays
1068 words (3.1 pages)

Essay about Decision Making As A Decision

- Decision making is something every manager has to deal with in the workplace. It is one of the main components of their job and they need to possess the knowledge to make effective decisions for the organization. Dessler (2012) defines decision making as “the process of developing and analyzing alternatives and making a choice (Dessler, 2012). In the process of making decisions, the manager must be aware of the impact the decision will have on the organization and the employees. Yukl (1990) states that “before making a decision, a manager must determine whether to involve other people in the decision process” (Yukl 1990)....   [tags: Decision making, Decision theory]

Powerful Essays
843 words (2.4 pages)

Decision Making Process For Making Decisions Essay

- It does not matter what company you work for or what career path you choose you have to have a standard way of making decisions. Decision making can be identified as the thought process which results in the selection of a course of action among numerous alternative scenarios (Pennino, 2002). Each decision making process generates a final choice that may or may not bring about action. For that reason, decision making process is the majority critical process in any organization. Decision making is one of the most important activities of management and is an enormous part of any process of implementation....   [tags: Decision making, Cognition]

Powerful Essays
709 words (2 pages)

Essay on Decision Making For Managerial Accountants

- Decision Making for Managerial Accountants Managers are required to solve problems in their organization by making decisions every day and sometimes their decisions may not have much of an influence in the organization. However, those decisions could impact lives of many people in positive or negative ways. Therefore, decision making in an organization must be systematic and strategic. Specifically, when it comes to management accountants, “they focus on forecasting and decision making” by using financial information to help in their decisions to make sure the business moves forward” (Business case studies, 2016)....   [tags: Decision making, Decision theory, Risk]

Powerful Essays
1359 words (3.9 pages)

Essay on The Standard 6 : Decision Making

- Standard 6: Decision Making. Decision-making is skills will be taken under any circumstances. The leader should research and analysis of the problem scientific analysis to facilitate decision-making and find suitable alternatives and most effective way to solve the problem. Studying mathematics gives me a good way of effective decision make and problem solve. In mathematics I usually follow steps and strategies before I make decision for the best answer. First, I refine the problem, to make sure I understand exactly what I need to accomplish, then gather as much information about it as I can....   [tags: Management, Leadership, Decision making]

Powerful Essays
1653 words (4.7 pages)

Essay on Decision Making

- Decision making can be described as a process of making a decision or decisions, based on choices made amongst two or more competing course of actions. The ‘Decision making’ also requires making a define choice between two or more alternatives course of actions that are available. In every decision making, there is said to be a positive and negative outcome as future consequence(s). The importance of decision making in individual daily life and in organization level was demonstrated by two scientists, Arkes and Hammond (1992), in ‘Judgment and Decision making’ indentified the four types of information which decision maker requires constructing a decision tree....   [tags: Decision Making]

Powerful Essays
3072 words (8.8 pages)